Abstract
This paper looks at the effects of the ‘Great Recession’ on young people's labour market experiences in the European Union. The paper documents some of the key characteristics of young people's labour market experiences during the current recession and then seeks to provide some explanations of these applying both cross-section and time-series rolling regression models in order, in particular, to better understand the role of labour market institutions as a determining factor of differing experiences across countries. The analysis finds that labour market flexibility contributed significantly to the negative consequences felt by young people during the recession.
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Notes
See, for example, European Commission (2009), and Verick (2009).
See, for example, O’Higgins (1997, 2001) on the relationship between youth and adult unemployment rates. On the extent to which young people were affected by the current recession see also, European Commission (2010), which contains a rather more articulated discussion of the effects of the recession on different groups than was contained in the previous year's publication. The report notes inter alia that, splitting the labour force into 10-year age-groups, the largest slice of the increase in unemployment between 2008 and 2010, 30%, was accounted for by increased unemployment among 25–34 year olds, nearly one quarter (23.5%) by 35–44-year olds and only 18% was accounted for by increased unemployment among young people – the same proportion accounted for by older adults (aged 45–54). So that only those aged 55 and above contributed less than young people to the increase in unemployment.
The cited paper provides perhaps the strongest case for duration dependence, looking at the effects of early unemployment on career prospects some 10–15 years later, controlling for observed heterogeneity.
Gregg and Tominey (2005) identify a scarring effect on wages more than 20 years after unemployment episodes experienced during youth.
However, this effect may of course be attenuated by the introduction of Active Labour Market Policies (ALMP) targeting the long-term unemployed.
Unfortunately data are not available on the incidence of long-term unemployment over this period for any of the Baltic countries, all three of whom were also very hard hit by the recession. As yet, young people in Greece do not seem to have been so severely affected, however, since the recession started to bite rather later in that country, it is predictable that the incidence will rise here too in the near future.
See, for example, O’Higgins (2010) for a more detailed discussion of the ALMP – and their efficacy – introduced during the current recession.
This was the case in Italy, for example – for both younger and older workers – although of course the phenomenon was much more pronounced among the young (O’Higgins, 2011). For the working population as a whole, the incidence of temporary employment remained constant over the period at 14.4%.
Early examples here are Clark and Summers (1982) on the USA and Rice (1986) on the UK.
With the exception of the OECD's EPL index and the dual apprenticeship dummy, all the variables, explanatory and dependent, are derived from the Eurostat database (http://epp.eurostat.ec.europa.eu/). The OECD index is available form the OECD's website (www.oecd.org).
Obviously, being a cross-section regression, a full set of country fixed effects would not be identified.
Indeed, much of the aforementioned Bassanini and Duval (2006) paper is taken up with a consideration of such interactions. For a recent treatment, see also, Sachs (2011).
The employment rate is preferred to the unemployment rate, since it is more indicative of demand side changes in the youth labour market. For a discussion of this issue in this context, see, for example, O’Higgins (2010).
This of course ignores what was going on with older workers. Many of the countries have been, and many still are, undergoing reform of their pension systems, which has often created countercyclical movements in employment rates among older workers (see, for example, O’Higgins, 2010). For this reason, they are excluded here.
Specifically, it reports the mean value of the youth-adult employment elasticity beta coefficient for the last four rolling regressions.
Version 1 is used because of the use of time-series observations on this index.
Both Italy and Spain are also characterised by the so-called ‘Mediterranean Labour Market Model’, which has to do with the role of family, as opposed to the State, as the guarantor of the income of family members other than the principal (usually male) breadwinner. This has a number of implications that go beyond the scope of the current paper, but include the greater difficulty of young Mediterraneans in accessing full-time permanent jobs. See, for example, O’Higgins (2008) for further discussion of some of behavioural implications of this in Italy, or OECD (2007) for an analysis of the situation in Spain.
See, for example, IMF (2010). I have argued elsewhere that the evidence presented in support of this argument is, to say the least, rather weak (O’Higgins, 2010). A number of papers have looked at the direct effects of temporary employment at the individual level. See, for example, the collection of papers in the symposium in the Economic Journal, Vol. 112, no. 480, 2002. Of the four substantive papers in the collection, three find negative effects of temporary employment (Blanchard and Landier, 2002; Booth et al., 2002 and Dolado et al., 2002) with only one (Holmlund and Storrie, 2002) suggesting a (partially) positive role. Although, the general picture has not changed subsequently, some analyses have found a positive role for temporary employment as a stepping-stone to permanent employment. For example, in their review of the literature, Zijl and Van Leeuwan (2005) report positive ‘stepping-stone’ effect for temporary jobs in Germany, the Netherlands and Italy, but not for Spain. Zijl et al. (2011), analysing the situation in the Netherlands in more detail, find that although temporary jobs do shorten unemployment durations, they do not lead to an increase in the likelihood of being in regular employment subsequently. In Italy, several studies (for example, Ichino et al., 2005, 2008 and Barbieri and Sestito, 2008) have found a weak positive effect of temporary employment on the chances of finding permanent employment, although Gagliarducci (2005) finds that the intermittence of work experience associated with temporary work tends to impede the transition to permanent employment and Berton et al. (2008) while noting that the probability of the transition to permanent employment is higher from temporary employment than unemployment, they also observe that the existence of strong state dependence or persistence in temporary employment; particularly, for young people, there is a tendency towards ‘permanent precariousness’ with new labour market entrants becoming trapped in repeated short-term contracts.
See, among many others, O’Higgins (op.cit.).
To be precise, the estimated elasticity of youth employment to GDP produced by the rolling regressions is negative in the UK for the regressions with end periods between 2003Q2 and 2009Q1 inclusive.
On the basis of the moving average of real GDP employed in the regression analysis reported in Table 2.
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Acknowledgements
I thank participants at conferences in Helsinki, Perugia and Vienna as well as Joe Brada and Marcello Signorelli for their useful comments on previous drafts.
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O'Higgins, N. This Time It's Different? Youth Labour Markets during ‘The Great Recession’. Comp Econ Stud 54, 395–412 (2012). https://doi.org/10.1057/ces.2012.15
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DOI: https://doi.org/10.1057/ces.2012.15
Keywords
- recession
- youth labour markets
- human capital
- EPL
JEL Classifications
- I28
- J13
- J23
- J24