Youth Employment Decline As a Cause of Long-Run Growth in Social and Economic Inequality: A Comparative Analysis of Labor Demand and Skill Matching in Europe

Saturday, 4 July 2015: 10:15 AM-11:45 AM
TW2.3.02 (Tower Two)
Michael Tahlin, SOFI, Stockholm University, Stockholm, Sweden
Youth employment has fallen in many countries in recent decades, especially among the low-educated. An important potential consequence is a rise in long-run social and economic inequality: as labor markets get increasingly difficult to enter, life-time income and health trajectories are under risk of diverging along class-related lines. This paper attempts to account for the secular decline in youth employment and to assess how the explanatory factors involved are linked to cross-country differences in educational systems and labor market institutions.
         The deterioration of young people’s labor market opportunities is likely to have several interrelated causes, connected in a process of cyclical and structural shifts in labor supply and demand. First, young people tend to be hit harder than others in cyclical downturns, via both falling recruitment (most labor market entrants are young) and rising lay-offs (most short-tenure employees and many workers in low-skill jobs are young). Second, cyclical downturns might have a detrimental long-term impact on the structure of labor demand, widening the gap in employment chances between core and marginal workers. Third, technological change and institutional development modify job structures over time. Over recent decades, the number of high-skill jobs has increased in all advanced industrial countries, while the number of low-skill jobs has decreased, remained stable or increased less. The main net outcome has been upgrading, but also to some extent polarization. These tendencies are amplified in economic downturns, via falling shares of manufacturing and low-skill jobs. Fourth, the rise in the high-skill job share has been a markedly slower process than educational expansion. The uneven development of skill demand and supply pushes rates of over-education upward: increasing numbers of highly educated individuals occupy low-skill jobs. As a consequence, young and other marginal workers face diminishing prospects of stable employment.
      In sum, economic, institutional and technological developments have interacted with individual behavior in producing structural change that has tended to marginalize youth and other groups populating the borderland of labor markets. The empirical validity of this multi-causal account is assessed by a comparative analysis of data from 14 countries in the European labor force surveys, covering a period of up to half a century: 1963-2013. Findings indicate that cyclical and structural shifts in labor supply and demand, both general and skill-specific, have indeed resulted in rising job scarcity for young (and other marginal) workers. However, the extent and impact of these changes differ markedly across countries, with a pattern of cross-national variation linked to key features of educational systems and labor market institutions. The paper concludes by sketching a set of policy implications.