Youth Transition Trajectories Across Europe: The Role of Institutional Background

Standard measures of youth labour market performance are not appropriate to account for the dynamics of labour market entry. A valid alternative consists in studying school-to-work transitions, which is a long and lasting process with changes in employment status (between education, employment, unemployment and inactivity). This approach is relatively new in the analysis of youth labour market performance. Three studies (Brzinsky-Fay, 2007; Quintini and Manfredi, 2009; and Erhel et al., 2014) use the optimal matching technique to group young individuals according to differences in their transition trajectories. Brzinsky-Fay (2007) and Quintini and Manfredi (2009), using ECHP data, and Erhel et al. (2014), using EU-SILC panel data, present similar evidence, emphasising cross-country differences. They argue that a successful transition trajectory is favoured either in low-regulated labour markets, as in the UK, or in highly regulated labour markets but compensated by strong apprenticeship systems, as in Germany and Austria. On the contrary, highly segmented labour markets, typical of the Mediterranean countries, show the largest shares of at-risk youth due to the great use of atypical contracts.

The studies that use the optimal matching to analyse youth transition trajectories present a main weakness related to the impossibility of taking into account the direction of sequences over time and the order of states across sequences (Wu, 2000). Indeed, no study considers that in analysing the labour market entry, more importance should be attributed to the final states compared to initial ones. Moreover, no study attempts to identify the determinants of youth transition trajectories and  to evaluate the role of the institutional background in terms of education-training systems, flexicurity regimes and labour market policies. The main aim of this paper is to fill these gaps. In details, we offer three main contributions to the literature on youth labour market performance. First, we identify the different types of individual trajectories, addressing the order and timing in sequences appropriately, using data on monthly status sequences. Second, we conduct an empirical analysis to identify which are the determinants of youth transition trajectories and we test the heterogeneity of such trajectories across EU-countries. We intend to highlight how much of the observed differences in such trajectories can be explained by dissimilarities in public policy, with respect to education-training systems, flexicurity regimes and labour market policies. Finally, we investigate how changes in macro-economic circumstances, as a result of the recent economic downturn, affected youth transition trajectories over time.

Socio-economic research on flexicurity is rather recent and mainly focused on the trade-off between employment protection legislation (EPL) and unemployment insurance (UI) in a macroeconomic prospective (Pissarides, 2001; Postel-Vinay and Saint Martin, 2005; Boeri et al,. 2012) and on the effects of flexicurity on perceived job security (Clark and Postel-Vinay 2009). More direct evidence on the flexicurity mix at the individual level on job satisfaction has been provided by Origo and Pagani (2009 and 2012), who show that what matters for job satisfaction is mainly perceived job security, which may be independent of contract type. The most recent studies have looked at the macroeconomic resilience of the Danish flexicurity model during the economic crisis. Jørgensen (2011) has shown that, because of high unemployment benefits and relatively high social assistance benefits, domestic demand was more stable in Denmark than in other EU countries and the negative effects on income and unemployment were therefore significantly mitigated. But these positive results came at the expense of a rising public deficit, which led the Danish government to implement a fiscal recovery plan with a less generous unemployment benefit system (Madsen, 2013). This resulted in a significant reduction in workers’ job and employment security, as compared to the Netherlands, the other “flexicurity country” (Mazzolini and Origo, 2014). In this paper we intend to investigate an unexplored topic, that is the relevance of policies inspired by flexicurity principles in favouring positive youth transition trajectories either before or during the recent economic crisis.

The empirical analysis is conducted using the EU-SILC panel data from years 2006 to 2011. In particular, we restrict the analysis to individuals that were interviewed for at least three consecutive years to identify youth transition trajectories using information on employment status for 36 consecutive months. In order to explain the role of institutional background in determining such trajectories, we include in the empirical model both country fixed effects and information on flexicurity regimes, provided by Eurostat (expenditure on labour market policies) and OECD (EPL index).

Exploiting the monthly information on employment status and accounting for the typologies of youth transition trajectory identified in the literature, we group individuals in 17 clusters. Four clusters include individuals with trajectories characterized by the same employment status for almost the entire period (30 over 36 months). Three clusters group individuals with successful trajectories, starting their career in a non-employed status and finishing in employment. Another six clusters identify at-risk individuals, whose transition trajectories result in unemployment, inactivity or return to education. Three clusters map indefinite trajectory, characterized by continuous in and out of one or more employment status. Finally, we define a residual group which includes individuals without a clear transition pattern. Preliminary results confirm the heterogeneity of youth transition trajectories across EU-countries and illustrate how the institutional setting plays a significant role in determining youth transition trajectories. Moreover, we show that the recent economic downturn has significantly affected the youth labour market performance, resulting in a higher frequency of unsuccessful and risky trajectories, but in different ways across European countries.