Young people within and without the labour market during the Great Recession

Young people have undoubtedly been hit hard by the ongoing recession in Europe albeit with much cross-country variation. This paper builds on some previous work in the area, using a simple Okun Law inspired framework attempting in order to gain some insight on the role of institutions in shaping young people’s experiences in the region during what has now been dubbed the ‘Great Recession’, but which might better be known as the Second Great Depression.

The paper opens with an overview of the main changes in young people’s labour market outcomes which have occurred since 2007. After a brief summary of findings on the role of Labour market institutions in youth labour markets, an empirical analysis of the latest regression is undertaken. The analysis is based around the estimation of ‘Okun law’ type relations between variations in GDP and a series of labour market indicators. The main purpose of the analysis is to look at differences in the relationship between GDP and labour market outcomes across countries with differing institutional set-ups. The analysis also considers the change in these relationships over time and how this is related to labour market institutions. The paper may be seen as a follow-up piece to the cross-section and rolling regression analysis presented in O’Higgins (2012). Indeed the results are both consistent, and complementary, to the analysis presented there. There is clear evidence of significant differences in the response of youth labour markets to variations in GDP across institutional regimes. Moreover, the analysis confirms the  basic finding of O’Higgins (2012) that young people benefitted significantly from stronger employment protection, at least in the Education-based systems of continental Europe, however, in Mediterranean countries characterized by very low flexibility on all the dimensions considered in the paper, young people suffered more than in other countries both in terms of the overall reactivity of youth employment to aggregate demand, but also in terms of the substitution of full time permanent employment with temporary and/or part-time employment forms.