Employment transitions over the business cycle

1. Employment transitions over the business cycle Mark Taylor (ISER) taylm@essex.ac.uk

2. Background • Well documented that business cycle affects younger people more than older workers • Emp rates fall & unemp rates rise by more than for older workers; • Large numbers of young people enter labour market at the same time. • Young people lack labour market experience, job-related skills; • Affected by last-in first-out policies that some firms effectively operate; • Are differences across age groups in headline employment & unemployment rates driven by inflow or outflow rates? • How do relationships between employment flows & age change as economy goes from bust to boom & back? • How do the effects of recent Great Recession differ from those of recession of early 1990s?

3. Our contribution: • Describe relationship between employment flows and age in Britain and how changes with the economic cycle; • Focus on 16-69 year olds • Draw on newly released data from Understanding Society (2009-2010) in combination with BHPS (1991-2008); • Cover full turn of British economic cycle: • Recession of early 1990s, subsequent recovery and boom through to mid-2000s and the Great Recession starting 2007 (two busts and a boom)

4. BUT systematic differences by age in sensitivity of employment flows to economic cycle: • Young people vulnerable as not accumulated experience/training and have option of remaining in/returning to education (which counts as NE); • Older workers also vulnerable as skills may be viewed as outdated and less time to recoup investments in training before retirement • Incentive for retired individuals to return to work to replace recession-related decreases in pension/asset income.

5. Data • BHPS 1991-2008 • Understanding Society 2009-2010 (wave 1-years 1 & 2; wave 2-year 1) • Largely comparable datasets although key differences: • BHPS representative of British hh population in 1991, Understanding Society representative of UK hh population in 2009/10 • Definitions of variables – e.g. education, housing tenure, ethnicity, health • Examine employment transitions between two consecutive survey years (NB: no panel data covering 2008-2009, BHPS W18; Understanding Society W1).

6. Employment and age: Men

7. Employment and age: Women

8. Patterns: • No simple vertical shifts up and down over economic cycle. • Some vertical movement but also rotation • Substantial fall in employment rates among young people during recent recession. • Higher employment rates among older workers during recent recession, not evident during 1990s recession • Evidence of vertical shifts in employment in recessions among mid-aged men, particularly for recent recession

9. Employment over time: Men

10. Employment over time: Women

11. Patterns • Employment rates rose among older men and women, but fell in 2009. • Rates of employment among young men and women fell from 2000 – reflects increase in post-compulsory schooling as well as recent recession. • In general, rates of employment took several years to rise after early-90s recession. • Recent recession associated with lower employment rates than 90s recession, and young people been particularly hard hit.

12. Employment inflows over time

13. Employment outflows over time

14. Patterns: • Inflow rates into employment highest among young people, but fell sharply in recent recession to levels below those in 1990s. • Inflow rates fell by more for young people than for other age groups, and actually increased among older workers. • Outflow rates fell consistently from peak of 90s recession, less so among young people. • Increased sharply in recent recession, particularly among young people.

15. Multivariate analysis • Adjust for differences in characteristics • Year-specific probit models of • probability of being employed at t+1, conditional on non-employment at t • Probability of being non-employed at t+1, conditional on employment at t • Control for age, gender education, housing tenure, region, access to car, health status, household type, presence of children, whether UK born • Present predicted probabilities of entering/leaving employment between two consecutive waves by gender, year, age and education level, holding other characteristics at sample means. • Present only results for those educated to above GCSE level – patterns similar (levels different) for less educated. • (NB No transitions observed between 2008 and 2009)

16. Predicted probability of entering employment: Man with qfs above GCSE

17. Predicted probability of entering employment: Woman with qfs above GCSE

18. Predicted probability of leaving employment: Man with qfs above GCSE

19. Predicted probability of leaving employment: woman with qfs above GCSE

20. Patterns • Employment flows of young people particularly affected by business cycle, and hit hard by recent recession. • Among young men and women, probability of entering work much lower in 2010 than in 1993 and 2001; • Probability of leaving work much higher in 2010 than in 1993 and 2001. • Less evidence that for prime-age men employment flows more affected by recent recession than previous recession • Evidence that flows out of employment among older workers lower in recent recession than in 90s.

21. Conclusions • Changes for younger and older people account for largest changes over time in employment rates and the relationship with age. • Employment flows of young people hit particularly hard by recent recession – more so than in 1990s. • Large fall in employment rates among young in recent recession result of fall in flows into employment and increase in flows out of employment. • Recent recession had smaller effects on employment flows of prime-aged workers. • Consequently recent recession changed shape of age-employment relationship rather than simple vertical shifts