Young people at contemporary labour markets: fighting more than just unemployment?
Sonja Bekker (Tilburg University, Netherlands) Heejung Chung (Kent University, UK) and Hester Houwing (UWV – Dutch Public Employment Service)
Paper for the ILERA conference June 2013, Amsterdam
Abstract
This paper examines the insecurities of young people at contemporary labour markets and deals firstly with the question which insecurities young people face and secondly whether these insecurities are accounted for by welfare state policies. It contributes to current research by taking a broader approach to the labour market position of young people in three ways. First, the analysis includes a broad range of labour market trends, going beyond unemployment and including precariousness of work, inactivity, in-work-poverty and perceived insecurity. Second, the analysis includes not only those who are making the transition from school to work, but also those in the age of family formation. Third, , the paper combines labour market trends with actual social policy responses of three countries, being Sweden, Spain and the Netherlands, and explores whether these measures sufficiently mitigate the labour market risks of young people. We conclude that younger age groups are exposed more often to labour market risks than other age groups. Moreover, countries have specific policy measures that target young people in the labour market, but these are mostly supply-driven and often address youth in their school-to-work transitions. The increased labour market risks of young people are thus not sufficiently mitigated by age-specific welfare policies. Simultaneously it is unsure whether general welfare facilities adequately deal with new risks, and are accessible for young people as well.
1. Labour market risks and changing welfare states: an overview
The labour market position of young people has gotten ample attention in the realm of the financial and economic crisis. Especially the high and rising unemployment rates for young people under 25 have been a topic of debate (e.g. European Commission, 2010a; European Council, 2012; ILO, 2012). The overall conclusion is that young people have been hit particularly hard by the great recession in terms of unemployment and inactivity and the EU, ILO and OECD warn for the risk of a lost generation (Boeri, 2011; Chung et al., 2012; ILO, 2012; European Foundation, 2011; Verick, 2009). Youth unemployment rates currently exceed 55% in Spain and Greece, and are more than 23% in the EU27 (data Eurostat4th quarter of 2012).
However, the crisis should not necessarily be seen as the sole cause for young people's labour market misfortunes. Part of the challenges that young people face already existed before the crisis and are not necessarily related to economic cycles. The past decades both labour markets and welfare systems have changed considerably. New social risks have emerged, including challenges related to family formation, divorce, caring for ageing parents, lower birth rates and the ageing of society, all of which have the highest impact on young people and young families (Hemerijck and Eichhorst, 2009; Mills et al, 2008; Scarpetta et al., 2010). At the same time these new risks are moderated rarely by social security systems as these systems are still moulded according to the needs of the male fulltime worker of the post-war industrial era (Hemerijck en Eichhorst, 2009; Vandenbroucke et al, 2011). Especially in Bismarckian central and southern EU welfare states, where social rights are tied to occupational positions, this may lead to new forms of social inequality (Barbieri, 2009; see also Giesecke, 2009). Moreover, more flexible labour markets have resulted in higher risks of becoming unemployedand these risks are neither offset by higher wages, nor moderated by skill investments. On the contrary, in all EU countries people in temporary positions earn much less than those in permanent employment and moreover skill investments are lower and have been declining significantly after the crisis (Boeri, 2011). Such ‘wage premiums’ for permanent contracts are relatively low in the UK with 6.5%, but run from 16.9% in Spain, to 35.4% in the Netherlands and 44.7% in Sweden (Boeri, 2011).
Instead of adjusting welfare facilities to moderate new risks, both structural adjustments in welfare arrangements as well as quickly taken crisis responses seem to increase social inequality rather than decreasing it. This has for example resulted in less income support and job-seeking facilities (cfGreve, 2011; Jochem, 2011; Ortiz en Cummins, 2012; Yerkes and van der Veen, 2011). After 2010, crisis adjustments lowered state support for income and job searching activities (Ortiz en Cummins, 2012), making welfare state provisions more targeted and narrower (Greve, 2011). There are however country differences in general welfare state changes. The Nordic model has been in transition, although it still seems to be a distinct model encompassing a mix of schemes to integrate people into the labour market, ALMP and investments in lifelong learning (Jochem, 2011). The Swedish welfare system is able for instance to cushion economic uncertainty for youth to such an extent that unemployment has no effect on union formation and parenthood (Mills et al., 2008). Conversely, changes in the Netherlands could lead to a fundamental change in state support, especially concerning social assistance, converting this from a universal rights approach towards increased selectivity with an emphasis on workfare (Yerkes and van der Veen, 2011). All these changes in welfare facilities are likely to impact youth the most, as welfare systems are often insurance-based and young people cannot claim ‘old’ rights.
A lack of support for young people to enter the labour market, to make a transition into sustainable employment and to safeguard a certain level of income, may turn out to be disadvantageous not only for the individual itself, but also for the society at large. Being out of work or only in a marginal type of employment can lead to long-term negative consequences for the individual, often referred to as ‘scarring effects’ (Arulampalam, 2001; Clark et al., 2001; Giesecke and Groß, 2003). These effects regard long-term levels of job satisfaction, happiness and health, but also more concrete conditions such as future unemployment and lower pay (Mroz and Savage, 2006). For the UK, Gregg and Tominey (2005) found that 20 years after a spell of youth unemployment, a significant wage penalty (15–20 percent) still existed. The penalty is higher when there has been repetitive exposure to unemployment during youth. For the Netherlands an analysis on the Dutch Social-Economic Panel for the years 1984-2001 shows that the initial wage penalty disappears rather quickly but is still 10% after 8 years (Muffels et al., 2011). Moreover, the duration of non-employment in the first 3 years after leaving school in the Netherlands heightens the probability of leaving employment up until 15 years after leaving education (Luijkx and Wolbers, 2009).
The scarring effect of temporary contracts is not clear. There is evidence to show that in some countries – such as the UK and Sweden – temporary contracts can be effective in helping people gain permanent positions (Booth et al., 2002; Korpi and Levin, 2001). In some cases the reason for the high proportion of temporary employment among young people is due to the fact that temporary contracts are used as a hiring tool (European Commission, 2010b; ROA, 2011). On the other hand evidence also shows that in other countries, marginal jobs are seen as a ‘trap’ where the chances of moving out are slim (Giesecke and Groß, 2003; Zijl and Van Leeuwen, 2005). D’Addio and Rosholm (2005), examining the European Household Panel, find that this is especially the case for very short contracts and for men. Such scarring effects may be mitigated if a transition into (sustainable) employment is rather fast. However, in some countries transition rates from temporary into open-ended employment are rather low and declining, especially after the crisis. Comparing different EU countries, Muffels et al. (2011) conclude that average transition rates into open-ended employment contracts were relatively low in Spain and the Netherland. Between 2003 and 2007, the transition rate for Sweden was 53.3%, whereas those for Spain and the Netherlands were 27.9% and 23.7% respectively. For the Netherlands the transition rates have decreased considerable, as at the end of the 1990s, still half of those in fixed-term employment could make a transition into open-ended employment. Guell and Petrongolo (2007) examined the conversion rate of temporary contracts into permanent ones on the Spanish labour market from 1987 to 2002, arriving at the conclusion that the conversion rate was less than 10 percent. In a recent OECD study Scarpetta et al. (2010) estimated that the probability of a (young) person finding a permanent job after having had a temporary contract the year before was slightly higher than 20 percent in Spain. Of the Spanish 18-year olds who entered the labour market in 2000, 85% received a fixed-term contract and a decade later 35% still held a temporary contract, meanwhile having changed from employment in unemployment, inactivity and back (García, 2011). The overall observation is indeed that having a fixed-term job increases the change of making a transition into unemployment, thus pooling several labour market risks (Barbieri, 2009; Giesecke and Groß, 2003; Golsch, 2003). In addition, investment in training and education is less if it concerns workers on a temporary employment contract, and even decreased after the recession, eventually perhaps leading to the creation of a generation entering the labour market with less prospects at human capital accumulation on the job than previous generations (Boeri, 2011). It is however important to note that traps and chances differ according to the characteristics of workers and of the job. The effect of having temporary work on wage and career chances differ significantly depending on whether it concerns agency work, fixed-term contracts or part-time work (Giesecke, 2009). Moreover, high skilled workers seem to have better prospects at flexible labour markets than low skilled workers (Barbieri, 2009; Golsch, 2003). Still, one could wonder whether for most temporarily hired workers their job is becoming less and less of a stepping stone into permanent employment (Muffels et al., 2011).
Recommendations on policy changes point at the importance of investing in human capital or capabilities as a way to empower people so that they can deal betterwith labour market fluctuations (cf Hemerijck and Eichhorts, 2009; Rogowski et al., 2011). Luijkx and Wolbers (2009) state for the Dutch context that policy interventions aimed at improving the employment opportunities, in particular for the weakest groups, are key to prevent marginal workers from long-term non-employment and risks of stigmatization. These policies include (re-)training initiatives, life long learning programmes and measures to enhance the employability of individuals. This has also been the message in early EU policy strategies for young people, predominantly to tackle the fast growing youth unemployment in the first years of the crisis (See e.g. the ‘Youth on the Move’ flagship initiative, European Commission, 2010a). However, as the crisis persists and youth unemployment keeps rising, the EU has added a demand side approach to its supply side strategy. In December 2012 the Commission presented a youth guarantee, which was later on endorsed by the Council and received overwhelming support by the European Parliament. Via the youth guarantee all member states should ensure that all young people up to age 25 receive a good-quality offer of employment, continued education, an apprenticeship or a traineeship within four months of becoming unemployed or leaving formal education. Importantly, the EU thus calls for a good-quality offer, and not just any job or internship. Moreover, initiatives to support youth may be financially supported through the EU’s structural funds. Specified to our three case countries, this has resulted for Sweden and Spain into country-specific recommendation regarding youth in 2012 (European Commission, 2012c). Spain should implement a Youth Action Plan, focusing on the quality and labour market relevance of vocational training and education, and stepping up efforts to reduce early school-leaving and increase participation in vocational education and training through prevention, intervention and compensation measures. Sweden should conversely take further measures to improve the labour market participation of youth and vulnerable groups, for example by improving the effectiveness of active labour market measures, facilitating school to work transitions, promoting policies to increase demand for vulnerable groups and improving the functioning of the labour market. It should also review the effectiveness of the current reduced VAT rate for restaurants andcatering services in support of job creation. The Netherlands did not get a recommendation concerning youth.
A mix of education policies and employment policies is also justifiable from an academic view. As the impact of the crisis on youth may be explained by a variety of factors, such as skill deficiencies, the structure of the economy, and institutional context, policymakers should targetcrisisinterventions also at youth, using a mix of measures to match skill levels with skill demands and to assist youth in finding employment (Verick, 2009; O’Higgins, 2012).In doing sodifferent labour market structures might require different policies to tackle youth problems. For instance in Spain, that faces a double challenge of deficiencies in its labour market as well as its education system, also education policies could tackle part of the challenges (García, 2011). At the same time, whereas there is an abundance of quantitative data to show the general aggregate changes and/or some micro-level analysis on who is more likely to be unemployed and why, there is less detailed research done on the policy approaches of countries. Consequently, there are also few studies that tie findings of the more quantitative analyses to the policy adaptation by countries.
In order to really assess the situation of young people at the labour market we argue that a broader view is needed that goes beyond unemployment problems and beyond crisis responses. This paper develops such a wider view in three ways. First of all a description of labour market trends encompass unemployment as well as inactivity, in-work-poverty, precariousness of jobs and perceived insecurity. Second, the paper defines the term ‘youth’ more broadly, not only encompassing those who have recently left school (age 15-24), but also including young people in the age of family formation (around age 25-35). Third, the analysis combines labour market trends with analyses of social policies responding to the challenges of young people. This combination allows the assessment of the adequacy of social security arrangements to respond to the new labour market risks. The preposition is that welfare state institutions play a role in shaping the form of flexibilisation as well as its social consequences and therefore can also be relevant in creating arrangements either to make sure that precarious employment is merely a temporary stage in life or to create arrangements that mitigate new labour market risks, thus preventing that these new risks lead to social inequality (cf Mills et al., 2008; Barbieri, 2009; Baranowska and Gebel, 2010). A broader approach to youth issues thus offers more ground to judge the extent to which younger generations face systematic labour market risks without accurate state support. Moreover, we expect that the persisting crisis, combined with EU requests to member states to install a youth guarantee, has caused member states o take sufficient action to support their youth.
2. Methodology
For the analyses of labour market trends we use data from Eurostat and the European Social Survey. Here, we use the age ranges that are available to us in the data sets. Most studies examining youth employment issues define youth or young people as being in the 15(16)–24(23) age range (European Foundation, 2011; Holzer, 1987; Ihlanfeldt and Sjoquist, 1990; ILO, 2011; Scarpetta et al., 2010; Verick, 2009). This definition is linked to the transition young people go through between school and work, with 15 being the (earliest) age at which individuals with lower secondary education leave school and 24 being the age where most individuals with tertiary education leave college or university.
In this article, we distinguish between two types of young workers: 1) those entering the labour market from school or university education, generally in the 15–24 age range, and 2) those who have already entered the labour market but – in most cases – have not (yet) found a secure job. Extending the age range allows us to study the labour market status of 25–34 year olds and explore whether at this age people have been integrated into a normal or sustainable job yet. How best to define this group in terms of age is a topic for debate, and there are also problems with data availability here. Where data are available, we will extend our target group up to 34 year olds, with subdivisions of 15/18–24 and 25–34. We will compare these age groups to prime-age workers (35–54), older workers (55–64) and the retired – (65 plus). To explore possible cohort effects we make use of secondary sources, these being research outcomes published in journals.