Employment transitions over the business cycle Mark Taylor (ISER)

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? Background

Describe relationship between employment flows and age in Britain and how changes with the economic cycle; Focus on year olds Draw on newly released data from Understanding Society ( ) in combination with BHPS ( ); 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) Our contribution:

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of remaining in/returning to education (which counts as NE); Older workers also vulnerable as skills may be viewed as outdated and less time to recoup investments in training before retirement Incentive for retired individuals to return to work to replace recession- related decreases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.

BHPS Understanding Society (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 , BHPS W18; Understanding Society W1). Data

Employment and age: Men

Employment and age: Women

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 Patterns:

Employment over time: Men

Employment over time: Women

Employment rates rose among older men and women, but fell in 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. Patterns

Employment inflows over time

Employment outflows over time

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. Patterns:

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) Multivariate analysis

Predicted probability of entering employment: Man with qfs above GCSE

Predicted probability of entering employment: Woman with qfs above GCSE

Predicted probability of leaving employment: Man with qfs above GCSE

Predicted probability of leaving employment: woman with qfs above GCSE

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 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. Patterns

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 Conclusions