There is a considerable body of evidence suggesting that the young, the least educated and ethnic minorities are more severely hit during downturns, while young people do especially well in upturns.
Blanchflower and Freeman (2000) identified the disproportionately large response of youth employment and unemployment to changes in overall labour market conditions. The sensitivity of the labour market for young people to changes in the economic cycle tends to dominate the effects of any sizeable demographic (e.g. smaller cohorts) and/or structural effects (e.g. better educated), which tend to be favourable to young cohorts in general compared to other age groups.
More recent work from the OECD (2008) confirms the finding that the sensitivity to the cycle of employment rates for young people is higher than for prime-age adults (aged 30 to 49 years). Furthermore, sensitivity of youth unemployment to the cycle tends to decline progressively with age (Chart 34), being greater for teenagers (15 to 19 years) than for young adults (20 to 24 years) in most countries.
The OECD (2009) found that the sensitivity to the business cycle of total hours worked by temporary workers is about 2.5 times greater than for permanent ones, with temporary workers disproportionately hit by falling aggregate demand. Such effects largely interact with age, as there is also a high incidence rate of temporary work among young workers. The OECD also estimated that the rising share of temporary contracts over past decades has been responsible for an increase of almost 9% in the overall business cycle volatility of total hours worked across OECD Member States(51).
These findings imply that, during recessions, the share of young and temporary workers among jobless people increases. Moreover, they also have to compete for a reduced number of job vacancies with better qualified job-seekers with more stable employment histories, and who might also have been made redundant, particularly in deep recessions like the recent one. As better-qualified workers are likely to be preferred by firms making recruitment decisions, dismissed temporary workers have a significantly higher risk of becoming long-term unemployed following an economic downturn. This effect is also liable to be exacerbated by lack of eligibility for income safety nets in the event of job loss due to having too short or intermittent work histories (OECD, 2009; and Box 4).
Access to Unemployment Insurance (UI) – some econometric evidence
Recent work carried out by the Commission (European Commission, forthcoming(1)) used anonymised micro data from EU SILC to identify possible ‘discriminatory factors’ determining access to UI and the net replacement rate.(2) Results suggest that, although self-employed and temporary workers have limited access to UI, those that benefit may do so at higher replacement rates than permanent workers, because of the lower wages they receive.
As regards access to UI, the evidence suggests that the self‑employed and to a lesser extent also temporary workers, women, and workers with limited labour market experience, and/or reduced contributory work history, have limited access to UI. After controlling for a number of variables, such as labour market experience, young workers are not found to be at a disadvantage as regards eligibility for UI.
As regards the net replacement rate, the evidence suggests that women, young workers and individuals with limited experience or contributory work history have lower UI replacement rates. Moreover, results suggest that UI plays an important role in the redistribution of income, as the replacement rate declines for individuals belonging to higher income groups and/or with tertiary education. From a social welfare perspective, this is a particularly welcome result given that, all other factors being equal, people on low incomes are also more likely to become unemployed and/or undergo frequent unemployment spells.
Coverage of UI for vulnerable groups – preliminary update of Alphametric’s (2009) indicator
Recent work by DG ECFIN (2010) identified Member States that since the second quarter of 2008 have introduced changes with respect to the eligibility, level and duration of unemployment benefits. The analysis found that several Member States introduced changes that involve eligibility/coverage of UI, namely Finland, France, Ireland, Spain, Italy, Lithuania, Latvia, Portugal, Sweden, Slovenia, Slovakia, and the United Kingdom.
Although the impact of changes on the eligibility of UI cannot always be (easily) quantifiable (e.g. Slovakia now takes into account the period of parental leave in the assessment of entitlements to UI), Commission Services have nevertheless attempted to quantify changes in eligibility criteria for UI – in response to the recent recession – in order to increase coverage for previously ineligible workers belonging to vulnerable groups, such as part-time workers, workers with temporary contracts, and the self-employed. The Alphametrics (2009) study was updated using three sources of information to identify possible changes in eligibility conditions targeting those vulnerable groups, namely the institutional database MISSOC(3), the second joint OECD/DG EMPL questionnaire of February 2010, and a database of recovery measures maintained by DG ECFIN(4).
Results suggest that, although many Member States have modified several aspects of their UI systems since the onset of the recent recession, only a limited number have introduced changes involving eligibility/coverage of UI for vulnerable groups. An update of the Alphametrics (2009) indicator – initially calculated for 2007 - suggests that on average across the EU, UI coverage of part-time and temporary workers remained basically unchanged (between 2007 and 2009), but that coverage of self-employed workers improved, reflecting policy developments in two Member States (Slovenia and Finland).
(1) | A DGs ECFIN and EMPL joint paper on Unemployment Insurance. |
(2) | Results are tentative and should be interpreted carefully, because of sample limitations. The sample covers 16 EU Member States, including about 1600 observations for the analysis of access to UI and 600 as regards the determinants of the net replacement rate. The sample is unbalanced and covers only the pre-crisis period, namely 2004/2005 to 2007. The inclusion of country interaction effects is also limited, although these are likely to be necessary for an accurate overall picture given the country specificities of UI systems. |
(3) | EU’s Mutual Information System on Social Protection (MISSOC) provides detailed, comparable and regularly updated information (twice a year) about national social protection systems. |
(4) | Version of 16/02/2010. |
Sala and Silva (2009) developed a matching model in order to reproduce the cyclical behaviour of the Spanish labour market and found that the gap in firing costs and productivity between permanent and temporary employees plays a large role in explaining the high rate of employment volatility in Spain, where temporary contracts are the main tool for adjusting labour demand.
(51) | Although such an increase is almost cancelled out by other offsetting compositional changes in the workforce, namely with respect to age and skill levels |