Cohort size and transitions into the labour market

This paper estimates the effect that the size of an individual's labour-market entry cohort has on the subsequent duration of search for employment. Survival-analysis methods are applied to empirically assess this relationship using a sample of apprenticeship graduates who entered the German labour market between 1999 and 2012. The results suggest that apprentices from larger graduation cohorts take less time to find employment, but this effect appears to be significant only for a period of up to six months after graduation. These results therefore do not support the cohort-crowding hypothesis that members of larger cohorts face depressed labour-market outcomes. Moreover, there is no evidence that shorter search durations are the result of graduates being pushed into lower-quality employment. The finding that graduating as part of a larger cohort leads to shorter search durations is in line with those parts of the cohort-size literature that find larger youth cohorts being associated with lower unemployment rates. A possible explanation is that firms react to an anticipated increase in the number of graduates by creating jobs

Cohort size and transitions into the labour market

This paper estimates the effect that the size of an individual’s labour-market entry cohort has on the subsequent duration of search for employment. Survival-analysis methods are applied to empirically assess this relationship using a sample of apprenticeship graduates who entered the German labour market between 1999 and 2012. The results suggest that apprentices from larger graduation cohorts take less time to find employment, but this effect appears to be significant only for a period of up to six months after graduation. These results therefore do not support the cohort-crowding hypothesis that members of larger cohorts face depressed labour-market outcomes. Moreover, there is no evidence that shorter search durations are the result of graduates being pushed into lower-quality employment. The finding that graduating as part of a larger cohort leads to shorter search durations is in line with those parts of the cohort-size literature that find larger youth cohorts being associated with lower unemployment rates. A possible explanation is that firms react to an anticipated increase in the number of graduates by creating jobs

Cohort size and youth unemployment in Europe: a regional analysis

Will the projected decline in the youth share of European countries' populations alleviate the currently high levels of youth unemployment in Europe? Economic theory predicts that in the absence of perfectly competitive labour markets, changes in the relative size of age groups will cause changes in age-specific unemployment rates. In light of the expected development of the youth population's size over the coming decades, this paper utilises the existing heterogeneity in the structure of youth populations across European countries and regions to identify the effect of nationally and regionally defined age-cohort size on the probability of young individuals being unemployed. To account for the possibility that individuals self-select into areas of low unemployment, the empirical analysis employs an instrumental variables estimator to identify the causal effect of age-cohort size. The results show that individuals in larger cohorts are more likely to be unemployed and that this effect is more pronounced when analysis is conducted at the regional level. While shrinking youth cohorts therefore have the potential to contribute to improving the current youth unemployment situation, this mechanism should not be relied in isolation upon due to the relatively greater importance of changes in the macroeconomic environment

Cohort size and youth unemployment in Europe: a regional analysis

Will the projected decline in the youth share of European countries' populations alleviate the currently high levels of youth unemployment in Europe? Economic theory predicts that in the absence of perfectly competitive labour markets, changes in the relative size of age groups will cause changes in age-specific unemployment rates. In light of the expected development of the youth population's size over the coming decades, this paper utilises heterogeneity in the structure of youth populations across European countries and regions to identify the effect of nationally and regionally defined age-cohort size on the probability of young individuals being unemployed. To account for the possibility that individuals self-select into areas of low unemployment, the empirical analysis employs an instrumental variables estimator to identify the causal effect of age-cohort size. The results show that individuals in larger cohorts are more likely to be unemployed and that the estimated effect is larger when analysis is conducted using less aggregated spatial units. Although the macroeconomic environment is found to be a more important determinant of unemployment probability, shrinking youth cohorts should therefore improve the current youth unemployment situation

The cohort size-wage relationship in Europe

The demographic and education composition of European countries is changing: the population share of young individuals is declining while that of the highly educated is rising. This study estimates the impact of cohort size on wages using data on several European countries to cast light on the economic consequences of these changes in the profile of the labour force. Theory predicts that within each educational class, similarly aged individuals compete for jobs but are only imperfectly substitutable with workers of different ages. Consequently, an increase in the population share of a specific age-education group is expected to have a depressing effect on the real wage rate of that group. To test this prediction empirically, this paper uses the 2010 release of the longitudinal EU-SILC which is a comprehensive data set covering individual and household-level microdata for a period of 4 years and 24 European countries. This paper differs from the preceding literature by analysing the effect of cohort size on individual wages rather than on the average wage of a specific age-education group which allows controlling for potentially confounding effects at the individual level. The effect of cohort size on male wages is identified through instrumental variables (IV) estimation that uses the birth rate at an individual?s year of birth as an instrument for the potentially endogenous cohort size variable. In contrast to other identification strategies, this instrument is able to account for endogeneity caused by individual self-selection into specific educational groups as well as into specific geographical areas. The results support the hypothesis that cohort size has a negative effect on male wages, particularly for the highly educated. However, these negative cohort size effects are not persistent

Regional age structure and young workers' wages

This paper estimates the effect that changes in the size of the youth population have on the wages of young workers. Assuming that differently aged workers are only imperfectly substitutable, economic theory predicts that individuals in larger age groups earn lower wages. We test this hypothesis for a sample of young, male, fulltime employees in Western Germany during the period 1999-2010. In contrast to other studies, functional rather than administrative spatial entities are used as they provide a more accurate measure of the youth population in an actual labour market. Based on instrumental variables estimation, we show that an increase in the youth share by one percentage point is predicted to decrease a young worker's wages by 3 %. Our results also suggest that a substantial part of this effect is due to members of larger age groups being more likely to be employed in lower-paying occupations.In diesem Papier werden die Auswirkungen untersucht, die Veränderungen in der Größe junger Altersgruppen auf die Löhne junger Arbeitnehmer haben. Unter der Annahme, dass Personen unterschiedlichen Alters nur unvollkommen substituierbar sind, besagt die ökomische Theorie, dass Personen in größeren Altersgruppen, ceteris paribus, niedrigere Löhne realisieren. Wir überprüfen diese Hypothese anhand eines Datensatzes, der junge, männliche Vollzeitbeschäftigte aus Westdeutschland in den Jahren 1999-2010 enthält. Im Gegensatz zu ähnlichen Untersuchungen werden allerdings funktionale statt administrativen räumlichen Einheiten verwendet, da diese die Bevölkerungsstrukturen innerhalb eines Arbeitsmarktes besser abbilden können. Unter Verwendung eines Instrumentvariablenansatzes zeigt sich, dass ein Anstieg im Anteil jüngerer Altersgruppen um 1 % zu einem Rückgang der Löhne junger Beschäftigter um etwa 3 % führt. Weiterhin legen die Ergebnisse nahe, dass ein beträchtlicher Teil dieses Effekts darauf zurückzuführen ist, dass Personen in größeren Altersgruppen eine höhere Wahrscheinlichkeit haben, in niedriger bezahlten Berufen zu arbeiten

The cohort size-wage relationship in Europe

The demographic and education composition of European countries is changing: the population share of young individuals is declining while that of the highly educated is rising. This paper estimates the impact of cohort size on wages using data on 21 European countries covering 2007-2010 to cast light on the economic consequences of changes in the profile of the labour force. The effect of cohort size on wages is identified through an instrumental variables strategy which, in contrast to previous analyses of European data, addresses selfselection into geographical areas as well as into educational groups. The results support the hypothesis that cohort size has a negative effect on male wages, particularly for the highly educated. However, these negative cohort size effects are not persistent

Cohort size and youth labour-market outcomes: The role of measurement error

Using data from 49 European regions covering 2005-2012, this paper finds that the estimated effect of cohort size on employment and unemployment outcomes is very sensitive to the age range of the sample. We argue that this is because the identification strategy commonly used in this literature is unable to eliminate the bias caused by measurement error in the cohort-size variable. The latter arises because large shares of the young choose to acquire education and consequently the size of an age group provides a poor measure of age-specific labour supply. In our view older age groups provide a more suitable sample to test the implications of cohort crowding since the former will have largely entered the labour market. Using a sample aged 25-29, which has relatively low rates of participation in education, we find robust evidence that an increase in cohort size increases employment and reduces unemployment.Dieses Papier verwendet Daten aus 49 europäischen Regionen für die Jahre 2005-2012, um die Auswirkungen von Kohortengröße auf Beschäftigung und Arbeitslosigkeit zu schätzen. Ein Kernergebnis der Untersuchung ist, dass die geschätzten Effekte stark davon abhängen, welche Altersgruppen in die Stichprobe aufgenommen werden. Dieser Befund wird dadurch erklärt, dass die Kohortenvariable bei jüngeren Altersgruppen mit einem Messfehler behaftet ist, der zu verzerrten Ergebnissen führt und dessen Auswirkungen durch die herkömmliche Identifikationsstrategie nicht behoben werden können. Diese Hypothese wird damit begründet, dass in jüngeren Altersgruppen ein hoher Anteil an Personen an Ausbildungsmaßnahmen teilnimmt, so dass eine altersspezifische Kohortenvariable ein schlechtes Maß für das Arbeitsangebot dieser Gruppe darstellt. Aus diesem Grund sollte sich der genannte Zusammenhang besser anhand solcher Altersgruppen untersuchen lassen, in denen die Teilnahme an Ausbildung mehrheitlich abgeschlossen ist. Wenn die Stichprobe auf die Altersgruppen 25-29 begrenzt wird, zeigen die Ergebnisse, dass ein Anstieg in der Größe einer Kohorte die gruppenspezifische Beschäftigungsquote erhöht und die entsprechende Arbeitslosenquote reduziert

Optimal minimum wages

We develop a quantitative spatial model with heterogeneous firms and a monopsonistic labour market to derive minimum wages that maximize employment or welfare. Quantifying the model for German micro regions, we find that the German minimum wage, set at 48% of the national mean wage, has increased aggregate worker welfare by about 2.1% at the cost or reducing employment by about 0.3%. The welfare-maximizing federal minimum wage, at 60% of the national mean wage, would increase aggregate worker welfare by 4%, but reduce employment by 5.6%. An employment-maximizing regional wage, set at 50% of the regional mean wage, would achieve a similar aggregate welfare effect and increase employment by 1.1%

The regional effects of Germany’s national minimum wage

We show that the minimum wage introduced in Germany in 2015 led to spatial wage convergence, in particular in the left tail of the distribution, without reducing relative employment in low-wage regions within the first two years