The labour-market consequences of generational crowding

Abstract

This paper attempts to distinguish between two alternative views of the labour-market problems faced by young workers in a number of industrialized countries in the 1970s and early 1980s. The first view is that the low relative earnings and high unemployment rates experienced by these cohorts were largely age-related; the second is that they are a consequence of large cohort size. A multi-country empirical analysis indicates that large cohort size tends to have a negative effect on the expected earnings (product of earnings and the employment-to-labour-force ratio) of a cohort; there is, moreover, a marked trade-off between the relative-earnings effect and the relative-employment effect, with large cohort sizes reducing relative earnings in some countries and relative employment in others. More detailed data for the USA show that the relatively low wages and high unemployment of the ‘unlucky’ cohorts have tended to converge to the patterns that would have resulted had the cohorts been more ‘normal’ in size, but that their lifetime income has been permanently reduced. Finally, baby-boom cohorts in several countries are shown to have been absorbed in a wide range of industries rather than through expansion of the traditionally youth-intensive industries.