The Life-cycle Profile of Worker Flows in Europe

Abstract

In this paper, we first provide a comprehensive account of the relationship between cross-country differences in aggregate employment and disaggregated differences in worker flows along the life cycle. To this end, we use survey micro-data for 31 European countries, and estimate the life-cycle profiles of transition probabilities across employment, unemployment and nonparticipation for each country. We develop a decomposition measuring the contribution of these transition probabilities to aggregate employment differences. We find substantial cross-country heterogeneity with respect to the role of worker flows out of each labor market state. Next, we relate this heterogeneity to cross-country differences in labor market institutions. Our analysis emphasizes age-dependent vs. age-independent labor market policies, and policies related to family formation, planning and dissolution. By going well beyond the study of differences of aggregate worker flows, we obtain a rich picture of the employment effects of labor market institutions.