The "Youth Problem": Age or Generational Crowding?

Abstract

This paper attempts to distinguish between 2 alternative views of the labor market problems faced by young workers in a number of industrialized countries in the 1970s and early 1980s. The 1st view is that the low relative earnings and high unemployment rates these workers experience were largely age related. The 2nd view is that the labor market problems of recent youth cohorts are a consequence of their large size. The 1st view carries the implication that the problems will disappear for recent youth cohorts as they grow older and that the problems will be handed over to successive waves of youth cohorts as they enter the labor market. The 2nd view has very different implications since generational crowding can permanently or temporarily depress the economic position of large cohorts but need not have an adverse effect on later waves of smaller youth cohorts. On the basis of multi-country empirical analysis of patterns of cohort size earnings unemployment and the distribution of young workers across industries 4 main sets of findings are reported. 1) the baby-boom was not uniformly experienced across market-economy countries. 2) Large cohort size tends to have a negative effect on the expected relative earnings of the cohort where expected relative earnings is defined as the product of the earnings and the employment-to-labor force ratio of a young cohort relative to the same product for an older cohort. 3) At least for the US the relatively low wages and high unemployment of the unlucky cohorts tend to converge to the patterns that would have resulted had the cohorts been more normal in size with the convergence occurring within a decade or so. 4) the results show that baby-boom cohorts were absorbed quite evenly across a wide range of industries. This finding contradicts the popular belief that large youth cohorts were absorbed primarily through expansion of those industries that have been traditionally youth-intensive.