Worker Flows and Labour Market Adjustment During the Great Recession: Evidence from a Large Shock

Hartmut F Lehmann,Anzelika Zaiceva,Tiziano Razzolini

doi:10.2139/ssrn.2712988

Abstract

This paper analyzes how the labor market adjusts to the Great Recession. To this aim, we use the data for Latvia, a country that have experienced one of the most severe recessions in Europe and a subsequent remarkable recovery. Employing longitudinal EU SILC data and a panel data set constructed by us from various waves of the Latvian Labour Force Survey (LLFS), we estimate worker transitions between labor market states. Labor market adjustment takes place predominantly at the extensive margin since it is driven by flows from permanent wage employment to unemployment. We also show that older, non-Latvian and above all less skilled workers are especially hard hit by the economic crisis. Estimated transitions between four mutually exclusive occupational groups demonstrate that downward mobility is very limited even during the Great Recession. Finally, wage regressions suggest that job mobility is not associated with increased labour productivity during and immediately after the crisis.

Highlights

The 2008 economic crisis has brought about many challenges for economies and labour markets
We use data from Latvia that experienced arguably the largest shock in Europe to estimate the impact on worker flows during the Great Recession
We show that older, non-Latvian and above all less skilled workers are especially hard hit by the economic crisis

Summary

Introduction

The 2008 economic crisis has brought about many challenges for economies and labour markets. One way to analyse labour market adjustment during the Great Recession is to look at transitions between labour market states and their determinants.1 To this aim, we employ both the EU SILC and Latvian Labour Force Survey data over the period 2007 to 2011/12. This has to be interpreted with caution, since we do not know to which extent nonprofessional self-employment is informal We complement this analysis by estimating transitions between four classes of aggregated occupations, which give us a hunch about the importance of upward and downward mobility in the Latvian labour market. When employing the Latvian Labour Force Survey (LLFS), we construct a panel data set to estimate transitions between the three standard labour market states, employment, unemployment and inactivity..

The economic crisis and the labour market in Latvia

Six labour market states: transitions and determinants

Conclusions

Findings

Females