Has the youth labour market deteriorated in recent decades? Evidence from developed countries

There is nowadays a widespread sense that things have gone badly wrong for young workers in advanced economies, and that the difficulty is caused by a fall in their appeal to employers. It is tempting to attribute the problem to a trend in labour demand that favours older, more experienced workers over younger, less experienced ones. The same line of interpretation has been widely favoured for the other major dimension of employee skill: educational attainment. The contemporary fall in the pay of less educated workers, as compared to more educated ones, in the US and the UK in particular, has been widely attributed to the spread of information technology and globalisation, both of which are taken to raise the productivity of more educated workers relative to less educated ones. An influential account of developments in the US claims that ‘relative demand shifts favouring more skilled workers are … essential to understanding longer-run changes in the US wage structure’ (Katz and Autor 1999: 1513). The same factors might had similar effects in the experience dimension of skill, thereby impairing labour market prospects for young workers. The validity of these propositions has however been contested. Doubts have been raised concerning the existence of skill-bias in technical change (Card and DiNardo 2002). Some commentaries deny the existence of an underlying trend unfavourable to youth (OECD 2002: 20-29). This paper investigates the evidence concerning trends in youth relative pay and employment in developed economies since the mid-1970s, focusing on structural change on the demand-side of the labour market. It improves on previous research by including more countries, and by controlling for macroeconomic fluctuations, which affect youth employment particularly keenly. It then considers the growth of educational participation, as a further, supply-side, influence that complicates the interpretation of changes in youth outcomes.