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In the 1980s, juvenile unemployment rates have persistently exceeded those rates for adults, in Britain as in other OECD countries. In the interwar period, in contrast, youth unemployment rates in Britain were dramatically lower than adult rates. In Discussion Paper No. 194, Research Fellow Barry Eichengreen explores possible reasons for this contrast. His analysis exploits two hitherto unused sources of information on juvenile unemployment between the wars: the annual reports of the London Advisory Council on Juvenile Employment and the household record cards of the New Survey of London Life and Labour. The former provides detailed information on the labour market experience of juveniles, and the latter details the family circumstances of both juvenile labour force participants and youths not in the labour market. Eichengreen's regression analysis of these data support contemporary accounts, which suggested that juveniles most inclined to enter the labour market were drawn from large households of limited means in which the parent of the same sex was absent. The data do not, however, reveal any significant factors influencing the probability of unemployment for those juveniles already in the market. Even if the 16 year olds in the sample were dismissed as soon as their continued employment required payment of insurance contributions or trade board wages, they do not appear to have remained out of work for a sufficient period to experience significantly greater unemployment than their younger counterparts. Once in the labour market, unemployment had the character of a lottery: it fell almost randomly on juveniles of different ages from different family backgrounds. For the vast majority of juveniles, unemployment durations were short and re-employment prospects were good, but there was a significant minority whose work history was characterized by a sequence of casual positions or by extended spells of unemployment. Their experience seems inconsistent with the paradigm of a smoothly functioning labour market, Eichengreen argues. Eichengreen then discusses possible explanations for the reversal of the youth/adult unemployment differential between the 1930s and 1980s. He uses an identity which decomposes the change in juvenile employment between 1931 and 1981 into changes in overall employment, the share of the population aged 14-19, labour force participation rates among those aged 14-19, the propensity to leave school at an early age, the industrial composition of employment and the share of juveniles in total employment. This decomposition fails to support several of plausible explanations based on shifts in macroeconomic conditions, demographic factors or the propensity to leave school. The rise in recorded youth unemployment between 1931 and 1981 reflects an enumeration effect (youth unemployment having been more seriously undercounted between the wars) and a shift in the industrial composition of employment from industries employing a large share of juveniles in their workforce to industries employing relatively few. Both these factors were dwarfed, however, by the dramatic fall in the share of juveniles in employment across the economy. Eichengreen argues that changes in the relative wages and relative unemployment benefits of youths and adults do not provide a complete explanation for this fall. Instead, youths have borne a disproportionate share of unemployment in the 1980s because of their high turnover rates and recent entry to the labour force. Juveniles tend to be disproportionately represented among newly hired workers and hence are disproportionately affected when the rate of hiring falls. Moreover, 'last in first out' redundancy practices make them more likely to be job losers. This has not always been the case: during the macroeconomic downturn beginning in 1929, youths did not bear an unusually high share of the unemployment burden. The explanation appears to lie in changes in hiring and redundancy practices during the postwar period, such as the decline in apprenticeships, the growth of union influence, the spread of inverse-seniority lay-off rules, and the adoption of experience- related redundancy payments. Juvenile Unemployment in Interwar Britain: The Emergence of a Problem Barry Eichengreen Discussion Paper No. 194, July 1987 (HR) |