youth employment in canada: a comment

Canadian Public Policy

Youth Employment in Canada: A CommentAuthor(s): Bruce KennedySource: Canadian Public Policy / Analyse de Politiques, Vol. 13, No. 3 (Sep., 1987), pp. 384-388Published by: University of Toronto Press on behalf of Canadian Public PolicyStable URL: http://www.jstor.org/stable/3550914 .

Accessed: 18/06/2014 15:52

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

University of Toronto Press and Canadian Public Policy are collaborating with JSTOR to digitize, preserveand extend access to Canadian Public Policy / Analyse de Politiques.

http://www.jstor.org

This content downloaded from 185.44.77.55 on Wed, 18 Jun 2014 15:52:03 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=utp

http://www.jstor.org/action/showPublisher?publisherCode=cpp

http://www.jstor.org/stable/3550914?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


Youth Employment in Canada: A Comment BRUCE KENNEDY The Institute for Research on Public Policy L'Institut de recherches politiques

In a recent article in this journal entitled 'Youth Employment in Canada: A Misplaced Priority?' (Canadian Public Policy - Analyse de Politi- ques, XII:3:499-506), David K. Foot and Jeanne C. Li used demographic and unemployment data to assess the labour market conditions faced by youths and by the aging baby-boom generation over the 1970s and early 1980s. Their analysis suggests that the labour market problems com- monly associated with youth are actually specific to the large cohorts of baby-boomers who are no longer youths. Evidence is given suggesting that the youth problem has been solving itself since the population of youths peaked in 1980, and it is advocated that the focus of policy initiatives should be shifted up the age spectrum along with the aging of the big birth cohorts.

This note examines the labour market conditions of the young and the baby-boomers over

approximately the same period using earnings data. As Foot and Li point out (based on research by Freeman and Wise, 1982) youth unemployment problems lead to lower wage rates later in life, but not higher unemployment rates. Earn- ings, which incorporates the effects of both unemployment and wage rates, is therefore a comprehensive indicator, appropriate for analys- ing age and cohort explanations of long-term labour market problems. The earnings data presented below support Foot and Li's finding that labour market problems are moving up the age spectrum with the advance of the big generation. The earnings data, however, do not

support the suggestion that the labour market has become any more favourable to youths since the population of youths started declining in 1980. Indeed youths received more than a proportion- ate share of the earnings losses of the last recession, and as of 1983 their mean earnings relative to those of the population were lower than ever. On the basis of the earnings data presented it is concluded that the 'youth problem' is broadening, rather than shifting.

This note makes use of an administrative data set that to my knowledge has not previously been drawn upon in public policy discussion. As the data set pertains to administration of the Canada Pension Plan, Quebec is not represented in the data. For present purposes this is not believed to be a major limitation. (Experiments with data published in Income Distributions by Size in Canada 1982 (Statistics Canada, 1984) suggest that computations of age group earnings relative to population earnings are not sensitive to the exclusion of Quebec. For example, computing relative income ratios for all individuals from Table 55, pp. 107-15 yields .243 for the 19 and under age group, .687 for 20-24, and 1.111 for 25-34. Excluding Quebec from the computation yields .242 for 19 and under, .697 for 20-24 and 1.117 for 25-34).

Youth Earnings Trends

Figure 1 displays time-series of the mean relative earnings of 20 years old males 20 year old

Canadian Public Policy - Analyse de Politiques, XIII:3:384-388 1987 Printed in Canada/Imprime au Canada



.4,

1.2-

0 1.0- z z 4 w 0.8- 4

-

J 0.6-

0.

0.4 -

M 20

I M 30

A F 20

AF 30

A IL

_pcb ~~-~ ~~--.--~'

.............?

66 70 75

YEAR

Figure 1 Age-sex group trends in mean earnings relati earnings of the population

females, 30 year old males and 30 females. The group means are compute( group members reporting earnings, or

mately all group members in the labour given year (the methodology is descr low). The relative earnings domain (me earnings of the group divided by mean of the population in the same year) is us because it is free of aggregate time tr

period effects. Events such as the rece sion have therefore been controlled status quo distribution of aggregate across age-sex groups were being prese would see horizontal lines across this f

The two bottom series in Figure 1 s the earnings of 20 year-olds of both ,

traditionally low, and have been i] decline. This decline in relative earni tinued and even accelerated in the 19

period. It is also interesting to note that the male and females series had ne= verged, and that the series for 30 yeai also converging.

Foot and Li noted that the youth ui ment rate continued to rise through 1 attributed this to the recession. They that: 'By the early 1980s, the relative the unemployed youth was improving' Figure 1, however, strongly suggests trolling for the effect of the reces, relative labour market status of youth ( terms of earnings levels) continued t( through the early 1980s. Foot and Li', based on the observation that the prop unemployed who were youths was ii

over this period. Perhaps that phenomenon is 's sl-largely a reflection of the fact that the proportion

of youths in the population was also in decline in the early 1980s.

Earnings of the Big Generation

Figure 1 can also provide some limited informa- %>, _tion concerning the labour market conditions

faced by the big generation (the nearly seven '80 83 million Canadians born from 1950 through

1965) over time. While these baby-boomers ive to mean were youths, the mean relative earnings of

youths was in decline, as indicated by the lower two series in the figure. Over the same period,

year old the mean relative earnings of 30 year old males d over all was also declining and the rate of decline appears approxi- to have increased as the leading ranks of the big force in a generation reached age 30 in 1980. The series ibed be- corresponding to 30 year old females, however, an yearly shows steadily increasing relative earnings. earnings Another perspective on cohort related phe- ,eful here nomena can be achieved by examining a table of ends and mean earnings by age and time such as is nt reces- presented for both sexes in Table 1. (Note that for. If a this table is in real dollars, period effects are not

earnings controlled for.) As cohorts age, they advance Trved, we one year in age with each year in time so that

Figure. their earnings histories proceed diagonally up- ;how that ward and to the right across this table. If the sexes are distribution of real earnings was static with n steady respect to age and sex, the mean real earnings ings con- values would be constant along age columns 80-1983 (within each sex group). The male section of the t by 1983 tables shows a striking departure from this norm.

arly con- Imagine an 'average man' who was 29 in 1979, r-olds are and was looking forward to soon having an

expected level of earnings of approximately nemploy- $18,000 (real 1980) per year as did 30 year old 983, but males in 1979. As time passes and the individual claimed ages the $18,000 expected earning values recede

status of so that it takes four years for him to reach that

(p.502). level of expected earnings. Our 'average man' that con- born in 1950 appears to be caught in a wave of sion, the depressed earnings that is advancing with the big at least in generation. o decline The female real earnings table is quite similar s claim is to that of the males up to age 25. Following along )ortion of the age-20 column, for example, one can track n decline the reductions over time in the real earnings of 20

Views and Comments/Commentaires 385



Table 1 Mean earnings of earners by age, time and sex (in dollars x 1,000, real 1980)

Males

Time Age

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

1983 2 4 5 6 8 9 10 11 12 13 14 15 15 16 16 18 18 19 1982 3 4 7 7 8 10 11 12 13 13 14 15 15 16 17 18 18 19 1981 3 5 7 7 9 10 11 13 13 14 15 16 17 17 19 19 20 21 1980 3 6 7 8 10 10 11 13 14 15 15 16 17 18 19 20 20 20 1979 3 6 7 9 10 11 12 13 14 15 16 17 18 18 20 20 20 20 1978 4 6 8 9 10 11 12 13 14 15 16 17 18 19 20 20 20 20 1977 4 6 8 9 10 11 13 13 14 16 17 18 19 19 20 20 21 21 1976 4 6 8 9 10 11 13 14 15 16 17 18 18 19 20 20 21 21

Females

Time Age

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

1983 2 3 4 5 6 7 8 9 9 9 10 10 10 10 10 11 11 10 1982 2 3 5 5 6 7 8 9 9 10 10 10 10 10 10 10 10 10 1981 2 4 5 6 7 8 9 9 10 10 10 10 10 10 10 10 10 10 1980 2 4 5 6 7 8 9 9 10 10 10 10 10 10 10 10 10 10 1979 2 4 5 6 7 8 9 9 10 10 10 10 10 10 10 10 10 10 1978 2 4 5 6 7 8 9 10 10 10 10 10 10 10 10 10 10 10 1977 3 4 6 6 7 8 9 9 10 10 10 10 10 10 10 10 10 10 1976 3 5 6 7 8 9 9 10 10 10 10 10 10 10 10 10 10 10



year old females. However these declines do not spread out with the advance of the big generation into the post age 25 group.

These patterns in real earnings are the net result of several cumulative effects. For the males there is the negative effect of heavy competition due to large cohorts and increased female labour force participation abetted by a negative aggregate earnings trend (mean real earnings of earners across the population de- clined from the mid 1970s through 1983). Both of these negative influences must also be acting on female earnings, but they are being offset, I suspect, by increasing labour force orientation and increasing investment in education among females. In short, male baby-boomers are earning less than did earlier male cohorts, and female baby-boomers are maintaining pretty much the traditional levels of earnings for their age and sex, but are working harding for it.

Conclusions

Considerations of cohort size and generational crowding alone would indeed, in the context of segmented labour market theory, lead to an expectation that relative youth unemployment would drop and relative youth earnings would rise in the early 1980s. That this expectation was not fully realized may reflect many factors. As Foot and Li suggest (pp.503-4) it is not yet clear how isolated the youth labour market is from the young adult labour market. Quite plausibly the adverse labour market conditions facing young adults tend to depress the earnings of less experienced youths. An alternate interpretation is that the relative unemployment of the post big generation cohorts is low because their expecta- tions are low and they are willing to accept relatively low wages. Age discriminatory insti- tutional factors could also be present. For example, it is a common and accepted practice in Canada to achieve staff reductions through attrition rather than layoffs, to the greatest extent possible. This practice is most common during recessions, and it must adversely affect youths, causing an age-time related effect in earnings data. Foot and Li may be quite correct that the labour market problems of youths will solve themselves as the big-generation moves out of

labour-force entry age range. It is however premature to claim that the youth labour market problem is going away. Furthermore, the possible existence of age related, time related, cohort related and age-time related effects on the labour market make it impossible, due to identification problems, to forecast with confidence how the youth labour market will respond to the passing of the big generation. We will have to watch the phenomenon with interest. It is clear though, that the 'youth' labour market problem is spread- ing up the age spectrum, and it may indeed be time to broaden the current 18-24 focus in order to address problems of the 'young adult' age group.

It must be emphasized that the declining relative earnings of youths documented above are not inconsistent with Foot and Li's findings of declining relative unemployment rates for youths, as data on the annual earnings of earners incorporates effects of unemployment, wage rates, and hours of work. Furthermore, changes in annual earnings levels do not necessarily reflect changes in rates of pay. The earnings data presented must be viewed in the context of the profound socio-economic changes that have taken place over the last 20 years. The growth in relative earnings experienced by 30 year old females over this period undoubtably reflects the increasing labour force orientation, labour force attachment and education levels of this group. The declining earnings of youths of both sexes reflects, at least partially, increasing levels of investment by youth in education, though it should be recognized that this phenomenon in turn may be partially related to a competitive entry level labour market, and inflated entry level qualification requirements.

The population of youths is now a shrinking political constituency. Hopefully future govern- ment policies toward youths will be based upon the needs of youths individually, rather than on the head count.

Methodology

The figures in this note are derived from two Age-in-Time-Mean Earnings surfaces that were prepared for a pension policy simulation project being jointly conducted by the Social and

Views and Comments/Commentaires 387



Economic Studies Division of Statistics Canada and the Institute for Research on Public Policy. The source data are a random sample of 50,000 individual earnings records drawn from a Canada Pension Plan administrative file called 'Record of Earnings File M50001'. This is a longitudinal file containing individual earnings histories since 1966 on all Canadians living outside the province of Quebec. The population for the sample drawn was actually all social insurance numbers for which earnings were reported (outside of Quebec) at any time from 1966 through 1983. (In-migrants and out-migrants are present in the sample, with zeros appearing across segments of their earnings records.) Each record drawn is anonymous in that it contains only an individual's sex, year of birth and yearly earnings from 1966 through 1983. The yearly earnings values are originating in T1 income tax forms. The earnings observations are truncated at $99,999 per year, which is sufficiently high to make truncation error a negligible problem.

The earnings surfaces were prepared from the sample by aggregating the 900,000 earnings observations into a three dimensional cell space consisting of 1728 cells (two sexes by years 1966 through 1983 by ages 18 through 65). The minimum number of (non-zero) observations per cell is 31 for females and 107 for males. The maximum standard error of the cell means is $1,536 for females and $1,102 for males ex- pressed in 1980 Canadian dollars. The sampling error was attenuated (though not eliminated) by using moving median smoothing (3R to use the notation of Tukey, 1977) along the age and time dimensions. The sampling error was clearly visible in contour plots of the earnings surfaces as a pattern of ridges and troughs with widths of

one year each, running along the equal year of birth diagonals. This pattern arises due to the lack of independence between the sampling error of observations pertaining to the same cohort in this longitudinal data. Moving along an 'Age column or a Time row, the sampling error appeared as high frequency noise. 3R smoothing filters out these high frequency oscillations without materially altering the underlying lower frequency structure. Contour mapping in this study was performed using Lexis a contour mapping program for micro-computers devel- oped at the International Institute for Applied Systems Analysis (IIASA) by Bradly Gambill, James Vaupel and Anatoli Yashin. A more extensive and somewhat more technical analysis of the earnings surfaces is available in 'Age, Sex, Time and Earnings' (Kennedy, 1987), a recent joint working paper of the Institute for Research on Public Policy and Social and Eco- nomic Studies Division, Statistics Canada.

References

Foot, David K. and Jeanne C. Li (1986) 'Youth Employment in Canada: A Misplaced Priority?' Canadian Public Policy - Analyse de Politiques, XII:3:499-506.

Freeman, R.B. and D.A. Wise (1982) The Youth Labour Market Problem: Its Nature, Causes and Consequences (Chicago: University of Chicago Press).

Kennedy, Bruce R. (1987) 'Age, Sex, Time, and Earnings,' a joint working paper of the Institute for Reseach on Public Policy and Social and Economic Studies Division, Statistics Canada (Halifax and Ottawa).

Statistics Canada (1984) Income Distributions by Size in Canada 1982 (Ottawa: Supply and Services Canada).

Tukey, John W. (1977) Exploration Data Analysis (Don Mills, Ontario: Addison-Wesley).

388 Bruce Kennedy



youth employment in canada: a comment

Documents