LABOUR FORCE - UNEMPLOYMENT AND PARTICIPATION RATES IN AUSTRALIA: A COHORT ANALYSIS
The following article is an extract from an ABS publication, Australian Labour Market Statistics (cat. no. 6105.0) which was released on 4 July 2003. This publication draws together data from a range of sources, mostly ABS household and business surveys, to provide an overall picture of the labour market. The key purpose of this publication is to raise awareness of data availability to enable clients to use the data more effectively.
A person's experience of the labour market will vary according to a number of factors, including the economic conditions at any given time, and their age. For example, the chance of someone finding a job decreases during a recession, while the likelihood of participating in the labour force varies as circumstances change, particularly in relation to family and education commitments. Factors affecting someone's peer group can also have a similar influence on labour market activity — people of different generations may have different expectations and experiences.
This article presents the results of an analysis of unemployment and labour force participation rates, based on following the labour market outcomes of successive groups of individuals over time, using data from the Labour Force Survey. Twenty-one groups (birth cohorts) of people were included, with each group born in successive years between 1937 and 1957. Thus, the analysis used data for the June of each year from 1981 to 2001, including persons aged 24 to 44 in 1981, 25 to 45 in 1982, and so on, to including persons aged 44 to 64 in 2001.
The analysis (a regression-based decomposition analysis) disentangles the effects of three separate components which can influence unemployment and labour market participation — year effect, age effect and cohort effect.
This is the effect that year had on any individual's changes of being unemployed or participating in the labour force (whatever their age). The year effect captures
movements over time that arise from the economic cycle. During periods of strong economic growth, unemployment will, in most cases, decrease for all age groups, while during economic downturns, unemployment will tend to move upwards for all age groups. Participation rates could be expected to move in the opposite direction to unemployment.
This is the effect that a person's age had on their chances of being unemployed or participating in the labour force (whatever the year). The age effect captures movements over the life cycle. Usually younger people experience higher levels of unemployment than those in older age groups. Their level of unemployment then drops as they gain increased levels of education and work experience. It begins to rise again for ages closer to retirement age. Again, participation rates could be expected to move in the opposite direction.
This is the effect that the cohort into which a person was born had on their chances of being unemployed or participating in the labour force (whatever the year and whatever their age). The cohort effect captures movements in the unemployment rate that are exclusive to that particular cohort, and will influence unemployment rates for the particular cohort over the whole period. For example, women born in the 1930s have had different labour market experiences to those born in the 1950s, throughout the economic cycle.
The following presents information on the effects of two of the components which can influence unemployment and labour market participation: age and cohort effects. For details of the third component, that is, the year effect, and more detailed analyses including the analytical method used, refer to Australian Labour Market Statistics (cat. no. 6105.0).
The Effect of Age
The relationship between age and unemployment, after controlling for year and cohort effects, is shown in Figure 4. Younger workers, who have only recently entered the labour market, experience higher levels of unemployment than middle aged workers, who are better established in employment. Among men, the relationship between age and unemployment remains relatively steady until their early 50s when it begins to rise, peaking at age 59. The age effects for women are considerably different, with the unemployment rate continuing to decline after age 50. Again this could be explained by women being more likely to exit the labour market than to remain unemployed. The sharp drop in unemployment rates among both men and women close to age 60 may be attributed to workers retiring from the labour market.
The relationship between age and participation, after controlling for year and cohort effects, is shown in Figure 5. Among men, labour force participation gradually declines with age until they reach their mid 50s, at which point it begins to decline more sharply. The participation rate for women is lower during the years that many women have children — around 25 to 35 years of age — but then increases until age 50, when it then falls in a similar manner to the male rate. The lower participation rates for people aged over 50 could be attributed to various factors, including voluntary early retirement, health problems, and choosing to leave the labour force rather than remain unemployed.
The Effect of the Cohort
When compared to the age and year effects, the influence someone's cohort group has on their chances of being unemployed is relatively small (see Figure 6). However, the cohort effect for unemployment is statistically significant for men.
The male cohort effect indicates that, after controlling for age and year effects, older cohorts (that is, men born before around 1945) experienced, on average, lower unemployment rates than their younger counterparts. For example, over the 20 year period, the unemployment rate for men in the 1956 birth cohort is around 0.2 percentage points higher on average than the unemployment rate for men born in 1937.
The cohort effect on unemployment rates was stronger for unskilled men than skilled men, as shown in Figure 7. Here, the skilled group is defined as comprising people who completed high school as well as those who received some post school qualification. Among skilled men, there was little difference between the cohorts. The unskilled group comprised those who did not complete high school. The results show that, after controlling for the effects of age and year, unemployment tended to be higher among unskilled men from later generations.
Figure 8 shows the relationship between a person's cohort and their chances of participating in the labour force. Although the cohort effect is significant for both men and women, it is much stronger for women. After controlling for age and year effects, men born in 1937 experienced participation rates 3 percentage points higher on average over the period than men born in 1956. Conversely, women born in 1936 experienced participation rates 23 percentage points lower on average than women born in 1956, after controlling for age and year effects.
Changing employment opportunities for women resulting from changing social attitudes may help to explain the increasing trend in labour market participation among younger cohorts. Employment growth between 1981 and 2001 has been skewed towards females. Between 1981 and 2001, female employment as a proportion of total employment increased from 37% to 45%. The driving force behind this growth in female employment is from increased part-time employment, especially in the services sector.
For more information about the analysis please contact Ravi Ravindiran on Canberra 02 6252 7039, or via email at Ravi.Ravindiran@abs.gov.au. For information about the Labour Force Survey please contact Peter Bradbury on Canberra 02 6252 6565, or via email at Peter.Bradbury@abs.gov.au.