By Nhung Luu, Michael Abendschein and Orsetta Causa, OECD Economics Department
Labour market transitions, that is, the mobility of workers between jobs and in and out of employment, matter for growth and inclusiveness, not least to support the ongoing recovery from the COVID-19 crisis. Firm entry and exit, as well as the reallocation of workers allow resources to move from declining to expanding businesses, contributing significantly to productivity and allocative efficiency. From the perspective of workers, in particular young people entering the labour market, labour mobility and reallocation help them in seizing better job opportunities and reducing wage inequalities.
Our latest Working Paper: Labour market transitions across OECD countries: stylised facts (Causa, Luu and Abendschein, 2021) provides new evidence on pre-pandemic patterns and trends of worker transitions across European countries and the United States, with an emphasis on differences across socio-economic groups. Understanding labour market transitions is important in the context where effects of the Covid-19 crisis on the structure of employment may persist, with some sectors and occupations permanently shrinking and others growing.
Overall, we find that labour market transitions vary significantly from one country to another (Figure 1). Annual worker reallocation rates, defined as the sum of hirings from non-employment or from another job and separations to non-employment over a one year period range from around 30% of employment in Finland and Denmark to around 15% in the Czech Republic and Greece.
Figure 1. Labour market transitions in OECD countries, 2019
Labour market transitions also vary significantly within countries from one socio-economic group to another, underscoring key policy-relevant differences behind the aggregate picture. For example, women are much more likely than men to move in and out of jobs (Figure 2). This reflects the unequal burden of family-related responsibilities, which contributes to the higher propensity of women to drop out of the labour force and therefore to gender inequalities in the labour market.
Figure 2. Gender gaps in labour market transitions, 2019
Zooming in on labour market transitions over the great financial crisis provides an illustration of the long-lasting effects and scarring risks associated with recessions on labour market transitions, especially for young people entering the labour market. The transition from study to unemployment increased by 60% between 2007 and 2014, on average across countries for which data is available. More than two thirds of this increase was between 2008 and 2010. It took more than a decade for the transition from study to unemployment to decline back to its pre-recession level (Figure 3).
Figure 3. Scarring effects from the 2008 recession, 2007-2019
Our findings provide insights of the functioning of labour markets in OECD countries with implications for the recovery. While priorities will vary across countries based on the economic and social context, one overarching challenge for the recovery is to facilitate hiring dynamics and to minimise long-term unemployment among vulnerable groups who have been hardest hit and face higher risks of scarring from the recession, not least young people.
Causa, O., Luu, N. and M. Abendschein (2021): Labour market transitions across OECD countries: stylised facts, OECD Economics Department Working Paper No. 1692, https://doi.org/10.1787/62c85872-en