Young people in the Labour Market – Slovenia in the EU Perspective Milan Vodopivec (with Suzana Laporšek) Prepared for the Conference “Managing Macroeconomic.

Young people in the Labour Market – Slovenia in the EU

Perspective

Milan Vodopivec(with Suzana Laporšek)

Prepared for the Conference “Managing Macroeconomic Imbalances,” Ljubljana, June

2012

How to explain comparatively low youth unemployment in Slovenia?

A puzzle: Despite rigid employment protection legislation (EPL), high minimum wages, and generous unemployment benefits, Slovenian youth unemployment rate (15-24) is significantly below the European one.

How to explain comparatively low youth unemployment in Slovenia?

The mystery solved: – The transition increased the “net worth” of

the young (the difference between the increase in relative productivity and relative wages)

–A tax loophole in labor regulation, coupled with free education, artificially raises demand for youth. (One implication: artificially large higher education enrollment rate.)

–Conducive demographics

1. Comparison of youth LM statistics

• Compared to EU countries, Slovenia’s youth labor market (15-24 olds) is distinguished by • low youth unemployment rates, • high activity rates.

• But there is a caveat: not-so-good statistics for 25-29 year olds!

Comparison of youth unemployment rates, 15-24 years, 2011 (%)

Slovenia is among six EU Member States with the lowest unemployment rate of young people in the age group 15-24 years.

Average

Note: Transition NMS are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

Comparison of youth unemployment rates, 15-24 years, 2001- 2011 (%)

Note: Transition NMS are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

Activity rate of youth, 15-24 years, 2001- 2011 (%)

A caveat:

Average

Comparison of youth unemployment rates, 25-29 years, 2011 (%)

Note: Transition NMS are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

Comparison of youth unemployment rates, 25-29 years, 2001- 2011 (%)

2. “Despite” factors

The most commonly cited barriers for youth unemployment are all present in Slovenia:

–employment protection legislation,

–minimum wages, and

–unemployment benefits

Employment protection legislation (EPL) index, late 2000s • Slovenia is still characterized with rather rigid employment protection

legislation compared to the rest of the EU countries.

• Especially high protection is observed in the field of regular employment.

Note: EPL index is calculated according to the OECD Version 3 methodology. Its value ranges from 0 (flexible employment legislation) to 6 (rigid employment legislation).

average

Comparison of minimum wage to average wage ratios, Slovenia and EU (2010)

Note: The EU average includes only those EU countries that have statutory minimum wage.

Comparison of minimum wage to average wage ratios , Slovenia and EU (2000 - 2010)

Net replacement rate of unemployment benefits (1999-2009)

Note: Transition NMS are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

Unemployment survival probability by age groups, Slovenia, 2011

3. Factors responsible for low youth unemployment

– Increased “net worth” of the young (the difference between the increase in relative productivity and relative wages)–A tax loophole in labor regulation, coupled

with free educationHigh proportion of temporary and part-

time work among young people –Conducive demographics

Differences in Relative Wages and Productivity by Age, 1992-2001

Omitted group: Individuals less than 30 years old.

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Age 30-39 Age 40-49 Age 50+

Wag

e D

iffe

ren

tial

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Age 30-39 Age 40-49 Age 50+P

rodu

ctiv

ity

Dif

fere

ntia

l

Matija Vodopivec, “Equal Pay for Equal Work? Wage and Productivity Differentials during Slovenia’s Transition.” Forthcoming in Eastern European Economics.

Differences in Relative Wages and Productivity by Education, 1992-2001

Omitted group: Individuals with uncompleted elementary school.

0.5

1

1.5

2

2.5

3

3.5

4

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Completed elementary school Vocational schoolHigh school 2-year college4-year college

Wag

e D

iffe

rent

ial

0.5

1

1.5

2

2.5

3

3.5

4

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Completed elementary school Vocational schoolHigh school 2-year college4-year college

Pro

duct

ivit

y D

iffe

rent

ial

v q

Matija Vodopivec, “Equal Pay for Equal Work? Wage and Productivity Differentials during Slovenia’s Transition.” Forthcoming in Eastern European Economics.

Part-time employment as % of total employment, 15-24 years, Slovenia and EU (2001- 2011)

Note: Transition NMS are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

Note: Transition NMS are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

Temporary employment as % of total employment, 15-24 years, Slovenia and EU (2001- 2011)

Record high higher education enrollment rate (20-24 olds), 2009

Average

Favorable demographics

• Outflow from schooling to the labor market was reduced from 26, 000 in 1995 to below 24,000 in 2010

4. Concluding remarks

• Idiosyncratic factors at work that explain low youth (15-24) unemployment rate

• Reducing labor market segmentation remains a priority

• Minimum wage should be kept at a reasonable level

• Tax-exemption for students should be abolished (as well as tuition-free higher education)