Effects of Generational Competition and Substitution on Late Labour Participation and Labour Market Exit from a Multilevel Perspective

Abstract

In this paper, we investigate the effects of demographic, economic and labour market structures on labour market participation and on the transition to inactivity (exit) for older males in eleven European countries. Theoretically, our analysis is guided by considerations of intragenerational competition and intergenerational substitution. Following Easterlin’s hypothesis that intragenerational competition rises with cohort size, we assume a negative effect of cohort size on labour market participation and a positive effect on early exit from the labour market. Taking into account that different cohorts are substitutes at least to a certain extent, we assume that the probability of an early exit will be reduced by a high intergenerational exchange ratio in favour of older workers. Thus, labour market participation is influenced by the populations’ age structure both when entering the labour force and during the career. Moreover, low shares of graduates in older cohorts are expected to reduce older workers’ chances of labour market participation. In addition to demographic structures, general economic conditions, such as per capita GDP and its development over time, act both to further and to hamper the employment of older workers. Additionally, labour market structures, such as unemployment rates, the extent of part-time work or the amount of service jobs influence individual participation and the transition to inactivity. To test these hypotheses, we use merged data from the first two waves of SHARE and macro-level indicators from Eurostat. We estimate a two-level random-intercept logit model which allows us to determine the share of variance in international late careers that can be attributed to country-specific factors and can quantify the relative impact of specific socio-demographic and socio-economic backgrounds. Our results imply that cross-national variance in labour market participation is mainly driven by the instance of long-term unemployment and the share of highly-educated older men. While our analyses reveal some evidence of intragenerational competition, we do not find evidence of intergenerational competition forcing early exit or decreasing participation.