Getting on the job ladder: The policy drivers of hiring transitions

Michael Abendschein, Nhung Luu, Orsetta Causa 02 May 2022

a

A

The process of labour reallocation is largely driven by market forces and creative destruction, which tend to expand better opportunities and downsize inefficient activities. Understanding labour market transitions is crucial in the context where the current recovery from the COVID-19 pandemic requires workers’ reallocation (OECD 2021a, Anayi et al. 2021, Carrillo-Tudela et al. 2022 ). Going further, some effects of the crisis on the structure of employment may persist, with some sectors and occupations likely shrinking while others growing, for instance, due to pre-existing trends that have been amplified by the pandemic, such as digitalisation, increasing demand for professionals in health care and the urgency of the green transition. Indeed, labour shortages have been intensifying in a number of countries (OECD 2021b, Pizzinelli and Shibata 2022). This calls for policies to reduce frictions to workers’ transitions and improve the matching between jobseekers and new job openings.

In recent work (Causa et al. 2022), we investigate how policies – alongside cyclical and structural factors – influence workers’ mobility into new jobs, with an emphasis on target socioeconomic groups such as youth, the low-skilled, and women. Based on harmonised data for European countries, the analysis focuses on hiring transitions – for example, flows from unemployment and from various forms of inactivity into employment and from one job to another. 

To set the scene, we show that hiring transition probabilities vary significantly from one country to another (Figure1). For example, chances of moving from unemployment to a job from one quarter to the next are more than twice as high in Denmark and Switzerland than in Italy and Greece, while chances of changing jobs are around five times higher in Sweden than in the Czech Republic. 

Our empirical results indicate that unemployment-to-job and job-to-job rates are strongly pro-cyclical with respect to macro-level conditions (i.e. they more frequent in expansions than recessions), in particular for young workers. Hiring transitions, especially out of unemployment, are also responsive to local labour market conditions (e.g. they are more frequent when regional unemployment is low). These effects are particularly strong for low-skilled workers. Business cycle conditions also matter for inactivity-to-job transitions: students find it particularly hard to enter the labour market during recessions and when regional labour markets are slack, while inactive women being held back by domestic are more likely to access jobs during recoveries.

Figure 1 Hiring transition probabilities across European countries: a snapshot

Annual averages of quarterly transitions (%)

Note: Annual averages of quarterly transition probabilities estimated by Eurostat. Transitions from unemployment to a job are expressed as the share of previously unemployed people, while job-to-job transitions are expressed as the share of previously employed persons, and transitions from inactivity are expressed as the share of previously inactive people. 
Source: Eurostat. https://ec.europa.eu/eurostat/web/experimental-statistics/labour-market-transitions.

The policy analysis provides evidence that a large number of policies influence hiring transitions, with differential effects across socioeconomic groups. Selected findings from our results are:

  • Active labour market policies – for instance, spending on job-search support, apprenticeships and employment incentives – are positively associated with hiring transitions from unemployment to jobs. These effects are strongest among low-educated groups. Active labour market policies are also found to help youth transition from study to jobs. 
  • Higher levels of labour tax wedges, especially in the lower half of the wage distribution, tend to depress job-to-job mobility, particularly for the low-skilled and young people, as well as jobless-to-job mobility, including inactivity-to-job mobility for women. 
  • Family-related policies are found to influence hiring transitions. The larger the difference between the length of maternity and paternity leave, the lower unemployment-to-job and job-to-job transitions among both men and women. Longer paid paternity leave is associated with more job-to-job mobility among women. More generous childcare benefits for low-income families and lone parents are associated with higher unemployment-to-job transitions, especially among the low-skilled.
  • Stringent job protection for regular contracts and large differences in job protection between regular and temporary contracts are associated with lower job-to-job transitions, especially for low-educated workers and young people. 
  • Countries where the population is more internally mobile display higher levels of unemployment-to-job, inactivity to-job, and job-to-job transitions (see also Causa et al. 2021). 
  • Countries that receive more inflows of international migrants exhibit significantly more job-to-job mobility, especially among young people and low-educated workers, as well as more inactivity-to-job mobility both for women and for young people.

To give a tentative assessment of the estimated magnitude, policy simulations are used to illustrate the effect a policy change has on country-level hiring rates. Figure 2 illustrates the change in unemployment-to-job transitions that could be induced by stepping up the level of active labour market support to the median of OECD countries and the upper quartile, respectively. Such reform scenarios suggest considerable policy-driven gains in job-finding rates of unemployed in Italy, France and Spain, countries that tend to feature relatively high unemployment rates, especially among young people and the low-skilled, as well as high incidence of long-term unemployment.

Figure 2 Stepping-up active labour market policies

Stepping-up total spending on active labour market policies, effects of unemployment-to-job transitions for the working-age population

Note: Based on the latest available year for every country. The simulation considers two benchmark cases depending on countries’ relative starting point:  1) the median of OECD countries, with the policy gap being closed for countries below this benchmark, 2) the upper quartile of OECD countries, with the policy gap being closed for countries below this benchmark but above the median.  
Source: OECD calculations.

Figure 3 shows how reforms to parental leave may contribute to helping women move between jobs and climb the job ladder. A narrowing of the length of parental leave between mothers and fathers suggests relevant job-to-job mobility gains for women in countries where such mobility is relatively low and/or where paternity leave is substantively shorter than maternity, such as in the Slovak Republic and Hungary. 

Figure  3 Reducing the gender gap in parental leave 

Effects on job-to-job transition for women

Note: Difference between the length of paid maternity and paternity leave in weeks. 
Source: OECD calculations.

Our work contributes to understanding how policies influence hiring transitions, which is relevant in the current context of an ongoing yet unbalanced labour market recovery, severe labour shortages, and deep structural transformations associated with the transition to a low-carbon and digital economy. Labour mobility is not an aim in itself, and job quality concerns need to be considered. Nevertheless, dynamic labour markets enable workers to get on and climb the job ladder, facilitate job matching, and provide better opportunities, in particular among youth and disadvantaged groups. Country-specific priorities will vary depending on the context, challenges and social preferences, yet the findings from our paper can guide the policymaking process with a view to achieving inclusive, resilient and efficient labour markets.

References

Anayi, L, J M Barrero, N Bloom, P Bunn, S Davis, J Leather, B Meyer, M Oikonomou, E Mihaylov, P  Mizen and G Thwaites (2021), “Labour market reallocation in the wake of Covid-19”, VoxEU.org, 13 August.

Carillo-Tudela, C, C Comunello, A Clymo, A Jäckle, L Visschers and D Zentler-Munro (2022), “Job search and mismatch during the Covid-19 pandemic”, VoxEU.org, 7 April.

Causa, O, M C Cavalleri, M Abendschein and N Luu (2021), “The laws of attraction: Economic drivers of regional migration, housing costs and the role of policies”, VoxEU.org, 11 December.

Causa, O, M Abendschein, N Luu and M C Cavalleri (2022), “Getting on the job ladder: The policy drivers of hiring transitions”, OECD Economics Department Working Paper No. 1710.

OECD (2021a), OECD Employment Outlook, OECD Publishing, Paris

OECD (2021b), OECD Economic Outlook, Volume 1, OECD Publishing, Paris.

Pizzinelli, C and I Shibata (2022), “Has COVID-19 induced Labor Market Mismatch? Evidence from the US and the UK”, IMF Working Paper WP/22/5.

a

A

Topics:  Labour markets

Tags:  OECD, policy, job ladder, hiring transition, job mobility, youth, low-skilled, women

Junior Economist, OECD Economics Department

Consultant, OECD Economics Department

Senior Economist, Deputy Head of Division, Structural Surveillance Division, OECD Economics Department

Events

CEPR Policy Research