Having a choice of transition pathways from school to work, further education or training gives young people the best chance of success. Using the 1995 cohort of the Longitudinal Surveys of Australian Youth, this study looks at the role post-school qualifications play in the year-by-year movement between labour market states by young people. Higher post-school qualifications are found to increase the chances of being permanently employed and provide protection against being persistently unemployed or out of the labour force.
About the research
Much analysis of youth transitions focuses on the first year after education, or outcomes at a specific age. Such work looks, for example, at the effect of education on the likelihood of being employed or unemployed.
This study takes a different angle by considering the effect of education on the persistence of labour market outcomes. For example, leaving school before Year 12 may be associated with high levels of unemployment, but the question is whether such a person is less likely to remain in employment once he or she has a job, compared with people with better educational qualifications.
Specifically, this study examines the role that post-school qualifications play in the annual transitions between labour market states for young Australians and is based on the 1995 cohort of the Longitudinal Surveys of Australian Youth (LSAY). The labour states that were examined were: permanent employment; casual employment; unemployment; and not in the labour force. The effect of personality traits and ability on labour market transitions was also examined.
We know that having post-school qualifications, particularly higher-level qualifications, increases the chances of permanent employment, and the study confirms this. However, by focusing also on the occurrence of persistent labour market states, this work generates new insights. The study finds that the most persistent labour market states are casual employment for men, while for women it is being out of the labour force. Having at least a certificate IV for women or a bachelor degree or higher for men provides a buffer against undesirable labour market states, such as unemployment or being out of the labour force, becoming persistent.
Managing Director, NCVER
This study uses an annual timeframe to evaluate the influence of labour market status in one period on status in the subsequent period. Understanding the role of past labour market experiences is important when it is the objective of policy-makers to increase the proportion of time spent by young Australians in desirable labour market states, such as full-time work, and reduce the time they spend in marginalised activities, such as unemployment. These concerns are heightened during lean economic times, but they never really go away. A natural question that may arise, especially in a weak labour market for youth, is whether promoting casual employment today would lead to more people being employed permanently in the future, or would simply result in more people working on a casual basis. For such a question to be answered, it is necessary to understand the role of previous labour market states and, specifically in this study, how this role differs by the level of education and qualifications obtained.
Four labour market states are considered in this study: permanent employment; casual employment; unemployment; and not being in the labour force. The analysis used differs from previous research in that it models year-on-year transitions and does not follow the more commonly used approach of taking a group of individuals at one point in time (for example, first year after leaving school) and then modelling the labour market state, say, five years later: a ‘what did they do then and where are they now’ approach. This study is therefore a natural complement to this previous research.
Using the 1995 cohort of the Longitudinal Surveys of Australian Youth (LSAY), this study finds that there is substantial predictive power in the previous year’s labour market state when modelling the current labour market state. In fact, the previous year’s state has the largest predictive power of all factors considered, including post-school qualifications.
Much of the persistence was shown to be due to an underlying process that drives labour market outcomes in all years, particularly for casual employment, in the case of men and, for women, being out of the labour market. Ignoring this process will result in their effects being passed through the previous labour market status variables, thus creating an illusion of severe persistence. Controlling for the process shows that, although persistence was reduced, previous labour market experience has a genuine impact on current labour market status.
The study shows that being in full-time permanent employment in the previous period— compared with the alternative of being out of the labour force—is, for women, associated with a 19.4 percentage point increase in the probability of being permanently employed in the next period. For men, the increase is much smaller, at 10.0 percentage points.
Much smaller effects are found for factors other than previous labour market states. In terms of the level of post-school qualifications, higher levels of education are associated with increased probabilities of being permanently employed. Although any post-school qualification is better than none, the biggest boost is provided by certificate IV and bachelor degree or better for men, and bachelor degree or higher for women. Post-school qualifications also play a greater role for women in general.
In addition to studying the effect of post-school qualifications and previous period labour market state in isolation, they are also studied concurrently. This addresses the effect of previous period labour market outcome for different levels of post-school qualifications.
When simulating being out of the labour force in the previous period, the effect on the probability of being permanently employed in the current period was found to be -5.5 percentage points for men and -14.7 percentage points for women (off the base prediction of about 85% for both men and women). But when related to the post-school qualification level, we see that this negative effect of the permanent employment probability ranges from almost no effect when combined with having a bachelor degree or higher (-0.2 percentage points for men; -4.8 percentage points for women), to a maximum of -9.6 percentage points for men (and -27.3 percentage points for women) if being out of the labour force in the previous period is compounded by having no post school qualifications. Having a bachelor degree for men and women or a certificate IV for women is shown to provide the best buffer against being out of the labour force becoming a persistent state.
Similarly, the effect of the previous period of unemployment on the probability of being employed permanently in the current period ranged from negligible when unemployment is combined with having a bachelor degree or better, to -6.9 percentage points for men in the worst case when unemployment is combined with having no post-school qualifications, and -14.6 percentage points for women (off the base prediction of about 85% permanently employed for both genders). In other words, an event that would lead to all of Australia’s youth collectively becoming unemployed would almost be completely offset, in terms of impact on next period’s labour market outcome, if this event resulted in everyone’s post-school qualification levels being lifted to a bachelor degree or better, or, alternatively, a certificate IV for women.1
Although having much smaller an impact, policies focusing on the social skills of young Australians could also improve their labour market outcomes. Lifting young Australian women’s confidence to a point where they all considered themselves as being very confident would increase the proportion of young women in permanent employment by close to 1–2 percentage points (on top of a base prediction of about 85%) and about 1 percentage point extra in casual employment, while reducing unemployment and exits from the labour force.
1 It is hard to think of an event that would result in all young people losing their job. The point made here, however, is about the comparative strength of the post-school qualification variables .
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