New Entrants on the Estonian Labour Market: A Comparison with the EU Countries

Transcription

1 New Entrants on the Estonian Labour Market: A Comparison with the EU Countries Ellu Saar Institute for International and Social Studies Tallinn Pedagogical University Estonia blvd. 7, Tallinn 10143, Estonia Tel: Fax: saar@iiss.ee Key words: labour market entrants, school-to-work transition, comparative research, labour market entry patterns

2 New Entrants on the Estonian Labour Market: A Comparison with the EU Countries Abstract The aim of this paper is to present a descriptive overview of patterns and labour market outcomes characterizing the labour market entry in Estonia compared to the EU countries. The assumption that labour market institutions and educational systems have an impact on the labour market entry process makes up the starting point for the formulation of the hypotheses. The hypotheses have been formulated on the basis of the comparison between the educational systems as well as labour market institutions in Estonia and in the EU countries. The paper draws upon data from the Estonian Labour Force Survey (ELFS) 2002 and from the 1997 ELFS macro level data about the EU countries. The paper will present evidence concerning differences in labour market outcomes between new entrants and experienced workers. Labour market outcomes as well as transition probabilities will be assessed using regressions. Based on macro level data, the analysis will attempt to empirically identify distinct country clusters. 2

3 New Entrants on the Estonian Labour Market: A Comparison with the EU Countries 1 Introduction The transition from school-to-work has been described as a dynamic process where a person moves from the educational system to a relatively stable working position (Hannan et al. 1997). The process is influenced by individual resources (e.g. education, labour market experience), ascriptive characteristics (e.g. gender, social origin etc) as well as by economic situation and the forms in which the labour market is organized. According to different findings, the organization of the national educational systems and the way it is perceived and used by the production system are also very important (Müller and Gangl 2003, Müller and Shavit 1998, Marsden 1997, Kerckhoff 1996). The transition process is reflecting the way of regulating young people s entry into the labour market rather than being the consequence of individual resources and characteristics. The institutional context influences individual resources, which depend on the institutional arrangements of educational systems, organization of the employment system and linkages between those institutions (Hannan et al. 1997). There is a great number of empirical studies on school-to-work transitions carried out in the European Union countries whereby the studies conducted in the Central and Eastern European countries are relatively rare (see for example Kogan and Unt 2004, Toomse 2003, Róbert and Bukodi 2002, Cedefop 2001). However, some attempts have been made in order to identify the position of these countries in typologies of labour market entry patterns. Authors of the Cedefop report (2001) conclude that Central and Eastern European countries are moving away from a model of regulated inclusion to the one of competitive regulation (Cedefop 2001: 106). Bukodi and Róbert (2002) assert that in Hungary, the strong link between education and occupation and mobility space, typically qualificational in nature, started to change slowly in the direction of an organizational mobility space, where the curriculum of the educational institutions is more general and where the match between the type of qualification and the type of job is not strong anymore (Bukodi and Róbert 2002: 3). Previous analysis has shown that the Central and Eastern European countries are moving in different directions adopting various employment and unemployment protection models and changing their educational systems (see for example Hampalová 2003, Helemäe and Saar 2002, Riboud 2002). The aim of this paper is to present a descriptive overview of the patterns and labour market 3

4 outcomes characterizing the labour market entry in Estonia in comparison to the EU countries, and to classify the Estonian labour market entry pattern using previous typologies. Many recent comparative studies of labour market entry process have used the classifications based on a dichotomy of institutional arrangements: the organizational (internal) labour markets and the occupational labour markets. Proceeding from the trio internal/occupational/unorganized labour market, Garonna and Ryan (1989) have identified three different ways in which young people are integrated into labour market (regulated inclusion, selective exclusion and competitive regulation). This typology has been elaborated in other publications (Cedefop 2001, Couppié and Mansuy 2001b). Couppié and Mansuy (2001a) emphasize some advantages of Garonna and Ryan s presentation: collective agreement and practices at the workplace are part of the picture; educational system and production system linkages are included; market regulation changes are taken into account. In this paper, we will not concentrate on the analysis of youth as a specific age group. We prefer to compare labour market entrants and experienced workers 1 because the previous studies have demonstrated that national organization of the educational system as well as labour market regulation influence the biographical timing of the transition (Couppié and Mansuy 2003). The category of new labour market entrants is useful because it combines characteristics of youth s position towards the education and training system with the experience accumulated on the labour market (Couppié and Mansuy 2001a: 24). Compared with the rest of the labour force, new entrants are defined by their lack of labour market experience. According to insider-outsider theory they are considered as outsiders. The starting point for the formulation of the hypotheses in this paper is based on the assumption that different labour market institutions and educational systems have an impact on the labour market entry process. The comparison between the educational systems as well as labour market institutions of Estonia and the EU countries will help us to formulate hypotheses about labour market entry process in Estonia using the classification results from previous studies. The paper draws upon data from the Estonian Labour Force Survey 2002 as well as the macro level data from the ELFS 1997 about the EU countries published in Cedefop report (2001). The study will start with an overview of the insider-outsider theory and the summary of the most relevant empirical results. Thereafter, the institutional context will be analysed and the hypotheses formulated. Section 6 will discuss the database and the methodological approach to the 4

5 analysis. Empirical results will be presented in Section 7 holding the basic descriptive analysis about labour market entry process in Estonia as well as the cluster analysis for classifying the pattern in different European countries. The concluding section will summarize the results. 2 Insider-outsider theory and the labour market entrants The insider-outsider theory is based on the observation concerning labour turnover costs, which can be found in most market economies (costs related to dismissal of incumbent workers and hiring of new entrants) (Lindbeck and Snower 1986). These costs divide workers into three groups: 1) insiders having protected position, 2) outsiders, who have no prospects to protection, and 3) entrants, who hold jobs that may lead to insider status. The distinction between the insiders and the outsiders can be made along different divisions: employed versus unemployed, people with good jobs versus bad jobs (jobs with low wages, part-time jobs, fixed-term jobs, jobs in secondary sector), workers with high and low tenure, employees who have significant firm-specific skills and those who do not, the short-term unemployed versus the long-term employed. A specific group of outsiders consists of labour market entrants since they must compete with experienced workers (De Vreyer et al. 2000). Firms usually distinguish between two groups when negotiating wages: the insiders and the outsiders. The size of labour turnover costs has a direct impact on the insiders market power. The smaller the costs the more likely the firms start to bargain with the outsiders. Thus the labour turnover costs make up the source of insiders market power. Manzini and Snower (1998) argue that the insiders market power might be regarded as rising with labour turnover costs. The insiders may influence not only their own wages but those of the entrants as well. Their interest is to restrict the firms to employ entrants. The lower the entrants wages the higher the rate of entrants employment (Begg 1988). In order to avoid entrants employment, the insiders try to push their wages up. Labour turnover costs may be interpreted as entry barriers, making it difficult for the outsiders to enter the labour market. The greater is worker s seniority the greater are labour turnover costs and the more protected their positions become. Labour turnover costs may be divided into two categories: production-related (firms search, screening and training costs) and rent-related connected to the insiders rent-seeking activities (Lindbeck and Snower 2002). Hiring costs are mostly production-related, firing costs, on the other hand, are mostly rent-related. 5

6 Entrants are only associated with hiring costs while in the insiders' case, all hiring costs have already been expended and their dismissal is connected with firing costs. According to the theory, it lies in the insiders interest to increase the firing costs in order to secure their position, to get a raise in wages and discourage firms to hire the outsiders (Lindbeck and Snower 2002). Firing costs may include seniority rule (last in, first out), additional wages and different forms of legal protection against firing (Lindbeck 1994). The process of wage bargaining may also induce segmentation of the labour market, placing the insiders into the primary segment (De Vreyer et al. 2000). Due to their position, they can benefit from specific human capital or from their position as insiders. The outsiders, on the other hand, are more constrained to accept low-paid and/or unstable jobs, or to be unemployed. 2.1 Labour market entrants and labour protection Employment protection refers to regulations concerning both hiring and firing. It may concern rules favouring disadvantaged groups, conditions for using temporary contracts, training requirements, redundancy procedures, severance payments, special requirements for collective dismissal. According to the insider-outsider theory a more strict employment protection is connected to a higher turnover. Employment protection will improve the access of some workers to stable jobs providing them with training opportunities. However, it may disadvantage other workers who fail to get jobs or these kinds of jobs they will, or any jobs at all (OECD 1999). Employment protection may enhance the differentiation of workers into outsiders and insiders because various kinds of employment protection mechanisms affect flows in and out of jobs (Esping-Andersen and Regini 2000). The result is expected to apply at least as strongly to youths as to adults (Ryan 2001). Esping-Andersen (2000) has found that strong employment protection affects the composition of unemployment rather than the overall rate of unemployment and contributes to the unemployment problems among youth and low-skilled workers. Other authors have found that stricter employment protection seems to decrease unemployment for prime-age men but has only a weak effect on youth s unemployment (OECD 1999). The evidence reported in the study of Bertola, Blau and Kahn (2001) is ambiguous. They argue that the rigidities created by various labour market institutions have had a negative effect on employment of young workers only in some countries. It seems that employment protection affects youth's unemployment in a mediated way: the 6

7 co-ordinated wage bargaining will help to reduce the negative effect of employment protection on youth unemployment (Esping-Andersen 2000). It has been argued that the level at which wage bargaining takes place determines the strength of the insider-outsider dichotomy (van der Velden and Wolbers 2003). At the one extreme, wage bargaining is centralized: unionization and/or collective bargaining coverage is high and wages are negotiated at the central level. At the other extreme, firms and workers can negotiate wages on the level of individual enterprises. In this case, the wage bargaining structure is labeled as de-centralized. Van der Velden and Wolbers (2003) suppose that the relationship between the degree of centralization or co-ordination and the unemployment level in the country should be stronger for youth because young people as outsiders are more vulnerable for changes in labour market conditions. The effect of employment protection on the structure of labour market entrants position is not clear. To the same extent as employment protection reduces hiring it may also lock the insiders into relatively poor job matches by making it more difficult to them to move up (OECD 1999). Stricter protection increasing unemployment of young workers would decrease competition between insiders and hired new entrants who would turn into insiders. Less strict employment protection lowering entry barriers to labour market would increase competition between insiders and new entrants. There is only some evidence of employment protection effect on status outcomes among young people entering the labour market. Gangl (2003) has found a positive employment protection effect of status attainment of youth. This effect is more pronounced for the least qualified. For the university graduates the effect is the opposite. In highly protected labour markets they tend to achieve somewhat lower position than the university graduates in countries with lower employment protection. It is assumed that the degree to which workers are unionized also has an impact on insiders market power. Firms are reluctant to replace their high-wage unionized workers by low-wage non-unionized ones because it is costly (Lindbeck and Snower 2002). Unions are able to increase labour turnover costs associated with their members. In countries where unions are powerful but represent only the core workforce the insider-outsider divide arises. 2.2 The impact of educational system According to the theory, beside labour market institutions, the educational system should also have an impact on success of the outsiders labour market entry. Analyzing the educational systems one 7

8 has agreed that the largest differences are revealed on the secondary level. The differences are first of all connected with the extent to which an educational system offers general and vocational education (Müller and Shavit 1998). In countries where more students are enrolled in general secondary schools new workers require on-the-job training. Once firms have trained workers they offer them different facilities (labour protection, higher wages etc.) to remain in the firm because otherwise they lose this investment. The training will increase labour turnover costs at the same time raising insiders market power. Young people as typical outsiders have difficulties in entering the labour market. They suffer from higher job instability and unemployment rates than do experienced workers (Shavit and Müller 2000). In countries where educational system offers predominantly vocational skills, the young people's entry into the labour market is also smoother because vocational education provides a safety net. The way vocational education is organized (in fulltime school track or as an apprenticeship) seems to be important as well. Results of van der Velden and Wolbers (2003) indicate that the presence of a substantial dual system (workplace-based vocational training system) improves the transition from school to work. There are two explanations: one of the underlying factors of the success of the dual system is that it decreases the selection and allocation costs for employers: the dual system offers them a possibility to screen potential employees during their training and to mould their skills to the firm s specific needs (van der Velden and Wolbers 2003). The second explanation is that the labour market entrants are not considered as outsiders because they have already acquired firm-specific skills. Allmendinger (1989) proposes a typology of educational systems based on two dimensions: the standardization and the stratification. Standardization is the degree to which the quality of education meets the same standards nation-wide. The criteria of standardization are applied to all educational certificates, curricula, rules and requirements for giving the exams etc. on the state or regional level. In most European countries the general educational system is rather standardized. Another vital dimension is the differentiation of educational systems and whether there are any distinctive tracks concerning vocational and general education on the level of secondary education (Müller and Shavit 1998). The age at which the students are sorted into the respective tracks of the educational system also comprises a dimension, which helps to determine how rigid 8

9 the boundaries between these different tracks are. When establishing the level of differentiation of educational systems it is also important to look how the opportunities to continue tertiary education differ among the graduates from different types of schools, and whether there are any educational dead-ends. Thus, the differentiated educational system contributes to an early stratification of the youth. Stratification refers both to different kinds of educational programs' varied prestige and the varied opportunities of reaching high levels of educational attainment (Kerckhoff 2000). It seems that the most highly standardized educational systems practice high or intermediate level of stratification and vocational specificity (Müller and Shavit 1998). The standardization and stratification make the firms searching and screening costs lower. The established professional standards facilitate the hiring process of new workers for employers as they can rely on school certificates issued to the graduates. They can be sure that new workers will meet their expectations. In systems with a relatively low level of standardization, employers decisions are less likely to be based on educational merits and they need to use special screening procedures making labour turnover costs higher. In countries with highly stratified educational system credentials usually provide signals about labour market entrants' educational achievements, which, in turn, decreases hiring costs. The expansion of secondary and tertiary education would modify the effect of education on success of labour market entry and decrease employment opportunities for less educated young people (van der Ploeg 1995). The most dominant explanation is the displacement argument according to which the decreasing employment opportunities for lower qualified are seen as a labour market matching problem because available positions are filled by more highly qualified people (Kalleberg 1996). Solga (2002) offers another explanation stigmatization by negative selection arguing that educational expansion has not only changed the number of less educated people but has also intensified the process of negative selection, which causes the stigmatization of the less educated. Following the educational expansion, employers increasingly trust the sorting function of schools and teachers evaluation, resulting in exclusion of the less well educated (Solga 2002: 159). Stigmatization usually starts in school and is an almost irreversible process. In countries where more students are enrolled in general secondary schools the need and pressure for an expansion of tertiary education are great having substantial consequences for labour market entry. Young people must attain higher level of education to secure more favourable labour market positions. 9

10 3 Labour market entry patterns The most previous research on entry of youth into labour market has contrasted two polar types of systems on the European labour market: occupational labour market system operating in countries with strongly vocationally oriented training and internal labour market systems operating in countries where labour market allocation predominantly relies on experience (Marsden 1986). Nevertheless, Gangl (2001) has found that important cross-national differences in labour market entry patterns exist within both groups of countries. Authors of the final report of the CATEWE project (Smyth et al. 2001) suggested that national transition systems could be represented as a single continuum. At the one end of this continuum are countries such as Germany having strong occupational labour markets, standardized and track-differentiated educational systems, and strong links between education and labour market. At the other end of the continuum are countries dominated by internal labour markets, with less standardized and less differentiated educational systems, weaker links between education and the labour market and little formal work-based training (Smyth et al. 2001: 93). Examples of later type are the USA and Scotland and Ireland as its European counterparts. Garonna and Ryan (1991) using the trio of internal market/occupational market/unorganized market models proposed three different ideal systems regulating the entry of youth into labour market: regulated inclusion, selective exclusion and competitive regulation. Regulated inclusion is operating in the context of dominating occupational labour markets. Initial training is acquired through alternate training, usually in apprenticeship. Certification of training allows admission to the occupational market (Cedefop 2001). Work experience has a limited impact on recruitment decisions. Skills are transferable between the firms but the insiders are partly protected from the outsiders competition because the access is regulated by the completion of the correspondence qualification (Couppié and Mansuy 2001b). This kind of organization of labour market indicates that there is a co-operation among employers as well as between employees and employers (Estevez-Abe et al. 2001). Selective exclusion operates in a context of dominating internal labour markets. Entrants begin their career at the bottom and progress upward through tenure and internal promotion. The qualification is obtained within the firm and is not transferable. Access to these markets is restricted because the turnover costs are high and the insiders are protected against the outsiders. 10

11 New entrants are likely to be recruited at the lowest levels (Couppié and Mansuy 2001b). Ryan (2001) stressed that internal labour markets do not systematically produce selective exclusion: a strong position of insiders is also a necessary condition. In a competitive regulation settings, employers look for short-term profitability. This may occur in the cases of high unemployment rate, weak employment protection and weak union power. Employers take the maximum advantage of the competition between experienced workers and new entrants. Employers may recruit young workers on lower wages using flexible forms of employment contracts instead of employing experienced workers with more stable contracts (Cedefop 2001). According to Garonna and Ryan (1991) this trend is operating mostly in the UK and the USA. Proceeding from this typology, Couppié and Mansuy (2001b) classified the labour market entry patterns in different European countries into four groups. The first group comprises the countries where the model of integration of new entrants into the labour market is close to that of regulated inclusion. Labour market entrants and experienced workers have a similar pattern of unemployment. However, the entrants with lower qualifications have higher risk of unemployment than the experienced workers with the same level of education. The second group includes countries where the pattern is close to selective exclusion. Labour market entrants are disadvantaged compared to experienced workers. Their unemployment rate is higher and the jobs they occupy are less skilled. In the third type, the selective exclusion is tempered by competitive regulation for less qualified young people. The unemployment risk for the youth with diplomas is moderate. Couppié and Mansuy (2001b) characterize the fourth group as having a composite pattern representing all three forms of regulation. Compared to the second group, diplomas have a lower effect on the entry of youth into labour market. The overview of results is presented in Table 1. - Table 1 about here - 4 Estonian institutional contexts 4.1 Educational system In the socialist period, the Estonian educational system was a part of the Soviet educational system. It was constructed as an integral part of the party-state institutional structure and organized on the 11

12 basis of following main principles: centralization, standardization, utilitarian and egalitarian goals. The educational system was highly centralized and state controlled. The linkage between each level of education and the future job was clearly defined (Helemäe et al. 2000). Vocational schools trained skilled workers, secondary specialized schools trained semi-professionals. General secondary school was the most traditional academic track to follow. Graduation from universities usually guaranteed access to high-level jobs (jobs of professionals and managers). Educational certificates played a more important role when access was desired to various specific jobs and careers. In this sense, schools and curricula were modeled after the example of the German system with clear social divisions. Nevertheless, coupling of certificates and job opportunities in Estonia was quite different from the German case because the status match often tended to overweigh the skill match. Planning guaranteed the provision of status-adequate job placements even without skill match. Such kind of occupational matching has been found in several former socialist countries (Róbert and Bukodi 2002, Solga and Konietzka 1999). The Estonian educational system today is characterised by high level of standardization and medium level of stratification. While the high standardization of the socialist period was reduced in the early 1990s, the second half of 1990s witnessed an increase in standardization, most notably in the form of standardized graduation exams at the end of the secondary school called state exams. On the secondary level, young people have the opportunity to choose between the general and vocational track. Up to 1999 they could also opt for secondary specialized education. While general secondary schools provide for a classical academic track giving their graduates the best preparatory education for further studies at the university, vocational schools can practically be considered as dead ends (Saar 1997). The vocational track is dominated by negative selection in the sense that those who have been denied admission to other educational tracks usually go to vocational schools. The differentiating role of the secondary education track did not substantially decrease during the 1990s. Although the share of basic schools' graduates opting for a vocational track decreased, the internal differentiation of general secondary education increased. Regional differences between schools also increased, as well as the clear differentiation between ordinary schools and elite schools who select their pupils on the basis of their own criteria. In 1990s there was an expansion of higher education in Estonia: the number of both higher education institutions as well students constantly grew (Heinlo 1998). Within 4 years ( ) 12

13 the enrolment into universities increased by 51% (Education 1999/2000). Estonia together with the UK, France, Spain, Germany and the Netherlands belong to the group of countries with medium proportions of people with tertiary education (European Commission 2002). By a relatively large share of general secondary education track the Estonian educational system is similar to that in the Southern European countries and in Ireland. In Estonia as in most European countries vocational training is mainly school-based. Since the Estonian secondary education system is based on the German model, Estonia should be classified as a country with a stratified and differentiated educational system. However, by the actual extent of stratification Estonia should be placed after Germany because in Germany as well as in Austria and the Netherlands, the differentiation takes place at a much earlier stage than in Estonia. The absence of school-to-work linkages comprises another great difference from the German-speaking countries. In the former centrally planned system there was a well-established link between schools and enterprises. With the intention of reforms towards market economy this link was dismantled. Thus, the low proportion of the secondary school students attending the vocational track, the medium level of stratification, and the rapid expansion of tertiary education make the Estonian educational system more similar to the ones of the Southern European countries (especially in Spain and Greece), Belgium and France. 4.2 Labour market institutions According to the evaluation of the World Bank, Estonian Employment Protection Legislation falls in the middle range in comparison to a group of the EU countries (Riboud et al. 2002: 6). Employment protection in Estonia is considered to be stronger than in the UK and Ireland but weaker compared to the Southern Europe. However, the main problem of the legal regulation of the labour market in Estonia is employers unwillingness to follow the necessary regulations. In the private sector and in small firms, violations of working time, work safety, and holiday regulations are particularly common (Arro et al. 2001). The main reason for violation of such regulations is the weakness of trade unions. During the 1990s, the union membership declined in Estonia from almost 100% to about 12-13% (Arro et al. 2001: 62). Thus, the union density in Estonia is quite similar to that of the US and Spain (Riboud et al. 2002: 49). 13

14 In countries where the percentage of unionized workers is low, collective agreements can still cover a large number of workers securing their rights. This is the case i.e. in France and Spain. In Estonia, however, the rate of workers' interests coverage by collective bargaining (i.e. the proportion of workers who have their income and working conditions set by collective agreement) is very low, even lower than the one in the UK. In contrast to the World Bank's promising evaluation, according to which one can assess the co-ordination between employers and the trade unions in Estonia to be on the medium level (Riboud et al. 2002: 49), the Estonian collective bargaining system is poorly developed on both the enterprise and branch as well as on the state level (Arro et al. 2001). Situation like this usually allows relatively high wage flexibility. The Estonian labour market regime has been characterized as very flexible only setting up very few entry and exit barriers (Freytag 2002). By low trade union density and collective bargaining coverage it resembles the one in the UK. In Estonia, the overall expenditure on labour market policies is the lowest among the transition countries comprising 0.16 percent of the GDP (Eamets 2001). Regulations for the recipients of unemployment benefits are very restrictive. For different reasons, many unemployed people do not qualify for unemployment benefits, which could be a reason why only a half of them register themselves as unemployed. As a result, these people also lose the opportunity for further training, which is available for the registered unemployed only. Estonia uses the flat rate unemployment benefit system. The replacement ratio of unemployment benefit is very low (below 10 percent of the national average income). In relative terms, the active labour policy measures have declined in last years. The Estonian unemployment policy is closer to those of the UK and the Southern Europe than to the ones of the Central and Northern Europe. 5 Hypotheses The Estonian educational system seems to be quite similar to the educational systems in the Southern European countries. However, the employment as well as unemployment protection is much lower in Estonia than in the countries named above (see Saar 2004). We suppose that different labour market institutions and educational systems have an important effect on the labour market entry process of young people. Using the comparison of the 14

15 labour market institutions presented in previous chapters we can propose a following hypothesis: The labour market entry process in Estonia is most similar to this process in the UK and Ireland presented as a composite pattern. On the typology scale from selective exclusion to regulated inclusion, Estonia should be placed in the middle. According to Table 1 we could formulate following hypotheses for the labour market entry process in Estonia: Hypothesis 1. New entrants have a higher unemployment rate than experienced workers but in Estonia, the differences between these two categories are lower than in countries with selective exclusion and higher than in countries with regulated inclusion. Hypothesis 2. Higher level of education protects the entrants from unemployment. In Estonia, the effect of education is higher than in countries with selective exclusion but lower than in countries with regulated inclusion. Hypothesis 3. Compared to experienced workers, new entrants have a greater risk of losing their jobs as well as higher probability to leave unemployment. Hypothesis 4. The least qualified labour market entrants have the lowest probability to leave unemployment and the highest risk of losing jobs. The effect of education is higher than in the countries with selective exclusion. Hypothesis 5. Labour market entrants have considerably lower job position than experienced workers. 6 Data and statistical methodology The following analysis draws upon data from the Estonian Labour Force Survey (ELFS) 2002 combined with the ELFS 2002 ad hoc module on school-to-work transition. ELFS carried out by the Statistical Office of Estonia is representative for the entire working-age population. In addition to standard labour market information, respondents aged were asked to provide information about their social background, all the quits from the educational system, and the first significant job. In total, the dataset used in this analysis includes 15,909 observations. We will compare labour market entrants and experienced workers. An approach to the concept of labour market entrants calls information on the individuals pathways to a stable job position. In constructing a labour market entrants category we will use information on the dates (month and year) of entry into the first permanent job 2. The first permanent job was defined as 15

16 non-marginal employment at least 20 hours per week that has lasted at least six months and started after employee s leaving continuous education. We will identify various categories of respondents: firstly, labour market entrants consist of individuals aged over 15 and under 50 who entered into the labour market less than five years ago. Two sub-categories have been identified: entering into the labour market from 0 to 2 years ago and from 3 to 5 years ago. Secondly, experienced workers respondents aged 16 to 50 entering into the labour market more than 5 years ago. The analysis starts with a presentation of the descriptive data on the new entrants integration into the Estonian labour market. At the individual level the labour force experience and the level of education is observed. Labour force experience is measured in years since the entry into the first job. The level of education is measured using CASMIN classification (see for example Shavit and Müller 2000). The qualification levels distinguished are: CASMIN level 1ab having attained no more than lower secondary qualifications, 2a vocational secondary education; 2b general secondary education; 3a lower level tertiary education; 3b university education. Labour force outcomes were measured in two ways: the odds of being unemployed at the time of the survey, and the occupational attainment as the ISEI score (an index of occupational status constructed by Ganzeboom (see Ganzeboom and Treiman 1996)). In addition, we observe odds of exit from unemployment (persons being unemployed a year before) and odds of vulnerability to unemployment (the mobility from employment to unemployment of persons being employed a year before). Labour market outcomes as well as transition probabilities will then be assessed using regressions in the format Y = b 0 + b 1 experience + b 2 education + b 3 experience x education. These regressions provide information about the effects of education and experience on mobility rates, unemployment risks, and occupational status. Based on macro level data the analysis will then attempt to empirically identify distinct country clusters 3. Cluster analysis is one tool for reducing the complexity of trajectories by summarizing them. Appendix 1 summarizes the indicators used in the cluster analysis. Data about the EU countries derives from the book The transition from education to working life. Key data on vocational training in the European Union published by Cedefop (2001) as well as from the 16

17 working paper of Couppié and Mansuy (2001b). The set of indicators is somewhat different from indicators used by Couppié and Mansuy (2001a) because we have only used the published macro level data for the EU countries. Nevertheless, the set chosen should reflect the labour market entry process successfully enough. The second step of the analysis will focus on the number of different patterns of labour market entry in Europe and especially on the location of Estonia in this classification. 7 Findings 7.1 The odds of being unemployed Table 2 presents the results of logistic regression analysis regarding the odds of being unemployed. The model includes the level of education, labour market experience as well as interaction term. Model shows that the level of education significantly influences the odds of being unemployed. Those who have basic education have unfavourable opportunities on the labour market. Their odds of being unemployed versus being employed are around eight times higher than the odds for individuals who have university education. Those who have secondary education (general or vocational) hold an intermediate position. The analysis shows that there are no significant differences between individuals with general and vocational secondary education. This result contrasts with the conclusions drawn from labour market entry in the countries with regulated inclusion pattern. In these countries the holders of vocational qualifications stand a better chance of being employed than the graduates of academic secondary education (Shavit and Müller 2000). Vocational education serves as an effective safety net. The Estonian unemployment pattern resembles more the one found in the United Kingdom where the effect of education on unemployment risk is lower than in countries with selective exclusion but higher than in countries with regulated inclusion (see Saar 2004). - Table 2 about here - Labour market experience has an effect on the odds of being unemployed. More experience decreases the risk of unemployment. Gangl (2001) has found that experience gradient of unemployment differs considerably across countries. After ten years from leaving school there is little variation in unemployment rates between European countries. The extent of unemployment 17

18 risks at the very first stages of careers differs significantly. In most European countries unemployment rates are higher among labour market entrants and yet slowly decrease. The picture is different in countries with regulated inclusion pattern: unemployment rates have reached their inherent level already at the start of employment careers (Gangl 2001: 480). In Estonia the effect of experience is higher than in these countries but lower than in countries with selective exclusion. It is on the same level as in Ireland and Belgium. Turning to the interaction terms, there is some evidence of deviation associated with the effect of basic vocational training as well as tertiary non-university education according to years of labour market experience. For more experienced workers the protection effect of these educational levels against the unemployment is stronger. Using logistic regression model we estimated the unemployment probabilities for individuals with different qualification levels and years of experience. The respective data are given in Figure 1. Couppié and Mansuy (2001b) have found that three configurations emerge in relation to the impact of educational level and labour market experience on unemployment risk. The first one is characterized by the dominant effect of the qualification level, the second one by the influential role of experience in conjunction with a weakened qualification effect while both influence the third dimensions (Couppié and Mansuy 2001b: 45). Austria, the Netherlands, Denmark and Germany belong to the first group. The unemployment risk is stratified by the educational level but independent from the accumulated experience. Greece and Italy have the second configuration: if experience increases the unemployment level decreases. The effect of educational level is not clear. The picture characterizing Estonia is more similar to the one on the third configuration combining the two effects resembling the model for Ireland and Belgium. These countries show declining well-differentiated unemployment risks by educational level as experience increases. Experience decreases the unemployment risk for individuals with lower educational levels. The effect of the labour market experience on unemployment risk is not pronounced for groups with tertiary education. - Figure 1 about here 7.2 Vulnerability to unemployment Seeking the first job is not the only factor in creating the higher risk of unemployment for labour 18

19 market entrants. The mobility from job to unemployment indicates a relative fragility on the labour market as it reveals the existence of latency periods between two jobs (Couppié and Mansuy 2001b). This kind of mobility is usually called vulnerability to unemployment. Results of logistic regression analysis show that vulnerability to unemployment declines with the level of qualification (Table 2). Surprisingly, individuals with vocational training above compulsory schooling as well as university graduates have the lowest risks to move into unemployment. The effect of basic vocational training and vocational secondary education is greater for more experienced workers. The pattern closely resembles the pattern already identified in previous section: an inverse, almost linear relation between level of education and vulnerability to unemployment. One feature of models estimated here is the possibility of assessing effects of education over the different stages of transition process. From the comparison of educational effects at the either stage the conclusion is that disadvantages as well as advantages pertaining to qualifications tend to be reinforced in the course of labour market entry process. Estimated probabilities for entry into unemployment for individuals with different qualification levels and years of experience are given in Figure 2. Experience has weak effect on vulnerability to unemployment. This picture is quite unique for European countries. As we can see, vulnerability to unemployment declines with the level of qualification. Having a low educational level is a handicap: the risk of unemployment is greater. Therefore educational level matters significantly after initial hiring into the labour force has taken place. For less experienced workers the effect of educational level is higher. The educational stratification of unemployment risks is particularly strong at labour market entry. - Figure 2 about here Exit from unemployment Mobility from unemployment to a job indicates the relative ease of exiting unemployment. Results of the logistic regression analysis confirm our previous conclusion (see Saar 2004) showing that employment prospects for the unemployed increase with the level of qualification (Table 2). Individuals with basic as well as vocational secondary education have the lowest chances for returning to the labour market. Having obtained tertiary education implies an increase of unemployment exit probabilities. Other educational groups have average probabilities. General 19

20 education pays off in terms of higher exit chances as compared to vocational secondary education. Accumulated experience has no impact on return to labour market: there are no differences between labour market entrants and experienced workers. This result is different from our preliminary conclusion (see Saar 2004) and hypothesis 3 about the linear effect of experience on likelihood of returning to work. Why? The interaction term indicates that the effect of educational level vary by years of experience. The relative advantages provided by university, tertiary non-university and general secondary education are decreasing with rising years of experience. Estimated unemployment exit probabilities for individuals with different qualification levels and years of experience are presented in Figure 2. The extent of educational stratification is very high for labour market entrants. With rising years of labour market experience the stratification decreases. Individuals having obtained basic and vocational secondary education have very low chances for returning to labour market. Accumulated experience does not improve their chances. Labour market entrants with tertiary (university and non-university) education have very high likelihood for exit from unemployment. Experienced workers with the same level of education have lost this relative advantage. This overall pattern of educational stratification is very different from the pattern found in the countries with regulated inclusion model. First of all, by differences in the value of secondary level vocational training. There are neither significant differences in the odds of unemployment nor risks of losing a job between general and vocational secondary school graduates in Estonia. However, a substantial increase of exit from unemployment with the achievement of general secondary education seems to be a feature of Estonian pattern. Couppié and Mansuy (2001b) have found that the mobility pattern between unemployment and jobs is quite different in various countries. Our preliminary results indicate that Estonian pattern is dominated by favourable prospects for labour market entrants (see Saar 2004). Compared to more experienced workers they have greater chances to move from unemployment to a job without being affected by increase in risk of move to unemployment. It is similar to the pattern found in the Netherlands and Portugal. 7.4 Occupational returns to education In Estonia, similar to the other European countries, the occupational status of labour market entrants increases with the level of education (see for example Gangl 2002). It may reflect the 20

21 construction of the scale itself. In terms of the ISEI score, there is a sharp divide between the labour market entrants with higher levels of education and the other entrants (Figure 3). Another less marked divide can be observed between labour market entrants having achieved general secondary education and entrants with vocational secondary and basic education. We could conclude that in Estonia, the vocational education restricts the occupational opportunities and it does not provide a necessary safety net for young people. Concerning experienced workers, differences between these two educational groups are not significant. The previous analysis of qualification returns by accumulated years of labour market experience has shown the clear differentiation of these returns according to the ISEI score (Couppié and Mansuy 2001b). A common feature across all the EU countries as well as in Estonia is the flatness of the ISEI curve for workers with low level of education. ISEI score for this educational group remains on very low level independent from labour market experience. This result indicates the lack of promotion for lower qualified individuals. Distinctive profiles have been identified for middle and higher qualification levels. In the case of Estonia, we found a typical declining trend concerning the entrants with accumulated experience and university education. This flat slope is similar to the profile found in Germany and Denmark (Couppié and Mansuy 2001b: 55), but in Estonia, the decrease is slower than in these two other countries. Estonia represents the case of general secondary education downgrading. Most other countries show profiles with a gradual upgrading of ISEI score for this educational group. For other groups (tertiary non-university education, vocational secondary education and basic education) there is no slight increase or decrease in ISEI scores connected to the process of experience accumulation. - Figure 3 about here Comparison of the ISEI values for labour market entrants and experienced workers indicates the relative independence between ISEI grading and accumulated experience. This result does not confirm hypothesis 5. There seems to be more differences between the cohorts than between the experienced groups. The curve is quite similar to the one in countries with regulated inclusion model as well as in Finland, Belgium and France (see Couppié and Mansuy 2001b: 58). 21