published in: Labour Economics, 2008, 15(5), 1076-1101
We analyse the effects of demographic and education changes on unemployment rates in
Europe. Using a panel of European countries for the 1980-2000 period - disaggregated by
cohort, gender and education -, we empirically test the economic effects of two stylised facts
that have occurred in recent decades: the "baby bust" and the "education boom". We find that
structural shifts in the population age structure play an important role and that a lot of
variation is also attributable to educational changes, the latter usually neglected in aggregate
studies. Results show that demographic and education shocks are qualitatively different for
young (adult) workers as well as for more (less) educated people. While adult workers and
more educated individuals, in general, experience lower unemployment rates, changes in the
population age structure appear to be positively related to young workers' unemployment
rates while they have no effect on adults. Conversely changes in the skill structure
("education boom"), even when controlling for skill-biased technological change, reduce the
unemployment of the more educated. Labour market institutions also influence
unemployment rates in different ways. Unemployment benefits are found to have a positive
impact on unemployment, while bargaining coordination and employment protection reduce
it.
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