In this article, “The importance of education for the reallocation of labor: Evidence from Swedish linked employer-employee data 1986-2002″ written by Marie Gartell, Ann-Christin Jans, Helena Persson for the Institute of Future studies, we have a clear demonstration of the impact of education on unemployment. I just wish that all our deciders in the US and in Europe read it….

Abstract

Using employer-employee data covering the whole Swedish economy over a uniquely long time period from 1986 to 2002, we examine how job flows and worker flows have been distributed both on an aggregate level and across educa-tional levels. We find that job and worker flows vary by educational level, not only with respect to magnitude and variation, but with respect to direction as well. Our results show that analyses that do not account for the educational level of workers can be very misleading.

Conclusion

In order to more closely understand the restructuring process that took place in the Swedish economy from 1986 to 2002, we consider how job and worker flows have been distributed both on an aggregate level and across educational levels. We contribute to the previous literature by studying a uniquely long period, a period that covers both downturns and upturns and the whole Swedish economy.

We find that job flows and worker flows are substantial across years, and with huge variations. Further, job reallocation rates are stable both in order and magni-tude. Worker flows exhibit a more volatile pattern, but without a trend. We find no support for the idea that job and worker flows have decreased over time, or that flows are lower in Sweden than in other countries, something that has occasionally been stressed in debate and previous literature. Moreover, we confirm previous results that job and worker flows are dominated by flows corresponding to existing establishments, while job creation/hirings in new establishments and job destruc-tion/separations in exiting establishments constitute a minor part.

Analyses of job and worker flows that do not account for the heterogeneity of workers can be very misleading. We contribute to previous studies by decompos-ing both job and worker flows into educational groups and demonstrate that flows vary by educational level, not only with respect to magnitude and variation but with respect to direction as well.

During the examined period, not only are fewer jobs created for those with the least education, but more jobs are also destroyed. While job destruction rates are found to decrease with educational level, job creation rates follow a more ambigu-ous pattern. The difference between job and worker flows consists in the number of workers leaving their jobs and being replaced by other others. Worker flows are more than twice as high as job flows for all educational groups and the lowest worker reallocation rate (the sum of hiring and separation rates) is found among the least educated workers. Finally, excess reallocation of workers, i.e. reallocation of workers that is not motivated by fluctuations in the number of jobs, is found to be highest among more highly educated workers.

Some previous studies have found job reallocation to be countercyclical, suggesting that downturns are periods of restructuring the establishment. Our results confirm those previous studies on an aggregate level and support the model by Mortensen & Pissarides (1994) predicting job reallocation to be countercyclical. According to Garibaldi (1998) this countercyclical pattern implies that firing costs (i.e. separation costs) are low. However, when examining the correlations between different educational groups, the countercyclical behavior was only found among those with low educational level. For workers with the highest education, job reallocation rates were even found to be procyclical. Employers seem to use reces-sions for restructuring by separating less educated workers and by keeping more highly educated workers. The results are consistent with Garibaldi (1998) if assuming separation costs to be greater for the more highly educated, than for the less educated workers.

While the reallocation of jobs is found to be larger during downturns on the aggregate level, this does not hold for reallocation of workers. Instead worker reallocation exhibits an acyclical pattern. The number of people hired is larger during upturns while the number of people leaving displays no cyclical pattern One interpretation is that people are very careful not to leave their jobs during bad times and only leave when they have to, preferring to quit during upturns to find better jobs. There are some differences between educational groups. Worker reallocation for the most highly educated shows a strong procyclical pattern due to both more hirings and separations during up-turns. The least educated workers, on the other hand, have significantly more separations during downturns.

Following Salvanes & Førre (2003), we also examine the long-run reallocation of labor for different educational groups. To decide whether the reallocation of workers has been driven by an increased demand for more highly educated work-ers, an increased supply, or a combination of both, net employment rates for differ-ent cohorts were analyzed more closely. Our results indicate that the relative employment shift in favor of more highly educated workers has been driven by a higher demand for educated workers, but also that the increased supply of more highly educated workers might have been important.

The article on the website of the Institute for Future Studies, Stockholm