Decline in Youth Participation in Canada in the 1990s: Structural or Cyclical?

Of the three major age groups, youth (aged 15-24), experienced the largest fall in labour force participation and accounted for the lion’s share of the aggregate decline. Consequently, an understanding of the factors behind this development is essential to an overall understanding of the fall in labour force participation in the 1990s in Canada. In the fifth and final article in the symposium, Richard Archambault and Louis Grignon examine the causes of this large fall in youth labour force participation in Canada in the 1990s. They disaggregate the youth participation rate into three components: the student participation rate, the non-student participation rate, and the school enrolment rate. The aggregate youth rate is the sum of the student and non-student rates weighted by their respective shares of the population (the enrolment rate for students). Such an approach makes it possible to take account of behavioural differences between students and non-students and to treat the enrolment rate as a phenomenon to be explained rather than a determinant of the participation rate. All three variables are modelled as a function of a cyclical variable and a number of structural variables - the real wage, the relative minimum wage, employment insurance, social assistance, and a time trend. The results show the importance of economic conditions and the modest effect of public policy programs on the decision to participate in the labour market and go to school. Based on the equations estimated for the 1976-96 period, a dynamic simulation was conducted over the 1990-96 period to account for the impact of the variables on the student and non-student participation rates and enrolment rate. According to the equations estimated for the 15-24 age group, the cyclical variable accounts for about one half of the decline in the youth participation rate between 1990 and 1996, two thirds of the decline in the student participation rate, and about one third of the fall in both the non-student participation rate and rise in the enrolment rate. The remaining decline in the two participation rates and rise in the enrolment rate are not to any significant degree explained by the four structural variables, but rather are either captured by the time trend or not explained at all. Given these results, the authors conclude that we have a poor understanding of the non-cyclical forces that account for up to one half of the decline in youth labour force participation in the 1990s.