Crowding out of Disadvantaged Young Adults in Germany: Background Matters Depending on Local Labour Market

Abstract

Research on socio-economic mobility focuses on how background affects later labour market outcomes. Growing up in a disadvantaged household does not always lead to the same outcomes however, and the extent to which this matters depends on the local labour market. Using multilevel models on the German Socio-Economic Panel Study, this article shows that disadvantaged young adults (16-35 years old) are more affected by the business cycle than their similarly educated counterparts from more advantaged backgrounds. We propose that a disadvantaged background lowers desirability on the labour market, which matters more to employers as the labour market worsens. When the local labour market is slack, disadvantaged young adults get crowded out of good jobs by their more advantaged but similarly qualified peers. Among the higher qualified, this means the disadvantaged work on lower paying jobs, while those who are less educated are most at risk of unemployment. These results are robust to using different specifications. As the early career has long-term effects, the conditions during which young adults enter the labour market can play a large role in their labour market outcomes and can affect inequality by background overall.