Business Cycle Effects on Labour Force Transitions for Older People in Spain

This paper analyses the determinants of observed exits from employment for people aged 45-59 years old in the context of the Spanish labour market in 1981-2006. The main aim of the paper is to identify the effect of the business cycle (BC) on the timing and the type of exit route out of the labour force. We proceed in two stages. In the first stage, we study the determinants of exits from employment to non-employment. In the second, we take into account the fact that there are several competing exit routes (unemployment, disability or inactivity) and estimate a competing risk model to evaluate how important BC conditions are in determining the respective exit probabilities. We make use of the recently released Muestra Continua de Vidas Laborales to estimate discrete time hazard regression models. We match this information with a number of variables constructed with macroeconomic data derived from the Instituto Nacional de Estadistica to measure growth and employability performance of different economic sectors and regions in Spain in order to capture the variation in the business cycle between times, sectors and regions. Time-varying covariates are also included in the analysis to model the monetary incentives provided by the system. We find that both BC conditions and a number of special schemes included in the unemployment and disability legislation affect the exit timing and also the choice of the route out of the labour market.