HOW TO VALUE THE POORER PROSPECTS OF YOUTH IN THE EARLY 1990S

Young workers in the 1990s can expect greater economic insecurity, as well as lower average earnings, compared to older workers, or compared to, the youth of previous decades. The cost of greater insecurity dep ends upon an individual's probability of unemployment, marginal utilit y of income gains/losses and the extent to which individuals can smoot h consumption over time by borrowing and drawing down assets. Since un employment insurance cutbacks and higher unemployment have increased t he risk exposure of youth, changes in the expected value of their inco me may understate utility losses as measured by the change in certaint y equivalent income. This paper uses a behavioural microsimulation mod el to compare the impacts of 1971 and 1994 unemployment insurance legi slation and unemployment rates in Canada. It calculates both the expec ted value of income changes and, using a Stone-Geary utility function, the change in inequality of well-being las measured by certainty equi valent income) for youth and for prime age workers. Both calculations reveal that youth were disproportionately affected by Canada's changin g labour market environment. Very few youth have enough assets to fina nce consumption during spells of unemployment.