Employment in Norway from 2000 to 2017 — Exploring the Role of Compositional Changes

The employment rate in Norway decreased from 70.7 percent in 2000 to 67.7 percent in 2017. In this study we perform a decomposition analysis of the trend in employment - and find that the trend was only to a small degree affected by overall compositional changes in the population. However, like previous studies, we find that the effect of changes in the age composition is negative. Changes in the composition of age and immigration contributed to reducing employment by 2.5 and 0.5 percentage points, respectively. These two variables can therefore explain the whole reduction in employment. However, we find that changes in the composition of education counteract the contributions from age and immigration so that the effect of the overall compositional changes is negligible. Further, we show that it is important in such decomposition analyzes to take into account that changes in different explanatory variables can be mutually dependent on each other. This complicates the calculation of separate marginal effects. Finally, we document that important simultaneous changes in employment rates and population shares have taken place in the different population groups. For example, we find that not only did the share of elderly among individuals in working age increase from 2000 to 2017, there was also an increase in employment rates for the elderly. Our results indicate that changes in population composition would have played a stronger role in the absence of such "simultaneous effects". Our analysis contributes to understanding the development of employment over time and measuring the effects of compositional changes on this development.