Blog Post

Blogs review: the youth unemployment crisis

What’s at stake: The global youth unemployment rate, which was already high before the start of the Great Recession, has reached skyrocketing levels in the past two years. While youth unemployment rates have increased in almost all countries, there has been wide divergence in the size of this increase – often reflecting the country specific aspects of the transition from school to work. For most, if not all, a serious discussion about the potential “scarring effects” induced by such a situation appears, however, warranted if we want to avoid having one generation permanently bear the burden of this crisis.

By: Date: July 23, 2012 Topic: Global Economics & Governance

What’s at stake: The global youth unemployment rate, which was already high before the start of the Great Recession, has reached skyrocketing levels in the past two years. While youth unemployment rates have increased in almost all countries, there has been wide divergence in the size of this increase – often reflecting the country specific aspects of the transition from school to work. For most, if not all, a serious discussion about the potential “scarring effects” induced by such a situation appears, however, warranted if we want to avoid having one generation permanently bear the burden of this crisis.

The youth unemployment bomb

Peter Coy writes in a special Business Week report that the youth unemployment bomb is global. In Tunisia, there called the hittistes—French-Arabic slang for those who lean against the wall. Their counterparts in Egypt are the shabab atileen, unemployed youths. ­In Britain, they are NEETs—"not in education, employment, or training." In Japan, they are freeters: an amalgam of the English word freelance and the German word Arbeiter, or worker. Spaniards call them mileuristas, meaning they earn no more than 1,000 euros a month. In the U.S., they’re "boomerang" kids who move back home after college because they can’t find work.

Source: Financial Times.

The International Labor Organization writes in its Global Employment Trends report that in 2011, 74.8 million youth aged 15–24 were unemployed, an increase of more than 4 million since 2007. The global youth unemployment rate, at 12.7 per cent, remains a full percentage point higher than the pre-crisis level. Globally, young people are nearly three times as likely as adults to be unemployed. In addition, an estimated 6.4 million young people have given up hope of finding a job and have dropped out of the labor market altogether.

Zero Hedge writes that the Euro-zone youth unemployment rate is back over 22% for the first time since September 1994. David Bell and David Blanchflower point in a recent IZA paper that while youth unemployment rates have increased in almost all countries, there has been wide divergence in the size of this increase. Particularly large increases have occurred in countries that have suffered house price declines crises such as Spain, Latvia, Lithuania and Ireland. In contrast, youth unemployment has remained relatively low in Austria, Denmark, Germany and the Netherlands.

From bad to worse

Hanan Morsy writes in a recent issue of F&D (HT Marco Annunziata) that since the global crisis began in 2008, young people have suffered a much sharper rise in joblessness than older workers. A recent OECD paper illustrates (see graph below) that this pattern is not unusual, as youth unemployment tends to be more responsive to the cycle than adult unemployment

Source: OECD

Marco Annunziata writes in VoxEU that the rise in youth unemployment looks largely like a reversion to the mean. The speed at which young people have been thrown out of the labor market is frightening. But equally frightening is how long Europe has lived with high youth unemployment. Implausible as it sounds, Italian voters have put up with an average youth unemployment rate of 30% for the last 40 years; Spanish voters with a rate of 32%. During the impressive years of Spanish growth, the youth unemployment rate averaged 28%; it was below 20% for just three years, with a “best performance” of 18% in 2006.

The scarring effects on a generation

Business week writes that when jobs do come back, employers might choose to reach past today’s unemployed and pick from the next crop of fresh-faced grads. Starting one’s career during a recession can have long-term negative consequences. Lisa B. Kahn, an economist at the Yale School of Management, estimates that for white, male college students in the U.S., a 1 percentage point increase in the unemployment rate at the time of graduation causes an initial wage loss of 6 percent to 7 percent. In a study that uses longitudinal data from Social Security records covering up to 30 years of earnings, Till von Wachter and al. (2009) present the first national estimates of the long-term cost of job displacements during the 1982 recession. They find large immediate losses in annual earnings of 30%. After 15 to 20 years, these losses are still 20% and thus represent a significant setback in workers’ lifetime resources.

Steven Hill writes that studies of scars left by youth unemployment in France do not show the persistence generally found in the UK and many other countries. The author refers to a study by Mathilde Gaini, Aude Leduc and Augustin Vicard that uses the French labor force surveys for the cohorts entering the labor market between 1982 and 2009. The authors find that "nlucky" young people completing their studies during a recession have lower employment rates, are more often part-time and temporary workers, but catch-up with "lucky" one within 3 years.

Alan Beattie writes that half of young Spaniards are not on the dole. The unemployment rate doesn’t measure the percentage of people of a given age – in this case 15-24 – who want a job and can’t get one. It measures those people as a percentage of the labor force – people either in employment or searching for a job – and ignores all those in education or training. In Spain that’s quite a big difference: recession or no, a lot of Spaniards go to college and often take a long time to get round to graduating. A better measure of the failure to create jobs is the percentage of young people aged 15-24 that are not in employment, education or training (NEETs). According to that measure Spain is towards the top, but only a few percentage points above the EU average and actually below the OECD average. Greece shows a similar pattern.

German exceptionalism and emigration as a safety valve

Marco Annunziata writes that Germany’s youth also have a higher unemployment rate than older generations, but their rate is just over 8%. Germany’s better coordination between the school system and industry, including via its apprenticeship programmes, pays off.

Gerrit Wiesmann notes in the FT that youth unemployment in Germany has hovered two to three points above total unemployment, while in France or Spain it has regularly run at two or three times the jobless rate. The decades-old commitment of bosses and teenagers to the German vocational training system is widely regarded as the secret behind the country’s relatively low youth unemployment rate. The German apprenticeship programme – Duales Ausbildungssystem, or dual training system (the name refers to its mix of book learning and hands-on experience) – which dates back to an overhaul of vocational training in 1969 but has roots in old guild system has led the US, India and other countries to study it as a possible model for their own policies. But it has proved difficult to copy.

Jamie Smyth writes that emigration is back with a vengeance in Ireland. Last year 76,400 people emigrated, bringing the number of people who have left the country since the Irish recession began to 250,000. Peter Wise writes that with an estimated 120,000-150,000 people leaving a country of 10m last year, emigration has now surged back to the peak levels of the 1960s and 1970s in Portugal, when waves of impoverished workers departed for northern Europe and the Americas. The difference this time is that, unlike the largely uneducated workforce that left then, many of today’s migrants are young graduates with university degrees.


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