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 Global Economics & Governance Tags & Topics

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.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

Pia Hüttl

Macroeconomics in the crossfire (again)

What’s at stake: After a first go at macroeconomics and its flaws a year ago, Paul Romer kicked off the debate again with a recent essay on how macroeconomics has gone backwards. The way that this debate, along with the debate of the role of economics in general, feeds into today's election woes, has also attracted attention in the blogosphere.

By: Pia Hüttl Topic: European Macroeconomics & Governance Date: December 5, 2016
Read about event More on this topic

Past Event

Past Event

Labour mobility after Brexit

What will Brexit mean for the free movement of workers between the UK and the EU?

Speakers: Lindsey Barras, Zsolt Darvas, Jonathan Portes and Klaus F. Zimmermann Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 2, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

The Italian referendum

What’s at stake: on 4 December, Italy will hold a referendum on a proposed constitutional reform approved by Parliament in April. The reform, which was designed in tandem with a new electoral law, aims to overcome Italy’s “perfect bicameralism” by changing the structure and role of the Italian Senate. It also changes the distribution of competences between the state and regions. After the shocks of Brexit and the US election, polls are now drifting towards a defeat of the government’s position in Italy.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: November 28, 2016
Read about event More on this topic

Upcoming Event

Jan
9
09:30

Can migration work for all in Europe?

On 9 January Bruegel together with the IMF is organizing a conference on migration and whether it can work for all in Europe.

Speakers: Jorg Decressin, Gianpiero Dalla Zuanna, David Lipton, Alessandra Venturini and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Past Event

Past Event

Vision Europe Summit 2016

The 2016 Vision Europe Summit is titled "Redesigning European Migration and Refugee Policy" and will be held in Lisbon on 21-22 November 2016.

Topic: European Macroeconomics & Governance Location: Lisbon Date: November 21, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Trumpocalypse now: first reactions

What’s at stake: this question should probably be re-formulated as “what’s NOT at stake?” On Tuesday 8 November, the US elected Donald Trump as its next President. Several aspects of Trump’s political and economic agenda appear extreme (we have previously focused on his stance on trade). After the initial shock, we review economists’ opinions on what has happened and what may happen. We will be coming back to this topic regularly.

By: Silvia Merler Topic: Global Economics & Governance Date: November 21, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Brexit and the law

What’s at stake: last week, the UK High Court ruled that the triggering of Article 50 - and therefore the Brexit process - should involve the UK Parliament. The Government will appeal the decision but this has created a new wave of uncertainty about the timing of Brexit, and on what this involvement can mean in practice. We review the different opinions.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: November 14, 2016
Read article Download PDF More on this topic More by this author

Working Paper

cover

Some are more equal than others: new estimates of global and regional inequality

In this Working Paper, Zsolt Darvas estimates the global and regional distribution of income and calculates statistics of global and regional income inequality.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: November 8, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Monetary policy at the time of elections

What’s at stake: At this week’s meeting, the Federal Reserve left interest rates unchanged. While this was largely expected, the economic blogosphere has been discussing whether and to what extent this is linked to the election, and what can be expected for the future.

By: Silvia Merler Topic: Global Economics & Governance Date: November 7, 2016
Read article Download PDF More on this topic

Blueprint

cover4

An anatomy of inclusive growth in Europe

This Blueprint offers an in-depth analysis of inequalities of income and wealth in the EU, as well as their causes and consequences. How evenly are the benefits of growth distributed in our economies, and what does this mean for fairness and social mobility? How could and should policymakers react?

By: Zsolt Darvas and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: October 27, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Should we rethink fiscal policy?

What’s at stake: there has been quite some discussion recently on whether we should rethink the framework of fiscal policy in order to make it more appropriate and effective in a world where demand seems to be chronically anemic, inflation is low and the interest rates are likely to stay close to zero (if not negative) for a long time. According to some of the authors, in the Eurozone these concerns are particularly pressing.

By: Silvia Merler Topic: Global Economics & Governance Date: October 24, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Brexit, the pound and the UK current account

What’s at stake: UK PM Theresa May announced the intention to trigger article 50 by March 2017, the Pound Sterling crashed, and a dispute among Tesco and Unilever has resulted in Marmite shortage. Brexit means Brexit, and it continues to be highly discussed. It would be impossible to summarise all the economic blogosphere on Brexit. Our aim is to periodically update our readers on selected important aspects of what promises to be a long-lived topic of discussion. This time we are looking at economists’ view on the Pound crash and the UK current account.

By: Silvia Merler Date: October 17, 2016
Load more posts