Youth unemployment: A global problem

David Kingman looks at youth unemployment around the world, its causes and some possible solutions

Almost wherever you look, the figures for youth unemployment are appallingly high, even compared to the bleak jobs situation facing older generations. There is thought to be a fairly straightforward explanation – in the recession, young workers with fewer skills and less experience are out-competed by older ones who can best them in both these categories – but the results have been profound.

In the first quarter of this year, unemployment amongst 15-24 year olds in the OECD countries was at 19.7%, compared to 7.3% for older workers. In many of its member states, two 15-24 year olds are without work for every unemployed member of the older generation, while the ratios in Britain, Italy, Norway and New Zealand are all higher than three to one.

Most worryingly of all, people classified as NEETS (Not in Employment, Education or Training) now account for 12.5% of all 15-24 year olds in the OECD – 16.7 million teenagers and young adults. Were they to form their own country, it would be bigger than 16 of the OECD’s 34 member states.

This is a truly global problem. In South Africa, 50.5% of 15-24 year olds don’t have a job, a predicament shared by over 16% of their peers in Brazil and nearly 10% in Japan. The world’s richest country has been hit especially hard – over 18% of Americans in this age category are out of work. However, the situation is worst in the debt-ridden countries of Western Europe.

The sick men of Europe

It should come as no surprise that the situation for young people is worst in the countries whose precarious economic situation has dominated recent headlines.

Within the EU, Spain leads the way on youth unemployment, with 42%, while Greece is not far behind. Ireland and Italy both have levels of nearly 30%, while more than one in five 15-24 year olds is out of work in France and Portugal.

There is an intergenerational injustice at work here: apart from France, the rest of these countries are facing severe economic constrictions as a result of the international money markets not believing their governments will repay their debts, harming the employment opportunities of young people; yet these debts were mostly taken on by the older generation, and spent satisfying their needs. In Greece and Spain in particular, a credit-fuelled feast has recently turned to austere famine, and it is the younger generation picking up the tab for their parents’ profligacy.

What these countries also share are dysfunctional labour markets that make it harder for employers to take on younger staff. Spain’s two-tier employment system is a prime example of this. There, collective bargaining by powerful trade unions has made it so expensive to sack a worker on a permanent contract that many employers have virtually stopped offering them, creating a system where roughly half the employees are un-sackable, while the other half – predominantly the young, as well as immigrants – are able to get only short-term contracts that offer lower salaries and much more limited benefits.

In Italy, an attempt by parliament to relax some labour laws that would make it easier for firms to take on younger workers was met with stern resistance by trade unions. Vincenzo Scuidere, speaking on behalf of the Italian General Confederation of Labour, the country’s biggest union, expressed his organization’s hostility in an interview with the Wall Street Journal: “This would damage the rights of all workers in order to help the young.”

Greece, meanwhile, passed a law in 1992 which compelled employers to pay a higher rate of payroll tax on workers who were newly entering the workforce compared to those who were already “insiders” – an obvious case of intergenerational discrimination, with the result that research by INE-GSEE, a think-tank, has discovered that more than two-thirds of Greece’s employed labour force are over the age of 43.

In Britain, new figures released in September by the Office for National Statistics showed that in the three months to July, youth unemployment rose by 78,000 to reach 973,000: this means 15-24 year olds account for 39% of Britain’s 2.51 million people who are officially unemployed – despite being just 13% of the overall population.

Why youth unemployment matters

Compared to the problems faced by adults who are made redundant, a delayed entry into the labour market for those just starting out can seem less traumatic. Politicians often fail to take youth unemployment seriously enough; a cynic might argue this is because the people it affects vote less reliably than members of the older generation, while a more charitable view takes into account certain practical realities: young people usually don’t have kids to feed, and can often move back in with their parents while they wait for something to come up.

However, this understates the damage it can do to an individual’s potential, not to mention to society. A joint report released last year by the LSE, the Royal Bank of Scotland and the Prince’s Trust estimated that youth unemployment costs the state £155 million a week in benefits and lost productivity – and this was when there were only 744,000 officially unemployed young people in the UK.

There is also the impact of civil disobedience and crime. A lack of opportunities for young people has been heavily implicated in the disorder that brought democracy to the Middle East earlier this year, while the recent London riots have been viewed by some commentators as a response to a youthful underclass feeling they have been denied a stake in society. More mundanely, young people are likelier to turn to theft and other low-level criminality than older ones if they have families to support and rent to pay but can’t find a job.

A more surprising negative consequence of youth unemployment is reduced wages in later life. A recent article in The Economist showed that multiple pieces of research on both sides of the Atlantic have found that people who suffer unemployment in the early part of their career are likely to earn lower wages later on; one study in particular showed that if you compare two men with the same education, IQ, geographical location and parental education, and the only difference is one of them spends a year unemployed before the age of 23, then 10 years later he will be earning 23% less than the other, on average.

Research conducted during the Japanese recession of the early 2000s has even suggested a mechanism for this. The difficult employment market led young people to take up any job they could find, even if it was below their qualification level, in order to become employed. This led them to take on “non-regular” jobs which had low wages and few opportunities for progression, putting them on a stagnant career path that actually made it harder for them to progress with their careers later on, as companies tended to prefer hiring newly-qualified workers straight out of university who hadn’t been through this discouraging experience.

Learning from example: the German model

Germany is widely perceived to be the Western country that is best at keeping a lid on youth unemployment. This view is supported by the statistics: less than 10% of 15-24 year olds in Germany are unemployed, and the proportion has actually gone down since 2005, while levels have skyrocketed in most other European countries because of the recession.

This is largely because of their apprenticeship system. A quarter of employers provide formal apprenticeship schemes for young people, and almost two-thirds of children take one while they’re at school. Those enrolled in the Hauptschulen (schools that teach vocational subjects) get three days of paid work each week as salaried apprentices with employers during placements, which last from two to four years, easing the transition from school to work and allowing them to build up lots of experience along the way.

However, it’s unclear if such a scheme could work in other countries. It seems particularly suited to Germany’s export-driven economy, which requires lots of highly-trained manual workers to engage in high-tech manufacturing. How it would work in countries that specialise in services is harder to envisage, where manual work is typically more poorly paid and organized on short-term contracts, especially as this model requires an unusually high degree of compliance between business, the government and unions to run smoothly.

Youth unemployment: blip or trend?

The big question is whether youth unemployment is so high largely because of the recession – implying it will go down again once the global economy improves – or if structural changes in employment are going to permanently disadvantage the next generation of workers.

While youth unemployment has definitely spiked in response to the downturn, in many places it was already high beforehand, particularly in the Eurozone. In 2005, before the recession first drew blood from their economies, Spain, Greece,Italy and France already all had youth unemployment levels that were above 20%.

This suggests something bigger has been going on. The world of work is always changing, of course, and many changes have the potential to make people richer. Yet there are always winners and losers, and this evidence suggests the young may have found themselves disproportionately in the latter camp. In terms of intergenerational justice, the important question is whether today’s young people will have a better or worse working life than their parents.

Undoubtedly the two biggest changes facing workers in the Western world in recent decades have been globalization (which often moves jobs to other countries) and technological advancement (which can eliminate the need for them altogether). They are expressions of “competitive advantage” in economics – the perfectly logical idea that it is best to perform any activity in the place and manner that would be cheapest.

This has meant that most jobs that can be performed in another part of the world more cheaply have migrated there. This trend is set to continue; as the economist Richard Ehrman has argued, “as developing countries become more sophisticated and their educational levels rise, we can expect more [service] jobs to follow their manufacturing predecessors to the low-cost, fast-growing economies of the East and Latin America. It will not just be call centres that are sent offshore; highly paid experts like software engineers and financial analysts will be equally vulnerable.”

Conversely, the economies of the Western world now play host to a smaller range of economic activities, meaning they value a narrower range of skills. The McKinsey Global Institute in America divides work into three categories: transformational (making things, such as manufacturing in factories); transactional (involving repetitive human interactions that can be automated, such as working behind a till in a supermarket); and interactional (requiring expertise, knowledge and usually a high degree of collaboration, such as investment banking). The difference is that transformational and transactional work are easily exported or automated, while interactional work doesn’t tend to migrate and is more demanding of people-skills and cognitive ability. This has obvious implications for youngsters in the Western world who aren’t high achievers academically, or who lack good people skills.

Throughout the West, workplace flexibility has also increased, which is good for people who want more free time but often comes with greater instability and less generous benefits. Some evidence from America demonstrates where this trend is going – a fifth of all workers there last year were employed part-time, a historic high, while the McKinsey Global Institute has also conducted a survey of employers which found that over the next five years 58% are planning to employ more people on a part-time, contract or temporary basis, while 22% expect to outsource more positions.

It’s clear that young people cannot expect the kind of “job for life” many of their parents and grandparents would have received in the bygone era of post-war prosperity. Yet society has a vested interest in helping make their transition into the world of work as smooth as possible, if it doesn’t want to pay the costs of their potential going to waste.

Posted on: 26 September, 2011

One thought on “Youth unemployment: A global problem

  1. Geoffrey Owen

    As a father of 2, a businessman looking to start employing people and one who is married to a teacher, so I think I’m in a reasonable position to comment on today’s youth as potential employees.

    The good ones are great, the middle ones will eventually get there, but there is a growing underclass of no-hopers. I address my cooments specifically to this section, who, by-and-large are the ones I’m most likely to employ for assembly work.

    Too many can’t read or write, they are undiciplined, unruly, impoilte, lazy, down-right rude and worst of all, needy… they want to be spoon fed and don’t like the word ‘no’.

    In short, the generation coming up through the ranks has no idea how to look after themselves and expect to be handed everything on a plate. They have no concept of the idea we all have to work hard for the things we want from life.

    The problem is that, generally, peoples expectations are too high. This simple notion is at the core of the Europe’s problems; poilicians keep promising more than can be delivered within a finite budget….and voter’s don’t like hearing the words ‘ no you can’t have’.

    I digress…..Today’s kids want to start at the top with unrealistic pay and job responsibility. If they perceive a job to be a grotty job, one that’s beneath them, they treat it with contempt.

    Finally, UK employment law makes it very difficult to get rid of the no-hopers and makes employing people too expensive.

    No wonder we want to give jobs to older people. When people have been bored and hungry for a while, they appreciate a job more and work more diligently.

    Geoffrey Owen

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