Blog Post

Youth unemployment: It’s growth, stupid!

European leaders are rightly concerned about the record level of youth unemployment in the EU. Unfortunately simply targeting measures at young people is unlikely to make much difference to the problem. This is because movements in youth unemployment rates tend to be more correlated with changes in total unemployment rates and growth than with factors specific to youth unemployment, such as training or schooling.

By: Date: June 27, 2013 Topic: European Macroeconomics & Governance

European leaders are rightly concerned about the record level of youth unemployment in the EU. According to the latest Eurostat figures, the rate of unemployment among those under the age of 25 reached over 23 per cent in the EU and over 24 per cent in the eurozone in April 2013. Four countries (Greece, Italy, Portugal and Spain) now have youth unemployment rates above 40 per cent, of which two (Greece and Spain) have rates above 50 per cent. The alarming situation has prompted European Council President Van Rompuy to place the issue at the top of the agenda at today’s EU summit. The main outcome will be implementation of a €6 billion scheme giving “young people who are not in education, employment or training back to work or into education or training within four months”.

Unfortunately simply targeting measures at young people is unlikely to make much difference to the problem. This is because movements in youth unemployment rates tend to be more correlated with changes in total unemployment rates and growth than with factors specific to youth unemployment, such as training or schooling. Actually youth unemployment rates, not only in the EU but also in Japan and the United States, are typically about twice as high as total unemployment rates, a proportion that is fairly constant across economic cycles.

True, within the EU, the relative incidence of youth unemployment (measured as the ratio of youth to total unemployment rates) varies a great deal between countries. For instance in April 2013, the incidence ranged between a low of 1.4 in Germany and a high of 3.4 in Italy. But what is remarkable is that the incidence of youth unemployment has remained extraordinarily stable over the economic cycle. In nearly all EU countries, it was almost the same in 2007, before the start of the crisis, as it is in 2013.

What this means is that the sharp rise in youth unemployment rates since 2007 almost exactly parallels the increase in total unemployment rates, and is not caused by developments that affect specifically young people, but rather by deficient growth. Even the staggering increase in youth unemployment rates in Greece, Italy, Portugal and Spain from an average of 20 to 50 per cent between 2007 and April 2013 occurred with no change in the relative incidence of youth unemployment in these countries (it even decreased a bit in Greece). Rather it accompanied the surge in the overall unemployment rates there from an average of 8 to 21 per cent. Needless to say, had Greece, Italy, Portugal and Spain succeeded in reforming their labour market policies along the lines of Germany’s vocational system prior to the crisis (though clearly a big endeavour since the German system has roots going back to 1888), their youth unemployment rates would have increased far less than they did.       

Given that his country ranks first among all EU members in terms youth unemployment incidence, the new Italian Prime Minister, Enrico Letta, is right in wanting to have soon a national youth unemployment action plan and in asking that it be backed by EU resources. But for the other EU countries, especially those with youth unemployment rates above 40 per cent, and even for Italy, the priority to cut youth (and adult) unemployment should be growth.  

Six years into the crisis, the EU sadly still lacks a proper growth strategy. The aim of such strategy should be twofold: to close the output gap and reduce unemployment as quickly as possible and to gradually boost potential output growth. To achieve this twin goal, Europe needs a two-handed approach consisting of both macroeconomic and structural measures. The measures should include: the rapid implementation of the banking union and the cleaning up of bank balance sheets to solve the credit crunch in EU countries; the creation of a European investment guarantee fund (as suggested by Philippe Maystadt, European Policy Centre chairman) to help channel foreign investment to crisis countries; labour market and social policy reforms aimed at promoting greater economic flexibility and better social protection necessary to foster growth; the removal of all barriers that still fragment and prevent entry to the single market, Europe’s most powerful engine for growth; and for the aggregate eurozone, a less restrictive fiscal policy and a more expansionary monetary policy. The right sequencing should be the banking union and macroeconomic policies first, and the other measures shortly thereafter. If Europe is serious about preventing a lost decade for its citizens and a lost generation of jobless youth, it must act soon with far more potent measures than simply a youth guarantee scheme.


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.

Read article Download PDF More on this topic
 

Working Paper

Stability of collusion and quality differentiation: a Nash bargaining approach

How do incentives to collude depend on how asymmetric firms are? For low levels of differentiation, an increase in quality difference makes collusion less stable. The opposite holds for high levels of differentiation.

By: Thanos Athanasopoulos, Burak Dindaroglu and Georgios Petropoulos Topic: Innovation & Competition Policy Date: June 15, 2021
Read article More on this topic
 

Blog Post

The coming productivity boom

AI and other digital technologies have been surprisingly slow to improve economic growth. But that could be about to change.

By: Erik Brynjolfsson and Georgios Petropoulos Topic: Innovation & Competition Policy Date: June 10, 2021
Read article More by this author
 

Opinion

Inflation, inequality and immigration: Spelling the digital recovery with three “I”s

The digital transition offers us a new opportunity to reach out across the global economy - hopefully we will find the strength to use it.

By: Rebecca Christie Topic: Global Economics & Governance, Innovation & Competition Policy Date: June 3, 2021
Read about event
 

Past Event

Past Event

The Future of Work – a conversation with Commissioner Schmit

EU Commissioner for Jobs and Social Rights Nicolas Schmit joins Bruegel for a conversation around the future of work.

Speakers: Mario Mariniello and Nicolas Schmit Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: May 25, 2021
Read article More on this topic More by this author
 

Blog Post

Algorithmic management is the past, not the future of work

Algorithmic management is the twenty-first century’s scientific management. Job quality measures should be included explicitly in health and safety risk assessments for workplace artificial-intelligence systems.

By: Laura Nurski Topic: Innovation & Competition Policy Date: May 6, 2021
Read about event More on this topic
 

Past Event

Past Event

Living standards and financial resilience across Europe

What has the impact of the pandemic on households’ financial resilience been, and how should policy makers respond?

Speakers: Romina Boarini, Zsolt Darvas, Maria Demertzis and Daniel Tomlinson Topic: European Macroeconomics & Governance Date: April 21, 2021
Read article More on this topic
 

External Publication

Wealth distribution and social mobility

This report explores the distribution of household wealth in the EU Member States and analyses the role of wealth in social mobility.

By: Zsolt Darvas and Catarina Midões Topic: European Macroeconomics & Governance Date: April 1, 2021
Read article Download PDF More by this author
 

Working Paper

The unequal inequality impact of the COVID-19 pandemic

Less-educated workers have suffered most from job losses in the COVID-19 pandemic, and it is quite likely there was a significant increase in European Union income inequality in 2020.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, Global Economics & Governance Date: March 30, 2021
Read article More on this topic More by this author
 

Blog Post

Self-employment, COVID-19, and the future of work for knowledge workers

The experiences of the self-employed could give a glimpse into the future of work for knowledge workers in a post-pandemic world.

By: Milena Nikolova Topic: Innovation & Competition Policy Date: March 8, 2021
Read article More on this topic More by this author
 

Blog Post

COVID-19 has widened the income gap in Europe

Workers with low-educational levels suffered far worse than others in terms of COVID-19 related job losses during the first half of 2020 in the EU. Jobs for tertiary-educated workers even increased. Thus, the pandemic has increased income inequality, reinforcing the case for inclusive development.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 3, 2020
Read article More on this topic
 

Blog Post

The scarring effect of COVID-19: youth unemployment in Europe

Even before the pandemic, youth unemployment in the European Union was three times higher than among the over-55s. COVID-19 threatens to undo the last decade of progress: policymakers must act to avoid Europe’s youth suffering the scarring effect.

By: Monika Grzegorczyk and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 28, 2020
Read article More on this topic More by this author
 

Opinion

COVID-19 could leave another generation of young people on the scrapheap

It is time that the highest political level focuses on the risk of a lost generation.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 12, 2020
Load more posts