We recently discussed the ‘dead-weight’ problem of youth unemployment in developed economies. The Economist estimates that the world’s population of NEETs (not in employment, education, or training) is a stunning 290 million – or around one-quarter of the world’s youth.
Sadly, many of the ’employed’ young have only informal and intermittent jobs. In rich countries more than a third, on average, are on temporary contracts which make it hard to gain skills. Young people have long had a raw deal in the labour market.
Two things make the problem more pressing now. The financial crisis and its aftermath had an unusually big effect on them. Many employers sack the newest hires first, so a recession raises youth joblessness disproportionately. The number of young people out of work in the OECD is almost a third higher than in 2007. Second, the emerging economies that have the largest and fastest-growing populations of young people also have the worst-run labour markets.
Why is this so important? A number of studies have found that people who begin their careers without work are likely to have lower wages and greater odds of future joblessness than those who don’t. A wage penalty of up to 20%, lasting for around 20 years, is common. The scarring seems to worsen fast with the length of joblessness and is handed down to the next generation, too – leading to a vicious cycle that weighs on growth dramatically.
Countries with the lowest youth jobless rates have a close relationship between education and work. Germany has a long tradition of high-quality vocational education and apprenticeships, which in recent years have helped it reduce youth unemployment despite only modest growth. Countries with high youth unemployment are short of such links.
Companies used to try to bridge that gap themselves by investing in training; today they do so less.
Mismatch and training gaps may explain why over the past five years youth unemployment in flexible economies like America and Britain has risen more than in previous recessions and stayed high.
It is hard to be optimistic about a problem that is blighting the lives of so many people.
With a stunning 71% now expecting to work in their ‘retirement’…
It would seem the opportunity for the jobs and wealth transfer to the younger generation is being blocked by a generation hamstrung by an increasingly repressive Federal Reserve.