The Youth Unemployment Problem
Large numbers of younger workers are having trouble finding work in many parts of the developed world.
We’re not seeing much about Greece in the news lately, but that doesn’t mean things are going well there:.
Greek youth unemployment rose above 60 percent for the first time in February, reflecting the pain caused by the country’s crippling recession after years of austerity under its international bailout.
Greece’s jobless rate has almost tripled since the country’s debt crisis emerged in 2009 and was more than twice the euro zone’s average unemployment reading of 12.1 percent in March.
While the overall unemployment rate rose to 27 percent, according to statistics service data released on Thursday, joblessness among those aged between 15 and 24 jumped to 64.2 percent in February from 59.3 percent in January. Youth unemployment was 54.1 percent in March 2012.
“It is by far the highest youth unemployment rate in the euro zone, highlighting the difficulties young people face in entering the labor market despite government incentives to create jobs,” said economist Nikos Magginas at National Bank.
Greece isn’t the only country dealing with a glut of unemployed younger workers:
A new study from the International Labor Organization takes a global tour of youth joblessness and finds that what’s gone up won’t come down in the next five years. The youth unemployment rate* among the richest countries is projected to flat-line, rather than fall, before 2018. As a result, the global Millennial generation could be uniquely scarred by the economic downturn. Research by Lisa Kahn has showed that people graduating into a recession have typically faced a lifetime of lower wages.
As Ritchie King from Quartz shows in the graph to the left, it’s now “harder for a teenager or young adult to find a job in developed economies than in Sub-Saharan Africa.”
Lurking under the rise of youth unemployment among the richest countries is an even scarier trend — the rise of long-term youth unemployment. Long-term unemployment isn’t just a difference in length; it’s a difference in kind, because the more time you spend out of a company, the less likely you are to be hired back into one. In many European countries, particularly Spain, the increase in unemployment has come almost exclusively from people being out of work longer than two-years. In advanced economies, “longterm unemployment has arrived as an unexpected tax on the current generation of youth,” ILO writes. About half of Europe’s unemployed youth have been out of work for more than six months, according to 2011 data.
All of this is particular concern because of what it means for the futures of younger workers who are either having difficulty finding work, or finding themselves in positions that severely under utilize their skills and/or offer little opportunity for advancement:
Demos, a New York-based public policy and advocacy group, dug deep into U.S. Labor Department statistics for 2012 to draw a picture of how young unemployed workers are affected down the road.
“We found that last year passed with no significant gains for young people, who continue to endure a jobs crisis even as the economy recovers. The latest numbers from 2013 reveal no significant change in the trend. Without policy targeted to the needs of young adults, we risk a generation marked by the insecurities of the Great Recession for the rest of their working lives,” Demos researchers wrote in their report.
Demos’ findings were troubling, to say the least.
There are more than 5.6 million 18 to 34-year-olds who are “willing and able to take a job and actively looking for work” but can’t find a job, Demos reported. That group accounts for 45% of all unemployed Americans. Another 4.7 million young workers are underemployed, which means in most cases they’re working part time jobs when they’d rather be working full-time.
(…)
Demos found that the current high unemployment rate is not only preventing young workers from entering the job market, it’s also preventing young workers currently employed from moving to better jobs or negotiating higher wages from their employers.
“That in turn reduces the capacity for workers to identify the position where they can be most productive, stifling their careers as well as economic growth,” the Demos report concluded.
Mining this same concern, research conducted by the Center for American Progress estimates that young Americans currently either unemployed or underemployed will likely lose a combined $20 billion in earnings over the next decade.
By losing on-the-job experience now either through unemployment or working at a job well below their skill levels, young workers are missing opportunities to develop their skills and losing the ability to leverage those skills into better paying jobs.
This suggests that many nations, not just the sick men of Europe like Greece and Spain, but also other parts of Europe along with the United States, are facing the potential of having to deal with an entire generation of workers whose careers are going to be severely impacted by the Great Recession. This will have an impact on all levels of society in ways we probably cannot even anticipate at this point. At the very least we can expect a generation that is significantly less well off than their parents, except perhaps for those with college degrees or expertise in high-demand fields. In some cases, such as in nations like Greece and Spain, it’s possible that long term high youth unemployment will lead to a rise in resentment and perhaps the growth of new protest movements that could have a very interesting impact on politics in those nations. More broadly, though, we’re going to see a generation of people who are far less optimistic than their parents and grandparents generations, and far less likely to settle down early and start families.
Not being an expert, I’m not going express an opinion on how best to alleviate this problem, especially in nations like Greece and Spain where the economies are quite simply structurally sick thanks to decades of government policies that have stifled economic growth and bad fiscal and monetary policy. However, it is important to recognize that the youth unemployment doesn’t exist in a vacuum it is part of a wider employment problem that exists in many nations. It’s not surprising that younger workers would be the ones most severely impacted by the economic downturn either. As the economy improves, those younger workers with their admittedly less impressive resumes are competing with far more experience than they have, and employers are in the position of being able to be quite selective about who they hire. In such a situation, it’s only natural that workers with less experience are the ones harmed the most.
In the end, then, addressing the youth unemployment problem really isn’t the issue, it’s addressing the overall unemployment problem that matters. Take care of that and get the job market expanding the way it ought to during an economic recovery, rather than the anemic job creation record we’ve seen over the last four years or so, and younger workers will be doing far, far better than they are today. That’s easier said than done, of course, and in nations like Greece and Spain it’s hard to see what could be done to get the economy moving like it needs to other than a wholesale restructuring. This much is true, though, those nations don’t find a way to deal with those problems, they’re going to have a generation on their hands that will not only be going nowhere, but actually falling behind, and that’s not good for anyone.
As long as Germans continue to believe that Greek poverty is due to the Greeks’ laziness and profligacy while their export-driven prosperity is due to their own industry and prudence, the only solution for young Greeks will be to move to Germany. Given Mexico’s low youth unemployment rate, I’d expect an increasing number of young Spaniards to emigrate there.
Something you don’t mention in your catalog of Greek, Spanish, etc. economic problems is that they’re undercapitalized. That’s not due to problems that are unique to their present governments but go back ten years, fifty years, a hundred years, more. It’s not industry and prudence they’re lacking (on average, Greeks work longer than Germans). It’s capital.
@Dave Schuler:
Fair point. Indeed, Greece has never really been an economic powerhouse to begin with.
So I wonder how much of undercapitalization is a side effect of a reputation for laziness and lack of productivity? Do foreign investors avoid the southern European countries because of an ill-informed prejudice?
@michael reynolds:
I’d imagine they also avoid these countries because of the rampant culture of bribery and corruption.
It’s an interesting question, though, because it’s eminently clear that U.S. and foreign corporations prefer to invest in countries like India, China, Vietnam, and even Bangladesh than they do to invest in Southern Europe. There’s got to be some good reason why they are avoiding that source of potentially cheap labor.
As a young American myself, I can tell you what needs to be done: stop subsidizing corporations and using price maintenance programs to keep the price of food high, and then eliminate the minimum wage and allow student debt to be dischargeable in bankruptcy. That would get people to hire youngsters.
It’sgoing to be a disaster, though, for world over the next 30-50 years. At least in America, I can already see we’re going to have an entire generation that won’t know anything of a work ethic, or professionalism, and we’re basically going to have a workforce that won’t be able to do diddly squat. That doesn’t bode well for anybody.
@michael reynolds:
Being a Turkish colony for 300 years might have something to do with it, too.
@Dave Schuler:
Many of them are doing that, but part of the problem is that Mexico does not need aditional people graduated in Visual Arts or in Spanish.
Countries like Singapore, German, Netherlands, Dennmark, Japan and countries that invested on vocational training and apprenticeships have low youth unemployment. Spain, Portugal, France, United States and other countries that simply increased the number of people graduating in college have skyrocketing youth unemployment numbers.
That´s not a coincidence.
Greeks are fair less productive than Germans(The Germans produces more in their shorter hours of work), besides that, a large chunk of them are working in administrative functions in Public Service(AKA as bureaucracy).
They don´t have a considerable large manufacturing sector and they don´t export a large number of commodities. If someone pointed a gun to my face and asked me to name only one Greek international company I would be shot.
The problem is that Greece thought that joining the EU would substitute creating a manufacturing sector or commodities sector.
@michael reynolds:
That´s another problem: due to red tape, opening a business in these countries is a nightmare . There are also regulatory problems.
@michael reynolds: I have a hazy recollection of a tendency of those places to suddenly nationalize industries, effectively stealing them from their investors. That’s not exactly conducive to attracting foreign investors with good options.
@Doug Mataconis:
That´s the problem. Labor in Southern Europe is not “cheap” for decades, and the Euro made this labor even more expensive. That´s why Renault is opening production plants in Morocco, but not in Greece. PPP, by the way, is a big reason why labor is cheaper in China and Bangladesh. That´s why thirty dollars per month in these countries is not so bad as it looks at first glance.
I’m betting that if you looked, there’s a similar issues with entry level employess being stuck in entry level positions much longer than would normally be expected and with 30-40 somethings being much less penetrated into the hierarchies at their workplaces than would be expected by that age in previous generations.
The root of these problems is that the Boomer generation is living much longer and is either unable or not interested in retiring. This is backing up the entire labor markets: with the people on top hanging around, the people in the middle are stuck there because there’s no openings to move up into, and people on the bottom are stuck there because there’s no openings in the middle to move up into, and the young can’t get hired at all because there’s no entry level openings.
It’s pretty apparent that older workers are staying in the job market longer than previous generations – and, more importantly, they’re willing to accept lower wages for doing so – and this is limiting the openings for younger workers. The question is: why?
Here’s a hint – it’s not because working is so much fun for 60-year-olds. With the onset of austerity, combined with the collapse of the social safety net in many countries, many people who’ve been unemployed or underemployed for long terms have been living day-to-day by cannibalizing their retirement nest eggs.
In short: they’re continuing to work because if they retire they’ll starve.
This is _exactly_ why government austerity in a time of recession is _terrible_. Because it trashes the job market for years to come while an entire generation of new workers build the experience they should have gained in “real” jobs instead of survival-level jobs or public assistance or living on their parents’ couches.
I was just reading that something like 70% of all Greek businesses are family-owned and family-staffed. If that’s true, it’d go a long way toward explaining why it’s tough to get a job there. It’d also explain why it’s not an investment magnet.
@legion:
In a lot of cases it is. Our company offers a full pension at 40 years, yet our senior positions are largely full of 60-70 years olds who could retire at full salary tomorrow if they wanted to, but don’t. We have six pay bands for engineers, and we’re increasingly ending up in a situation where everyone is either one-three or five-six and we’re starting to have trouble holding on to level three people because they’re getting tired of being stuck there with no opportunities to move up.
@Andre Kenji:
A fair point, and that’s likely one of the reasons why you’re not seeing investment there. However, if the government of these nations (and I include not just Greece, but also Italy, Spain and Portugal in this discussion) were smart, they’d create incentives for businesses to invest in their nation. They aren’t doing that, though. They think they can have both a stagnant economy and a full-fledged 21st Century European welfare state. As we’re seeing, that simply isn’t possible.
Why are we on this….again. The solutions are simple but require actual acceptance of reality. If you want to improve employment, not just youth employment, then streamline regulation, root out corruption and cronyism, organize government and the legal system to facilitate rather than impede small business formation and entrepreneurialism, repeal labor regulations that increase the cost of employees, repeal laws and regulations that impose onerous paperwork requirements, i.e., 50-100 sales tax returns on an online business, and stop seeking ways to pilfer every bit of profit a business makes.
Rules are the same for Greece as California, same for Spain as Washington, DC.
But since that requires actual critical thinking, we won’t see it, but we will see the logical reaction of employers who seek to get out of that business by employing as few people as possible and introducing automation in every place feasible.
*Not to say that there should be taxes on internet transactions but the funneling of payments could be simply a separate charge on non-cash transactions forwarded by the credit card processors who have the resources. One charge for your Amazon purchase, one charge for your tax authority. Downside, the taxes would no longer be hidden in plain sight and so could generate resistance at the ballot box.
@Jeremy:
Yeah…..I don’t think so.
In your scenario, the smartest thing to do for a youngster would be to go to college for a long time on loans (don’t even need work study!) then declare bankruptcy as soon as you graduate. Go get a good-paying job, then buckle down and wait for 30.
Of course, if everybody did that…..
Part of the reason no one wants to hire youngsters is that youngsters don’t know anything. Companies want their employees pre-trained and, in some cases, certified. The policy prescription for that is a generous financial aid regime, which –well– has its own issues.
@JKB:
In other words, turn developed nations into Bangladesh where the employment picture looks great . . . until your regulation-free zone collapses in a pile of rubble.
@James Pearce (Formerly Known as Herb):
Yeah, because our habit of increasingly socializing the costs of businesses so that the well connected can earn fortunes by gambling with everyone else’s money has done wonders for our economy.
@JKB:
These are all great ideas…..but it’s only half the story.
What makes you think the government and the legal system impedes small business formation? I think a lack of funding (individuals not saving or banks not lending) as well as anti-competitive practices by established firms do more to impede small business formation than anything the government does.
Not a good idea, not only if you study the country’s history but current events in Bangladesh. That’s not to say that all labor regulations are good, but to get rid of them just because they raise the cost of employees….well, that’s not smart.
I guess what I’m saying is that the government (here in the US anyway) is not the problem. We have one of the most business-friendly governments on the planet. It rarely –if ever– gets better than this.
@James Pearce (Formerly Known as Herb):
One of the most popular forms of anti-competitive practices is the use of regulatory burdens to prevent the formation of new competitors. If you’re already an established company, keeping up with changes to regulations is relatively easy. Getting into compliance with thousands of pages of regulations, administrative rulings and precedents is a considerable hurdle for a new business to handle.
I don’t generally think of myself as a corporation, but I am. My company is small — 750k to a million in annual sales. I have two employee/owners, my wife and myself. We have one part time employee to respond to a moribund email link, who we should probably just fire, but what the hell, she’s not costing much.
We have an accountant and a lawyer, but neither is an employee. Why don’t we hire some help? Is it because of regulations or government? No, it’s because despite the fact that we are frequently strained, and could use some help, technology takes up enough of the slack. Bookkeeping? There’s an app for that. Travel arrangements? There’s Expedia. Editing? There’s spellcheck and word processing software for that. Printing and mailing and all that? Who, prints, we email. Research? There’s this thing called Google.
We are both more productive in fewer hours than we were twenty years ago, thanks to technology. Cheap, often free technology.
This mirrors the domestic work situation. The reason we aren’t Downton Abbey with a host of maids and butlers is that we have a dishwasher, a microwave, a toaster, a vacuum cleaner, etc… We don’t need a driver, we have easy-to-manage cars.
I just started a second company that has one and a half free-lance employees. Did I have to add staff to manage this new venture? Nope. Already have those apps. Somewhat to my amazement I can add work without adding employees. I don’t think I’m alone in this. I think an increasing amount of what is produced simply does not require employees to produce it. The jobs we’re creating are in areas where technology has not yet figured — home health aids, fast food workers, nurses.
Bottom line, despite the fact that my corporation is growing, I may actually end up laying off the one part-time employee I have. And that has nothing at all to do with government or regulation or minimum wage laws or any of the usual presumed causes. An increasingly large percentage of the human race is simply not necessary as workers. We are going to have to rethink things, not just go around and around on the same old ideological merry-go-round.
To add to the graph, youth unemployment rate in:
Italy: 38.4% (Mar 2013)
Cyprus 31.8% (Dec 2012)
Austerity really works, doesn’t it?
So, civil unrest, the rise of fringe left and right wing political parties, and sooner or later war?
@James Pearce (Formerly Known as Herb): “In your scenario, the smartest thing to do for a youngster would be to go to college for a long time on loans (don’t even need work study!) then declare bankruptcy as soon as you graduate. Go get a good-paying job, then buckle down and wait for 30.”
You know, we used to have a system that worked just like this, only it was set up a little differently. Kids could go to a good state college for free, then they could get a good job with a real pension, work for 30 (or 40 or 50) and then retire with dignity.
Of course as a nation we realized this was a foolish waste of money, and it was a much better idea to transfer all that wealth to the top one percent of the population and let the losers fight for the scraps. And now we’ve internalized that so much we have morons saying the answer is to eliminate minimumm wage laws so we’re all free to work like Bangladeshis.
@Stormy Dragon:
It depends…..
For example, I wouldn’t want to try and start a taxi company in NYC with the medallion system. But then again, I wouldn’t to operate a taxi company in NYC without it. Competition is awesome, but it’s not the default setting when it comes to trade. It must be enforced and regulated, because while businesses say they want to compete, what they really want to do is dominate. See AT&T, divestiture of; or (more recently) Apple v Samsung.
Sure, that’s a considerable hurdle, but it’s also a sign of professionalism. This is why so many businesses use “Licensed and Insured” in their marketing materials.
@James Pearce (Formerly Known as Herb):
As well as a lack of health care. If I want to leave my job and start my own business in Canada, I’m not worried about health care, because that’s already provided to everyone via the state. In the US, however, I’m terrified to leave my job and start my own business, because doing so means going without health care.
@JKB:
What @James Pearce (Formerly Known as Herb) said… what actual evidence do you have that over-regulation is what’s keeping employment down? Even if you take the position of @Stormy Dragon:
you have to realize that barriers to entry are _not_ things that governments set up just for funsies – they build those barriers at the direct request of (payment by) the companies in that industry. Those are regulations the companies themselves want – so they can increase their profits margins without the worry of competition. Do you think those industries will _let_ those barriers be removed?
When companies say cutting regulations will allow them to employ more people or do more for society, they are lying. Cutting regulations will _only_ allow them to further increase their profits without actually doing anything different. It’s the easiest way to boots profits, and the best ROI of anything they can do.
The question I would love to have answered is this: have we ever before had a rising stock market and strong corporate profits without rising employment? Does anyone know whether this situation in the US is precedented?
@legion:
The best example I can give was the scandal a few years ago where Fisher Price was caught importing toys from China that used lead based paint. There was the typical media outrage after which legislation was passed requiring safety testing for all children’s toys. You could either set up your own laboratory to do the testing or you can pay the government to do it for you (which takes forever and is hideously expensive).
Not surprisingly, big corporations can afford their own testing labs easily. Meanwhile the small one person outfits are driven out of business by the expenses.
So not only does Fisher Price not face sanction for poisoning children, it actually use the scandal to take out a bunch of their competition and make it harder for new toy companies to form in the future.
@Stormy Dragon: Ok, so what’s your solution? Stop testing children’s toys for lead paint?
You sneer about “typical media outrage” when it was discovered that a majoy toy company was selling toys that could seriously injure or even kill children. Well, I’m sorry if this offends your view of the wonders of the Glorious Free Market, but I want to see some pretty serious media outrage when a company is trying to make money by killing and retarding kids.
Again, what’s your solution? Sanction the hell out of FP — that’s great. Then what? If we don’t regulate, do we just wait to sanction the next company doing this… and write off a few sick or dying kids as the price we pay for Freedom?
@michael reynolds: The market has been sustained solely by large budget deficits; it hasn’t yet caught on corporate earnings are now falling as the government’s injections of net financial assets have fallen (check the S&P). The only other leg which has been propping up our economy has been credit expansion, primarily student loans which must stall at some point.
We had a similar situation during the Great Depression, where government found it necessary to directly create jobs in order to deal with mass unemployment, including a big jobs program called WWII. This time we’re just going to let the young languish, I guess. In the process we’ll deliberately cripple our long-term economic performance as those people fall behind in developing skills, losing incomes they’ll never make up and hundreds of million in man-hours of lost productivity as they sit idle.
What a country.
@michael reynolds:
That’s the best argument against the idea that corporations are people yet. Just look at the picture! 😉
If you take out Greece and Spain, this is about countries recovering pretty well from a Great Recession. Not bad, actually. There might be some long term factors that make youth recovery slow:
– longer lived workers
– deferred retirement of workers
– increased automation
– migration of high labor manufacturing overseas
But certainly not every country in that chart is Greece or Spain, no matter how they draw the eye.
(Or put differently, the pre-2008 youth employment rate looks pretty good. There is no reason that is not attainable within 10 years. Faster might have been better, but still.)
[update: oops, I meant to say “5 more” years above, for a 10 year full recovery]
Well, thank God we don’t have rampant bribery and corruption here. We have every reason to look down our noses at these people.
At the moment, all of my clients are entrepreneurs. Do you know how often I hear them say something like, “This damn red tape! All we want to do is work and grow our business, but it’s impossible!” or “All these new regulations are just killing us!”
The anser is “never”
Of course they are actual businessmen, not fantasy entrepreneurs like JKB.
@anjin-san:
We do have less bribery than these people, and less than we’ve had in our own history.
The number of police forces in the bag is certainly less than it was a century ago.
@ john personna
Of course, but corruption is still a huge problem in this country. I am a big fan of spending more time putting our own house in order, and less talking about terrible, awful foreigners…
The lead article is very informative, though all unemployment statistics must be viewed with a grain of salt. The Government of Mexico, for example, counts a person as employed if he has worked even one week out of the previous year, and the way the U.S. Government does not count so-called “discouraged workers” as unemployed is well known.
Still, the lead article has one error, contained in its last sentence:
This statement fails to recognize rich corporate executives as people too. They are not harmed by are benefitted by a generation of young people mostly out of work.
These corporate executives hire lobbyists routinely to complain about how there is a shortage of labor. By shortage, they mean the term in the manner of an older economics textbook, where they have to bid against one another for the commodity. Abundant labor is where people can be found to work for subsistence wages. No employer is benefitted by having to pay employees enough to get ahead when that same employer could pay only enough to keep the employee alive.
With so many Americans out of work, those who do have jobs know to take whatever wages they can get, and to endure, without complaint, whatever working conditions they are given. I have heard tell of people being required to work, nonstop, twenty or more hours at a stretch, with their managers reprimanding them when their error rates go through the roof. And, of course, sleeping on the job is always considered grounds for termination.
With such a large fraction of people unemployed, executives know that employees who leave their employment do not merely change jobs, but join the ranks of the unemployed. It certainly reduces the number of times they have to hear the phrase “You can’t fire me, I quit!” during their careers. There is no more dependable employee than a dependent employee.
These managers, and the executives over them, need an abundant supply of labor available so that these practices may continue. The supply is guaranteed to be abundant when there is a copious reserve always at hand in the ranks of the unemployed.
Lobbyists for these executives complain that American labor is not competitive with labor in China and India and other desperately poor places. Congress accommodates their needs by approving a wide variety of visa programs, so that foreign labor be readily available in every sector of the economy. Millions of Americans have been churned into unemployment as they were replaced by foreign labor; cases of Americans having to train their foreign replacements is well-documented. All of this undoubtedly benefits corporate executives: why else would they spend millions upon millions of dollars to lobby Congress for it?
Of course, these corporate executives never extol competitiveness on their end, how they need to compete with one another for scarce or valuable domestic labor, and certainly any executive worth his salt runs his competition out of business if he is ever given the opportunity.
Ultimately, the whole tenor of the lead article is entirely one-sided: taking the view of young people out of work, and those who sympathize with them, and treating rich corporate executives as nonentities. Our Congress, however, is much more broadminded, and is able to see the other side of the coin. In fact, given the laws passed by that body in recent years, it is the only side they seem actually to see.
Article in FT some time back, analyzing the problems in Spain. One problem is that when they had the property bubble some time back, a lot of lower-class youths ended up in the building industry, somewhat similar to a lot of construction here in the US being built by Hispanics. After the property bubble collapsed, Spain discovered it had a lot of youths on its hands who hadn’t gone to college and were specialized only in a few areas. Whoops.