While demonstrating 'indignados' all over Europe blame budget
restraining for more than 50% of youth unemployment, the chief
economist of General Electric, Marco Annunziata, draws attention on
to some painful facts on VoxEU: even
during the economic boom in Spain, one out of three young people
was out of work.
"Youth unemployment is one of Europe's most glaring problems.
Opponents of austerity point to the swelling ranks of unemployed
young (15-25 years of age) people in Europe's periphery as proof
that fiscal tightening can no longer be tolerated. The Financial
Times notes that youth unemployment rates have reached 51% in
Greece and Spain, 36% in Italy and Portugal, and 30% in Ireland,
and warns "is it plausible that people will put up with this
indefinitely? No".
"The seriousness of the problem cannot be underestimated, and
the speed at which young people have been thrown out of the labour
market is frightening. But equally frightening is how long Europe
has lived with high youth unemployment. Sadly, in several countries
the rise in youth unemployment looks largely like a reversion to
the mean after unsustainable credit growth spurred a bubble in
fixed-term jobs."
Never below 20%
"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%. Italy experienced 'strong'
economic growth during 1994-2000, with GDP rising at an annual
average of 2%. During this boom period, the youth unemployment rate
still averaged 33%. In other words, one young person in three was
unemployed when the economy was at its strongest. The rate never
dropped below 20%."
"Spain's economy grew at an average of 3.6% between 1995 and
2007. During this impressive run, the youth unemployment rate
averaged 28%; it was below 20% for just three years, with a 'best
performance' of 18% in 2006."
Apprenticeship pays off
"The IMF has recently pointed out that the unemployment rate of
young people in advanced countries has historically been higher
than those of older age groups, partly because they have fewer
contacts and less job-search experience. But it also noted that in
some countries, structural problems clearly put young people at a
much more significant disadvantage. Germany's youth also have a
higher unemployment rate than older generations, but their rate is
just over 8%."
"Austerity hurts, but it's the underlying structural problems
that are the real issue - rigid and distorted labour markets and
education systems plagued by falling standards and a growing
misalignment with the demand for skills of a rapidly changing and
very competitive global economy. Germany's better coordination
between the school system and industry, including via its
apprenticeship programmes, pays off."
Depressing productivity
"Formal and informal social safety nets attenuate the extent of
the problem. Family networks in Italy and Spain, for example, play
an important role in providing accommodation and financial support
to young unemployed people. Another question is how many of those
who are registered as unemployed might be working in the informal
sector. But the negative social and economic impact remains severe.
Most depressingly, this 'wasted youth' problem translates into a
deterioration of the human capital stock, depressing productivity
and economic growth for years to come."
"It is important to ensure that fiscal adjustment and structural
reforms are socially sustainable; to the extent that there is room
to mitigate the impact of austerity on growth and employment, this
should of course be done - although in some countries the room is
limited, or needs to be found by tackling wasteful public
expenditures. But it is equally important to recognise where the
key structural problems are and to address them. The ambition
cannot be simply to go back to the good old days of 30% youth
unemployment."