The unemployment myth
While demonstrating ‘indignados’ all over Europe blame budgetrestraining for more than 50% of youth unemployment, the chiefeconomist of General Electric, Marco Annunziata, draws attention onto some painful facts on
“Youth unemployment is one of Europe’s most glaring problems.Opponents of austerity point to the swelling ranks of unemployedyoung (15-25 years of age) people in Europe’s periphery as proofthat fiscal tightening can no longer be tolerated. The FinancialTimes notes that youth unemployment rates have reached 51% inGreece and Spain, 36% in Italy and Portugal, and 30% in Ireland,and warns “is it plausible that people will put up with thisindefinitely? No”.
“The seriousness of the problem cannot be underestimated, andthe speed at which young people have been thrown out of the labourmarket is frightening. But equally frightening is how long Europehas lived with high youth unemployment. Sadly, in several countriesthe rise in youth unemployment looks largely like a reversion tothe mean after unsustainable credit growth spurred a bubble infixed-term jobs.”
Never below 20%
“Implausible as it sounds, Italian voters have put up with anaverage 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 annualaverage of 2%. During this boom period, the youth unemployment ratestill averaged 33%. In other words, one young person in three wasunemployed when the economy was at its strongest. The rate neverdropped below 20%.”
“Spain’s economy grew at an average of 3.6% between 1995 and2007. During this impressive run, the youth unemployment rateaveraged 28%; it was below 20% for just three years, with a ‘bestperformance’ of 18% in 2006.”
Apprenticeship pays off
“The IMF has recently pointed out that the unemployment rate ofyoung people in advanced countries has historically been higherthan those of older age groups, partly because they have fewercontacts and less job-search experience. But it also noted that insome countries, structural problems clearly put young people at amuch more significant disadvantage. Germany’s youth also have ahigher unemployment rate than older generations, but their rate isjust over 8%.”
“Austerity hurts, but it’s the underlying structural problemsthat are the real issue – rigid and distorted labour markets andeducation systems plagued by falling standards and a growingmisalignment with the demand for skills of a rapidly changing andvery competitive global economy. Germany’s better coordinationbetween the school system and industry, including via itsapprenticeship programmes, pays off.”
Depressing productivity
“Formal and informal social safety nets attenuate the extent ofthe problem. Family networks in Italy and Spain, for example, playan important role in providing accommodation and financial supportto young unemployed people. Another question is how many of thosewho are registered as unemployed might be working in the informalsector. But the negative social and economic impact remains severe.Most depressingly, this ‘wasted youth’ problem translates into adeterioration of the human capital stock, depressing productivityand economic growth for years to come.”
“It is important to ensure that fiscal adjustment and structuralreforms are socially sustainable; to the extent that there is roomto mitigate the impact of austerity on growth and employment, thisshould of course be done – although in some countries the room islimited, or needs to be found by tackling wasteful publicexpenditures. But it is equally important to recognise where thekey structural problems are and to address them. The ambitioncannot be simply to go back to the good old days of 30% youthunemployment.”
