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Symposium 2012

Proposal - Fighting Youth Labor Market Chronic Problems

The Challenge

Among the world's unemployed, young people have been particularly hard hit. Youth unemployment rates are significantly higher than adult unemployment rates in both developed and developing countries. ...

Among the world's unemployed, young people have been particularly hard hit. Youth unemployment rates are significantly higher than adult unemployment rates in both developed and developing countries. Global protest movements of young people are a manifestation of their lack of job prospects.

The Great Recession has brought renewed attention to the difficulties faced by youth labor markets. The crisis has taken an outsized toll on young workers across the world, but especially in advanced economies which were hit harder and are recovering more slowly than emerging market and developing economies. These difficulties include not only high unemployment rates and scarring effects from poor employment outcomes right after leaving education but also the resulting risk of social and economic exclusion. One clear manifestation of the latter is the growing share of the so-called NEET (those neither in employment nor in education or training) in youth population.

Youth (aged 16-24) in the OECD have suffered from sizeable increases in unemployment rates between 2007 and 2012. While it has increased on average by 7 and 10 percentage points (pp.) in the OECD ( 17% nowadays) and the EU (23%), respectively, a striking rise of above 30 pp. has taken place in countries like Greece and Spain where more than 50% of the youth labor force currently remains unemployed.

Likewise, the NEET rate (% of NEET in youth population) has increased on average by 10 pp. in the OECD and the EU, being this rise again particularly high in the Southern Mediterranean countries, were the NEET rate is about 18%, and especially in Israel, Mexico and Turkey and Mexico, where it exceeds 25%.

Although some youth already faced difficulties in getting a firm foothold into the labor market before the crisis, the above-mentioned negative developments pose serious challenges for the well-being of current and future generations.

In order to improve youth labor-market outcomes, understanding school- to-work transition pathways is central. Key issues concern the time needed to find a first job after completing education, the smoothness of the transition, e.g. whether it involves repeated spells of unemployment and inactivity, and the extent to which easy school to work transitions determine future labor-market success.

There is available evidence (see references below) on this issue suggesting that these features are clearly influenced by labor-market institutions and educational settings, implying very different outcomes for school-leavers. As a result, significant variation in the size of the at-risk groups can be observed across OECD countries. In particular, the following useful lessons to improve youth labor-market outcomes can be drawn from these studies:

  1. First, countries with strong apprenticeship systems and/or low-regulated labor markets – notably, Denmark, the Netherlands and the UK – have the lowest unemployment and NEET rates. Indeed, with highly regulated labor markets it is very important to have strong vocational education and training systems to compensate for these rigidities (e.g. Austria Germany, Switzerland). Overall, there seems to be a negative cross-country correlation between the percentage of students enrolled in vocational training in upper secondary education and school dropout rates in the EU-15 countries. This seems to point out that facilitating early tracking of students under compulsory education towards vocational training is seemingly successful in reducing the proportion of dropouts.
  2. Aside from the overall weakness of the vocational training system in the worse performing countries, another specific deficiency worth stressing is the small role played by dual vocational training in those countries. This system combines apprenticeships in firms and formal education at vocational school simultaneously rather than in sequential stages. For example, in stark contrast with the Spanish poor performance, Switzerland stands as the European country with the lowest youth unemployment rate. Interestingly, while 65.5% of Swiss post-compulsory school students were enrolled in vocational training in 2010, out of which about 60% did so in the dual system, the corresponding figures in Spain were 28% and 2%, respectively.
  3. Third, southern European countries with a high incidence of temporary work – notably, Greece, Italy, Portugal and Spain – have the largest shares of at-risk youth. The larger the gap in employment protection between permanent and temporary contracts, the less likely that the latter become stepping stones rather than dead-end jobs. Under the current highly segmented system, the steep increase in severance pay at the termination of temporary contracts implies a situation in which most employers prefer to rotate workers in a sequence of fixed-term contracts rather than to upgrade them to a permanent contract. As a result, a very high temporary workers´ turnover rate becomes detrimental for workers´ productivity and firm-provided training. Further, in expansions, the strong creation rate of temporary jobs leads to a higher early drop-out rate. Later in recessions, these low-skilled workers become highly non employable. In this respect, replacing most temporary contracts by a single-open ended contract-- with the level of employment protection increasing gradually over time rather than in a steep way-- would eliminate the incentive for this wasteful rotation. Moreover, to foster the labor mobility of youth workers the system could incorporate the creation of a worker-specific fund. Under this so-called Austrian model the firms anticipate a small fraction of the redundancy payments by making annual payments into the fund.

 



Bell, D.N.F y D.G. Blanchflower (2010), “Youth unemployment: Déjà vu”, IZA Discussion Papers No. 4705.

Dolado, J. , Felgueroso, F. and M. Jansen (2012), “ Youth unemployment in Spain: Problems, causes and policies” Universidad Carlos III (mimeo).

OECD (2008b): “Off to a good start? Youth labour market transitions in OECD countries', OECD Employment Outlook”, OECD Publishing, Paris.

Quintini,G. and S. Martin (2006): "Starting Well or Losing their Way?: The Position of Youth in the Labour Market in OECD Countries", OECD Social, Employment and Migration Working Papers No 39, OECD Publishing, Paris.

Quintini, G. and T. Manfredi (2009), “Going Separate Ways? School-to-Work Transitions in the US and Europe”, OECD Social, Employment and Migration Working Papers, No. 90.

Scarpetta, S., A. Sonnet and T. Manfredi (2010), “Rising Youth Unemployment During The Crisis: How to Prevent Negative Long-term Consequences on a Generation?”, OECD Social, Employment and Migration Working Papers No. 106, OECD Publishing, Paris.

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