Proposal - Youth Unemployment
The most effective way to reduce youth unemployment is to use a battery of complementary policy actions – more specifically a combination of macroeconomic policies, general labor market reforms and targeted policies to increase the demand and supply of labor for young workers.
In some countries, youth unemployment rates are only half or a third of the rates in other countries. Already this simple observation suggests that high unemployment for young people is not unavoidable and that, most likely, the level of youth unemployment depends on institutions and policies.
First of all, it is well known that youth unemployment is very sensitive to variations in the general (aggregate) level of employment and hence to variations in aggregate demand for goods and services. This means that young workers have much to gain from macroeconomic policies that mitigate recessions. A complementary policy would be to reduce the insider-outsider character of the labor market so that the distinction between permanently and temporarily employed becomes less sharp. For instance, then firms would be less tempted to fire workers with temporary contracts just before the contracts expire.
However, the employment opportunities of young individuals have also been harmed by structural changes in the labor market. Before World War II, and during the very first decades after the war, school leavers often entered the labor market in simple jobs in labor intensive sectors. Important examples are delivery boys and low-skilled work in manufacture, the building sector and (manly girls) shops. Many such entries to the labor market for young people have disappeared without being replaced with other entries. What to do about it?
Cross country experiences suggest that apprentice systems are the most effective targeted measure to keep down youth unemployment in the long run. I refer to arrangements were youngsters are in school about half the week and the other half engaged in vocational training at work places. It is interesting to note that countries with well-developed apprentice systems – Austria, Germany and Switzerland – have considerably lower unemployment rates for young people than other countries. However, it seems that for an apprentice system to work well it has to be tightly organized, with close cooperation between schools, workplaces, local employers’ organization and unions. It is also important that schools are encouraged to supply types of education that are relevant for tasks where the employment prospects are good, rather than providing types of education that students regard as “dream jobs”, such as art work and journalism. Otherwise, the mismatch between demand and supply of young workers will continue.
There is also a case for subsidizing training in the contest of active labor market policies. Such complementary training programs are particularly important for school drop outs and young immigrants with poor education and limited knowledge in the language of the country of immigration. However, experiences in several countries in the early 1990s indicate that a dramatic expansion of such programs over a short period of time easily run into falling quality of the training. In this case, the programs will largely function as a cover up for unemployment rather than contributing to increase the probability of individuals getting a job.
Moreover, in countries with high minimum wages, the employment prospects for young and inexperienced workers would be enhanced if the minimum wages were reduced. This recommendation is based on the assumption that a low-paid job usually is better for individuals than no job at all. There is, of course, also a possibility to subsidize the hiring of young workers in general. But experiences of such general subsidies have not been very encouraging. Moreover, general subsidies for several cohorts are quite expensive for each new job, in particular if, as a result, old workers also ask for, and receive, similar subsides.
Finally, to facilitate relevant policy decisions, it would be useful with much better, and more differentiated, statistics on youth unemployment. For instance, in the case of my own country, Sweden, one can claim that the unemployment rate for young people is anything between 6 and 26 percent. The figure depends largely on the definition of unemployment, for instance on whether fulltime high-school and university students in the age group 15-24 who wants to work a few hours a week beside their studies are classified as unemployed. Since about half of the individuals in this age group in developed countries are full-time students, the calculated unemployment rate depends also crucially on whether the rate is calculated with the entire population of the relevant age group, or only with those who do not study, in the denominator.