Youth Unemployment after the Financial Crisis: ‘Quo Vadimus’?

By Terence Tse, Mark Esposito, & Jorgo Chatzimarkakis

The financial crisis has damaged national economies but also hurt segments of societies, including youths aged 15 to 24, many of whom are struggling to find jobs as a result of the economic downturn. Below, Terence Tse, Mark Esposito, and Jorgo Chatzimarkakis warn that countries are bound to suffer significant losses if too few actions are taken to deal with youth unemployment.

The financial crisis that began in 2008 has hit the world economy hard. In the US, Detroit has declared bankruptcy, while the crisis in the Eurozone is still far from coming to an end. In fact, some speculate that the Eurozone crisis might still be in the initial stages. National economies are not the only victims; various segments of societies around the world have suffered as well. One such segment is youths aged 15 to 24, many of whom are struggling to find jobs as a result of the economic downturn. This is certainly a cause for concern, especially in southern Europe, where the population is dwindling while the capacity of youths to find jobs and of employers to absorb new talent is worsening, according to the OECD.1 Thus far, there have been relatively few efforts to tackle the issue of youth unemployment.

Let us look at the figures in greater detail. In France and the UK, 20 percent of all youths are jobless. In fact, the EU average is 22.6 percent. In the US, youth unemployment hovers around 16 percent. Even in Hong Kong, which is often assumed to be one of the most dynamic economies in the world, the jobless rate among youth stands at 11.6 percent.2 While the latter figure is not particularly high, it is significantly higher than Singapore’s 6.7 percent, which is the lowest in the world.3 On the other hand, with a youth unemployment rate of 7.9 percent, Germany sticks out among the EU countries. Nevertheless, from Europe to the Middle East and across Asia and Latin America, the world’s youth are beginning to vocalise their distress.

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Eight million young Europeans – the so-called ‘NEETs’ – are not employed, pursuing an education or involved in training. This figure translates into one young person out of every seven.

Unsurprisingly, such figures, especially those for Greece and Spain, are often the subject of attention-seeking headlines. While these numbers have helped many people understand the gravity of the situation, few appreciate the fact that the methodology used to derive this data can be flawed, resulting in figures that make the issue of youth unemployment seem far worse than it actually is or, at least, misrepresent the facts.4 A different approach to calculating youth unemployment, which takes young people who are still in the educational system into account, gives unemployment rates of 13 and 19 percent for Greece and Spain, respectively. In this case, the jobless rate in the EU would only be 8.7 percent.

However, the issue is greater than any numbers can indicate. While we are well aware that joblessness and unemployment are not the same issue, the tragedy of the commons is shared among those who are actively looking for a job but cannot find one, and those who are not actively looking for a job but struggle with the outlook for the future.

No matter how the unemployment figures are derived, they hardly make for comforting news. Eight million young Europeans – the so-called ‘NEETs’ – are not employed, pursuing an education or involved in training. This figure translates into one young person out of every seven.5 Even though the problem is not new, European leaders have only recently begun to focus on this issue. New initiatives are being introduced at the various meetings held to address the crisis. However, all such efforts are unlikely to be able to circumvent the youth unemployment problem because they overlook four deeper issues: lackluster economic growth, the rigid labor market, varying perceptions of work, and a mismatch between potential employees’ skills and employers’ needs.

 

Economic growth, not education


From a more systemic point of view, the core mechanism of employment, fuelled through education, has become an obsolete view. Many universities are training students for jobs that ceased to exist years ago, such that the delay in curricular adjustments has become a problem of mismatch. Many people have gained unnecessary qualifications, harboring a false belief in the need for certain skills. They often end up taking jobs unrelated to their educational fields, as work in the industry they wish to enter is scarce.

We do not believe that the new EU initiative – an upgraded version of the Erasmus scheme – will reduce the severity of the youth-unemployment problem or address the real issue of the low mobility of talent across the 28 EU countries.

Clearly, regardless of our desire to view youth unemployment as a product of economic downturns, we must consider the flaws that result in failure on a systemic level. Such failures are exacerbated by the decreased capacity within the current model proposition. In other words, education policies must be formulated in conjunction with economic policies, thereby breaking institutional silos that have existed since the inception of the factory-based model, which was inspired by the neat separation of duties and scopes. For this reason, we do not believe that the new EU initiative – an upgraded version of the Erasmus scheme – will reduce the severity of the youth-unemployment problem or address the real issue of the low mobility of talent across the 28 EU countries. This is not an issue related to a lack of education or international experience, but to the inability of the current process to recognise the system’s complexity and inadequacy, and to shift the design of the educational system from fragmentation to inclusion.

While this paper focuses predominantly on the crisis of the European youth, the situation is not necessarily better in other regions. For example, youth employment is rapidly declining in China, where the fundamental problem is that there are simply not enough degree-level jobs available to soak up the new graduates. At least 600,000 graduates from last year have yet to find employment. To make matters worse, some seven million students finished university studies this summer, most of whom will want to enter the workforce immediately.6 While China has made significant investments in its industries, it cannot continue to throw money at expanding its manufacturing capacity. Its challenge is sustaining its growth. In conjunction with the youth-unemployment issue, it must consider investing in those areas and industries that can take full advantage of young people’s skills and talents.

The shortage of jobs for young people is a direct consequence of employers’ reluctance to hire them. This is largely attributable to the rigid and inflexible labor markets, which are the results of past models of social welfare.

The Chinese case highlights an important lesson for the EU. In recent months, European governments have pledged EUR 8 billion to combat youth joblessness. The funds will form the basis of a ‘Youth Guarantee’ program that aims to offer jobs, training or apprenticeships to young Europeans within four months of their leaving full-time education or becoming unemployed. However, the program fails to ensure that the young Europeans who receive training or apprenticeships will be able to obtain a job. Such jobs can only be created through economic growth. In other words, the scheme can only work if growth is successfully improved. Otherwise, it is nothing more than a sound bite aimed at releasing political pressure. However, it simultaneously generates the foundations for new, aggravated precarity.

 

Rigid labor markets

In addition to the lackluster growth, the shortage of jobs for young people is a direct consequence of employers’ reluctance to hire them. This is largely attributable to the rigid and inflexible labor markets, which are the results of past models of social welfare. The policies that govern the labor markets in the EU today are a direct consequence of an outdated mindset. While the ‘securitisation’ of labor reflects an honorable historical achievement, it was conceived when economies were expanding through industrial growth, which required the establishment of ground rules for workers.

As growth is no longer the driving force, labor markets should generate agility, mobility, and transferability more than protection. After all, the people the labor market is ‘protecting’ itself from are the youths that can generate the conditions for a new stability. The aforementioned EUR 8 billion earmarked for the ‘Youth Guarantee’ program is noble in its intentions but insignificant in its likely results. The country would probably be better served by spending those funds on addressing the long-term transformation of the workforce rather than a quick fix.

 

Perception of work

High youth unemployment is not necessarily just a result of the lack of available jobs. Many young people may choose not to work. For example, about a quarter of the 290 million women in Asia do not work for cultural reasons. Many others prefer to engage in informal employment,7 increasing the number of those who choose to operate within informal boundaries and mandates.

Cultural factors also affect the perception of work. In certain societies, various jobs, especially vocational positions, are viewed as having a lower status. This perception is reinforced by the fact that artistic and vocational jobs are often poorly paid. People in rich countries tend to look down on manual work, regardless of the level of skill required, which results in a need to employ immigrants, fostering a set of potential problems that are beyond the scope of this article. Parents prefer to push their children towards professional careers and careers in the public sector. In a recent study, nearly two-thirds of youth surveyed said that vocational training was less valued by society. At the same time, occupations that require advanced studies tend to carry more status. As a consequence, the report finds that of those youth who said they preferred the vocational track, fewer than 40 percent actually enrolled in vocational courses. This perception has to change. Some of the most competitive economies in the world have the ability to harmonise vocational and professional aspirations within functional levels. Nevertheless, 70 percent of the respondents actually view the vocational track as more helpful in getting a job and half said they found it more appealing than an academic path. In general, academic subjects are considered superior to practical vocational training despite the fact that the former often fail to improve job prospects. Of the nine countries surveyed, only German respondents viewed the academic and vocational tracks as equal.8 In other words, perceptions of the type of work can often matter more than economic survival.

Some of the most competitive economies in the world have the ability to harmonise vocational and professional aspirations within functional levels.

Mismatch between available skills and employers’ needs


Ironically, even though there are a large number of young, educated people available in the market, many companies are unable to fill vacancies. A recent survey conducted in nine countries indicated that 43 percent of employers struggle to fill even entry-level jobs because the candidates possess inadequate skills.9 Often, these are basic skills. In the UK, for instance, employers often complain about the poor levels of English and mathematics skills among their younger hires. Indeed, many young people even lack necessary computer skills, which might seem surprising.10 These are important issues to address – in the aftermath of the financial crisis; companies have to achieve more with significantly fewer resources. If the economy cannot provide the right human resources, firms are more likely to fail.

Why is there a skill shortfall despite the significant amount of money spent on education? One partial explanation is that employers, education providers and young people are living in parallel universes. In other words, they have fundamentally different understandings of the same situation. The aforementioned nine-country survey points out that less than half of youth and employers believe that new graduates are adequately prepared for entry-level positions. However, 72 percent of education providers believe that new graduates are qualified to work. The same disconnect exists between youth and education providers – 39 percent of the latter believe the main reason that students drop out of school is that their course of study is too difficult. Yet, only 9 percent of youth say this is the case; they are more apt to blame the cost of education.

A recent survey conducted in nine countries indicated that 43 percent of employers struggle to fill even entry-level jobs because the candidates possess inadequate skills.

In addition, we strongly believe that the widespread use of technologies has played a role in the skill shortfall, as young people seem to be easily distracted from their learning processes. A recent study of boredom among university students in classes found that 59 percent of students found their lectures boring half of the time, while 30 percent were bored by most or all of their lectures. An interesting point of this survey is that many of the current problems seem to have emerged in response to a highly disengaging teaching model focused on presentations that regurgitate irrelevant content rather than engaging students in the creation of future landscapes.

Furthermore, we suspect that the popularity of ICT and social network media has caused students to become more inward looking – focused on their own circle of friends. As a result, they may fail to recognise the need to keep abreast of current affairs around the world and, in many cases, they may neglect their own responsibilities. We are often surprised by how little business schools students know about what is happening in the business world. In addition, we often come across students who view the Internet as a perfect substitute for labor-intensive research (stating ‘we cannot find it on the Internet’). In fact, many students treat in-depth analysis and ‘copying and pasting’ as one and the same. They typically fail to understand the need to take their own notes as an indispensible part of their learning processes and frequently use their electronic devices to take snapshots of the board in a classroom.11

Youth unemployment is a major economic problem that has to be addressed as soon as possible. One estimate of the economic loss in the EU due to the disengagement of young people from the labor market is EUR 153 billion, or 1.2% of the EU’s GDP in 2011.

A crisis on top of a crisis

Youth unemployment is a major economic problem that has to be addressed as soon as possible. In addition to the social issues and increasing psychological discomforts associated with youth unemployment, the monetary costs are high. One estimate of the economic loss in the EU due to the disengagement of young people from the labor market is EUR 153 billion, or 1.2% of the EU’s GDP in 2011.12 Another study estimated that youth unemployment in the UK cost the exchequer GBP 4.8 billion in 2012 – more than the entire budget for further education for 16- to- 19-year-olds. This is in addition to the estimated GBP 10.7 billion in lost output. More worryingly, the study found that the costs of youth unemployment in 2012 would increase future costs by GBP 2.9 billion per year (equivalent to the entire annual budget for job centers) and result in GBP 6.3 billion per annum in lost output.13 

These figures paint a picture of doom and gloom, clearly implying that countries are bound to suffer significant losses if too few actions are taken to deal with youth unemployment. At the same time, those countries that have been hardest hit by the financial crisis have precious little to spend on half-hearted solutions to the problem. It is therefore paramount for governments around the world to focus on the underlying issues discussed here in order to raise the level of youth employment. After all, it is not just our young people who lose out if they cannot find employment – society as a whole suffers.

About the Authors


Terence Tse is an Associate Professor in Finance at the London campus of ESCP Europe Business School. He is also a director at i7 Institute for Innovation and Competitiveness, a Paris and London-based academic think tank. He began his career in investment banking, and later as an independent consultant to a University of Cambridge-based biotech start-up and various major corporations. He worked as a consultant at Ernst & Young in London. He holds a PhD from the Judge Business School, University of Cambridge, UK.

Mark Esposito is an Associate Professor of Management at Grenoble Graduate School of Business in France & Instructor at the Harvard Extension School in the USA. He serves as Senior Associate for the University of Cambridge Program for Sustainability Leadership in the UK. He has advised governments, the UN, and the NATO over the past 10 years on development and sustainability issues. He holds a PhD from the International School of Management in Paris/New York.

Jorgo Chatzimarkakis MEP is member of the Committee on Internal Market as well as on Budgetary Control. Since 2004 Chatzimarkakis has been actively involved in developing directives on a wide range of subjects, most notably innovation issues, education and research policies, and CO2 emission reductions. In June 2009 he was re-elected into the European Parliament. He became Head of the EP-Delegation for the Former Yugoslav Republic of Macedonia. He is President of the German Hellenic Business Association.

References


1. G20 Labour Ministers must focus on young jobseekers (2012) http://www.oecd.org/newsroom/g20labourministersmustfocusonyoungjobseekers.htm.


2. Third Quarter Economic Report 2012 (2012), http://www.hkeconomy.gov.hk/en/pdf/er_12q3_ch5.pdf.


3. Singapore’s youth unemployment rate one of the world’s lowest: Tan Chuan-Jin (2013) Strait Times, May 28, http://www.straitstimes.com/breaking-news/singapore/story/singapores-youth-unemployment-rate-one-the-worlds-lowest-tan-chuan-jin.


4. Youth employment is bad but not as bad as we’re told (2012), Financial Times, June 24, http://www.ft.com/cms/s/0/5cc9db3e-bbbc-11e1-9436-00144feabdc0.html#axzz2WSiWLApI.


5. Guaranteed to fail (2013) http://www.economist.com/news/leaders/21582006-german-led-plans-tackling-youth-unemployment-europe-are-far-too-timid-guaranteed-fail.


6. Top of the class? Graduate unemployment worries Chinese leaders (2013) Week in China, June 14, p. 8.


7. Why is youth unemployment so high? (2013) http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-why-youth-unemployment-so-high.


8. Education to employment: Designing a system that works (2012), McKinsey and Company, http://mckinseyonsociety.com/downloads/reports/Education/Education-to-Employment_FINAL.pdf.


9. Ibid.


10. Poor Computer Skills To Blame For Youth Unemployment, Says Prince’s Trust (2013) Huffington Post, March 12, http://www.huffingtonpost.co.uk/2013/03/12/poor-computer-skills-youth-unemployment_n_2858220.html.


11. Viewing from these perspectives, bringing more technologies into the classroom is perhaps the wrong way to bring up the quality of the students.


12. Economic cost of Europe’s youth not in employment, education or training estimated at over €150 billion (2012), Eurofound, October 22, http://www.eurofound.europa.eu/press/releases/2012/121022.htm.


13. Youth unemployment: the crisis we cannot afford (2012), Acevo, http://www.bristol.ac.uk/cmpo/publications/other/youthunemployment.pdf.

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