World Review | Solutions needed to fight youth unemployment in Europe

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Solutions needed to fight youth unemployment in Europe

Solutions needed to fight youth unemployment in Europe
Young Spaniards on a vocational training course in Germany (photo:dpa)

LEADERS are developing makeshift remedies rather than structural solutions to the problems of Europe’s economic crises, but a different approach may be necessary to deal with the growing scourge of many European Union economies - youth unemployment.

Key issues on the fragility of the European banking system, the profligacy of public spending, low growth and sometimes recession, remain a source of serious concern despite countless meetings, policy-papers and bail-out programmes.

But it is the statistics on youth unemployment in the European Union which are most worrying.

Youth unemployment in southern Europe ranges from 42.5 per cent in Portugal, 40.5 per cent in Italy to 62.5 per cent in Greece. Northern Europe fares better with youth unemployment at 27 per cent in France, 24 per cent in Sweden and 22 per cent in Belgium.

The size of the problem is evident. The only significant European exceptions to this gloomy picture are the Netherlands at 10.6 per cent and Germany at 7.5 per cent.

Youth unemployment is problematic because it means that a large portion of the young population remains inoperative for long periods of time. This has two sets of consequences.

First, skills become obsolete and learning abilities weaken, while motivation and enthusiasm fade away.

The more widespread youth unemployment becomes, the greater the probability that the future productivity of labour is low.

A large number of frustrated workers is likely to generate permanent discontent, social tension and pressure for more redistribution.

The second consequence is the burden that inactive young people represent for society, especially in countries with a large welfare state.

The young unemployed, like everyone out of work, benefit from social services without contributing to their cost. Typical examples are health, infrastructure and public transport, all of which are frequently subsidised by taxpayers.

The lack of employed workers is an additional challenge or extra burden on public finances. For example, in the domain of pensions, unless the ageing population reduces consumption, tax pressure and/or public debt will increase. Under both scenarios, the negative effects on disposable income and growth are going to be substantial.

The current economic stagnation in vast areas of western Europe plays a significant role in causing youth unemployment.

Hiring a worker is often equivalent to a lifetime commitment to a job in highly regulated labour markets. Therefore, when the demand for labour depends on the overall economic climate but wage rates cannot be cut significantly, downturns create situations where employers stop hiring and wait for older workers to retire.

The irony is that when the firms’ prospects for growth improve, companies will think twice before they start hiring again because they do not want to be burdened with too many people who will be too young to retire during the next crisis.

But it would be too easy to blame the economic crisis alone.

Regulation - in the labour market and in other areas of the economy - is also partly to blame.

Consider the artificially high minimum labour costs in some countries. When an employer is in trouble and needs to reduce production, his spontaneous, free-market reaction would be to cut costs and/or shed jobs among those workers who make less difference between the value of what they produce and the cost of their services.

Education systems, especially those aiming to keep young people at school as long as possible, are another source of youth unemployment. The theory is that the more time youngsters spend in a classroom, the more knowledgeable, creative, motivated and skilled they become.

Labour markets, which demand motivation from workers, often put on-the-job technical training higher than classroom teaching and see mobility as a must.

So what are the solutions? The strength of the economy helps, but a new playground with deregulation and lower taxation and a major overhaul of the education system provide one way forward.

Although recession seems to be bottoming out, growth is close to zero and the response of the political class is often to ask for more public spending and print more money.

These measures may create illusions and populist consensus, but they hardly represent long-term solutions - and nobody pays much attention to the education system.

Education should deliver what the students need and the job market wants rather than keeping young people in the classroom and offering guaranteed jobs to teachers.

Professor Enrico Colombatto

ENRICO Colombatto is a professor of economics at the University of Turin, Italy. Professor Colombatto is also Director of Research, Institut de Recherches Economiques et Fiscales (IREF) in ...

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