Unemployed youth pose a problem despite global economic recovery

Policymakers and global investors are getting worried that hordes of youths without work, even after a turn in the economic cycle, could threaten social and political stability, as well as economic growth

By Mike Dolan  /  Reuters, LONDON

Sun, Apr 07, 2013 - Page 9

The global economy is recovering, although the younger you are and the longer you have been out of work, the less likely it is that you will have noticed.

A modest upturn in the major developed economies flagged last week by the Organisation for Economic Co-operation and Development (OECD) should be a considerable relief for Western countries still struggling to run down huge debts.

Yet with persistent recession across Europe and high levels of youth unemployment and long-term joblessness, signs that growth is picking up may offer little cheer.

“The rise of long-term unemployment, with more of the unemployed moving off unemployment insurance onto less generous social benefits, is worsening poverty and inequality,” the OECD said on Thursday, adding that the issue was especially bad in Europe.

The consequent drain on demand could hinder recoveries before they reach what some economists call “escape velocity” and policymakers are starting to fret that the longer high joblessness persists, the harder solving the problem becomes.

More than 40 percent of the US’ unemployed have been out of work for more than six months, almost double the previous post-World War II record. Even news on Tuesday of falling registered jobless in employment blackspot Spain may reflect more darkness than light, with economists at Citigroup saying the decline last month resulted from a tightening of the criteria for accessing benefits. There is particular anxiety among policymakers — and increasingly global investors — that leaving hordes of youths without work even after a turn in the economic cycle could threaten social and political stability in many economies.

HOMING IN

A growing amount of investment research in recent weeks has homed in on the problem, making links with the huge anti-establishment vote in Italy’s election in February and even the conditions that triggered the “Arab Spring” uprisings in 2011.

“The rising trend of youth unemployment around the world threatens not just current economic growth, but also political stability and the potential demographic dividend,” a report published by Credit Suisse late last month said.

That “demographic dividend” — which Credit Suisse says explained 44 percent of the rise in per capita output in developing Asia in the 30 years to 2000 — tends to kick in as the number of young workers swells relative to their older and younger dependents.

However, it hinges on high levels of labor force participation, meaning that potential gains may be evaporating as growing numbers of those in the 15-to-24 age bracket are left idle.

With data from the UN’s International Labor Organization showing that worldwide youth unemployment was 12.7 percent — or 74.6 million people — last year, up about 1 percentage point from pre-crisis levels, the global problem is pretty clear.

Rather ominously, the regions most riven by social and political unrest over the past two years — the Middle East and North Africa — had youth unemployment rates of more than twice the world average last year.

Developed economies and the EU came next, with an average young jobless rate of 18 percent.

Recent official statistics show that more than 50 percent of young Spaniards and Greeks are out of work, and more than 30 percent in Italy, the highest among the G7 nations. Bailed-out Ireland and Portugal also have youth unemployment running at more than 30 percent.

INEQUALITY

Youth joblessness across the eurozone has been more than twice the overall unemployment rate, while the connection between lack of work and inequality can be seen in Eurostat data showing a rising proportion of 15-to-24-year-olds at risk of poverty and social exclusion over the six years to 2011.

Neither is the problem solely European. The last time US youth unemployment was below 10 percent was at the height of the dot-com boom in 2000, while it reached 17 percent in 2011.

NEET CUTS

Many people’s preferred measure of the true level of youth unemployment — so-called NEETs, or those Not in Employment, Education or Training — reduces the more alarming numbers.

So, despite oft-cited statistics that almost every second Spanish or Greek youth is out of work, high levels of third-level education there show NEETs much lower, at about 18 percent.

However, Amlan Roy, Credit Suisse’s head of demographics and pension research, said that a lack of progress in creating jobs for young adults means that there is no guarantee that those staying in education will find work on graduation.

In a summit statement last month, EU leaders committed to a youth employment initiative that sets aside almost 6 billion euros (US$7.75 billion) for the worst-affected regions over seven years.

However, with this amounting to less than 1,000 euros for each jobless young person in the EU, many are skeptical of success.

“The longer the disengagement lasts, the harder it is to bridge the skills gap and get a foot on the employment ladder. This has an effect on future wealth and living conditions,” Roy wrote.