The hidden costs of youth unemployment

It was David T Ellwood, one of the USA's greatest experts on poverty and welfare, who at the start of the 1980s launched the theory of youth unemployment permanently scarring people. Young people who repeatedly loose their job suffer the worst consequences.

Paul Gregg at Bristol University in the UK has followed in David T Ellwood's footsteps. In 2004 he looked at the National Child Development Study to see how a large group of children born since 1958 have done in life. He found a pay gap between 12 and 15 percent at age 42 for the youths who had become unemployed, compared to those who hadn't. When repeated unemployment was taken out of the equation the difference was smaller, 8 to 10 percent. 

You can't, of course, translate the British results to a Nordic setting. Yet the high price of youth unemployment is underscored also in a new study from Vista Analyse, commissioned by Norway's Ministry of Children, Equality and Social Inclusion.

The cost of marginalisation

The study explores the social costs when youths are marginalised and never re-enter the labour market. Norway has done far better than the other Nordic countries during the financial crisis, but even here there has been an increase in youth unemployment. In 2009 the figure for 15 to 24 year olds stood at 9.1 percent, compared to 7.8 in the previous year.

The cost of youth unemployment is shared between the state and municipalities, but the youths themselves are of course the biggest losers.

Municipalities carry most of the cost of looking after young people between 16 and 20 who end up on the outside of the labour market. It could be from 2,000 to 200,000 Kroner per person per year (€250 to 25,000). In cases where there is a need to use a space at an institution or other considerable health treatment the costs rise considerably. In that case the state carries the cost. 

If these measures succeed and young people get into the labour market on a permanent basis, the state will save some three million Kroner (€378,000) per youth. 

Eight percent of 25 year olds at risk

The study says between two and four percent of young people are at risk of being marginalised - the definition of which is to be jobless and out of education for at least three years. 

In today's labour market and with high youth unemployment the number of youths at risk rises to eight percent for 25 year olds. If all of these end up marginalised it would cost the state 15 billion Kroner (€1.9bn) over the lifetime of this group, according to Vista Analyse.

There is clearly a lot to be saved form preventing youth unemployment. But solutions can be hard to find. Problems often begin long before young people become unemployed - within the family or at school.

Family background is a decisive factor when you look at the risk of marginalisation. The risk rises considerably for children of parents with short education and low income. First generation immigrants are also a group at a higher risk. Having divorced parents increases the risk further. 

Middle class children also at risk

Also children from stable middle class homes can end up being at risk of marginalisation if they go through a longer period of unemployment. Paul Gregg puts it this way in an interview with Prospect Magazine:

"If you’re walking down the middle of the road you’re more likely to be hit by a car. But if you are hit by a car on the pavement, it still bloody hurts. The risk is profoundly different but the damage is the same.”

It is hard, however, to differentiate between individual risk of a youth not finding a job and the impact of the economic cycle at any given time. 

The economist Oskar Nordström Skans at the Institute for Labour Market Policy Evaluation (IFAU) tried in a 2004 study to demonstrate the effect of the labour market's cycles. He studied how well siblings did when they had finished their education during different phases of the cycle. Coming from the same families they had very similar upbringings. A registry study was carried out of all 18 and 19 year olds who ended their practical or two-year college education between 1991 and 1994. Variables like grades, courses and labour market experience were taken out. 

"The result shows those who became unemployed straight out of college ran a far greater risk of remaining unemployed over the next ten years compared to the others," writes Oskar Nordström Skans.

Those who went straight from college into unemployment had a 18.75 percent greater risk to become unemployed again, five years later. 

His study did not show whether young people were hit harder than those who became unemployed when at an older age. In Sweden youth unemployment is considerably higher than unemployment among over-24s. Youths also become unemployed more often then others, but for a considerably shorter amount of time. A third thing to notice, according to Oskar Nordström Skans, is that labour market programmes for youths seem to perform particularly badly. 

Coordinated effort needed

Norway's Vista study shows the same thing. With such a complex problem it is imperative to coordinate efforts to stop the marginalisation of young people.

"But as long as those in charge of 'coordinating' themselves don't have the authority or budgets to act and see through coordinated, long-term and predictable measures, you are left with low cost efficiency and accuracy compared to the resources which are being used," writes Vista Analyse. 

The causes of marginalisation can be low grades, spending too much time partying with friends or in front of computer games rather than studying, bad physical or psychological health which lead to absence and missing knowledge, the desire for taking a year out or the entire school system.  

"We have created a school system which is tailor-made for a white middle class which is good at Swedish and maths, and it means those who are good with their hands are seen as unfit for the labour market," says Anders Forslund, a researcher at the Institute for Labour Market Policy Evaluation. 

The Finnish experience

Finland has had the highest and lowest youth unemployment of all the Nordic countries. In 1994 it was highest at 33 percent. The following year it was down to 29.9 percent. That year Denmark's youth unemployment was 9.7 percent, Iceland had 11 percent, Norway 11.8 percent and Sweden 15.3 percent.

At that time Matilda Wrede-Jäntti started a study of 36 unemployed youths from Helsinki and followed them for ten years. The result was presented recently in a Ph.d. in social work. It is a longitudinal study which shows that unemployed youths don't necessarily share anything apart from being unemployed. 

She has chosen to divide the 36 people into four groups:

Those focused on studying, who reckon it will pay off in the long term to get an education and a rewarding job, rather than going for short-term employment. That means they are not interested in accepting temporary work. 

Those looking to work, who definitely do not want to study. They want a steady job to earn their living. They don't have high expectations of the tasks they must perform, and the majority of them don't expect the tasks to be particularly rewarding. 

Those who think alternatively and question the entire capitalist lifestyle. They are not work shy but rather openly positive to work - but only to charity work. In order to accept work it will have to fit their personal beliefs. 

Those who cannot make up their minds, and who don't know what to do with their lives. Some play with the idea of studying or getting an apprenticeship, but they never figure out what they must do in order to make these things happen.

Out of each group she chose one person who she described in detail. 

Many dilemmas 

The Ph.d. is called 'Money or your life' and describes from the perspective of the youths the measures which are being offered by authorities. 

"What the service provider believes is a polite, neutral and to the point service will be seen by many of the service receivers as an impersonal repudiation. The young, being a product of their time, seem to react relatively strongly to not being met as unique individuals, rather than representatives for a certain unglamorous group - the unemployed or those on benefits," she writes.

Her dissertation paints a detailed and rather unique picture of the dilemmas faced by unemployed youths, where no one solution fits all. One section describes how young people see the demand for them to accept short term work, or "snuttjobs" as they're known in Fenno-Swedish:

”Some think many snuttjobs will make a 'portfolio', i.e. a modern CV, and that they therefore are of value. The informant Leena tries to keep one foot in the labour market by accepting temp jobs and hope to improve her chance in the long run to get a steady job. But others see the short-term snuttjobs as an economic risk: Pete is not alone to be annoyed that the job centre only tries to put him into short-term jobs:

"The job centre sends requests for me to apply for jobs lasting a month or two. I don't give a damn about those! They're completely useless... A month or two - what's the point of that? No point at all! You barely have time to get to know the others there [in the work place] and do a few things before you have to leave. And then again fill in those little notes and wait for some more money to come from somewhere."

Leila too is critical of the negative effects snuttjobs have, and feels the rest of her life is becoming snuttified as well:

”Having a job allows you to also feel you have some spare time, a space in your existence, an income, the chance to plan and to exist in a socially appreciated context. When the job ends the house of cards collapses. You have to start from scratch again."

It is hard to apply for a job in a new work place, to get to know new routines, tasks and colleagues - just to suddenly leave."