Fewer youths equals more jobs?

The German Chancellor Angela Merkel has said that “youth unemployment is perhaps the most pressing European problem today”. Youth unemployment in her own country stands at 7.9 percent, which is far lower than the EU average — 21.9 percent.

These were the Nordic youth unemployment figures during the second quarter of 2014, according to OECD statistics:

2014 is a turning point for Europe’s labour market. According to the OECD this is the year the number of working age people (15-64) starts falling in the EU. Over the next 20 years the number of working age people in the 28 member states will fall by 6.5 percent, the equivalent of 21.7 million people.  

The speed at which the workforce ages varies. In countries like Germany it is already shrinking. Out of the Nordic countries, Finland has the oldest population.

Migration complicates things

The calculation is complicated by how migration affects the number of people of working age. Between 2000 and 2010 immigration made up 70 percent of the EU’s increase in labour. 

Yet even if the immigration rate carries on, the number of working age people will fall. The question is what will happen to youth unemployment when there are fewer young people.

John Mofatt from Durham University in the UK and Duncan Roth from the Philipp University of Marburg, Germany, have looked at how employment is affected by the size of the youth group (or the cohort which is the demographic term for a certain year group).

Since youth unemployment differs within Europe, they have looked at whether there is any correlation with the size of youth cohorts in different countries.

Problems won’t go away by themselves

The researchers conclude that individuals from larger cohorts are more likely to end up unemployed and that the effect is greater if you do regional analysis. But they still warn politicians not to think the youth unemployment problem will solve itself: 

“Although shrinking youth cohorts potentially means an improvement to the current youth unemployment situation, you cannot rely on this. Other macroeconomic changes are of greater importance,” write the two researchers.

They found that the risk for young people of becoming unemployed was double if general unemployment in their country rose by one percentage point, compared to if the size of the youth group increased by a certain standardised unit.

Youth unemployment is often explained by the fact that young people’s productivity falls below the lowest agreed wage. This means hiring a young person does not pay, it costs more than the employer gets back.

To change that situation you could change the salary level for young people, but this is often resisted by older employees. The risk is that salary levels in one trade will fall if special youth salaries are introduced.

Temporary jobs a trap

The main reason young people’s productivity is lower is their lack of working life experience. Taking temporary jobs is not a secure way into the labour market:

“Temporary contracts are often thought to be a stepping stone to more stable employment for those with limited skills and experience, but the reality is often than many low-skilled youth get locked into such jobs or leave the labour market altogether, especially women,” writes the OECD and ILO in a join report (Promoting better labour market outcomes for youth).

The most important ways of fighting unemployment, according to the two organisations, are:

• Increase demand and boost job creation
• Maintain active labour market measures
• Strengthen vocational education
• Increase the number of apprenticeships

In Europe these measures have been gathered in a common package, the youth guarantee. It gives all youths under 25 a right to employment, further education, apprenticeships or internships within four months after they finish their education or become unemployed. 

As a result there has been increased focus on vocational schools and training systems, in the EU and in the Nordic countries alike.

Lower pay in exchange for education

One way of helping young people is to give them training in the workplace, in exchange for lower pay. This helps them getting into the labour market.

Although this seems to be a win-win situation for both employers and youths, it occurs relatively rarely in Sweden. Only 3.5 percent of young Swedes, or 7,900 people, are working in so-called training agreements. If you count the smallest companies the number could be somewhat higher; 8,000 to 16,000 according to a report from the National Institute of Economic Research.

“The low number of apprentices in Sweden is one reason why the country’s youth unemployment is so high. Because apprentices are considered to be employed, youth unemployment is lower in Denmark, a country with a well-established apprenticeship system,” says Åsa Olli Segendorf from the National Institute of Economic Research. If you look at the group of young people who are neither in education, employment of training, there is less difference between the Nordic countries: 

Not in Education, Employment or Training (NEET), ages 20–24, 2012. Eurostat

According to  the OECD, NEET statistics represent a better measure for how badly hit young people are than unemployment statistics. The figure for Denmark shows some improvement, according to fresh statistics from the EU Employment Performance Monitor for 2013, when the number fell to six percent. 

Despite the fact that vocational schools and training systems are so important for getting young people jobs, this education system has been undervalued in many countries, overshadowed by colleges and universities.

“Vocational education is often seen in these countries as a second-best, low-status option providing classroom-based programmes for academically weak students, unconnected to employer needs and mainly confined to traditional subjects,” writes the ILO and the OECD.

So in order to fight youth unemployment there is also a need for a real improvement of the vocational schools’ standing in society.