January 22, 2013
Ernst Stetter and Giovanni Cozzi (Economic Adviser at FEPS)
Youth unemployment has become one of the most crucial economic and social issues in Europe since the outburst of the ongoing financial and economic crisis. Several European countries are experiencing extremely high levels of youth unemployment. For instance, in 2011 countries like Spain, Greece, and Italy recorded extremely high levels of unemployment among young people. The unemployment rate of people less than 25 years of age stood at 46.4, 44.4, and 29.1 percent respectively.
Whilst youth unemployment has increased dramatically during the crisis, this problem is not a new one for Europe. Throughout the 1990s and early 2000s youth unemployment was also at alarmingly high levels. For instance, in Spain, from 1990 to 2005, average unemployment rate for people below 25 years of age was approximately 30 percent whilst in France it stood at 20 percent over the same period.
Beside country-specific factors which impact upon unemployment levels, the standard explanation over the past two decades sees unemployment as a supply-side problem. Heavily regulated and rigid labour markets, skills deficit and skills mismatch, and education, among others, are considered to be the main culprits of youth unemployment.
As a result several European countries have undertaken reforms to make labour markets more flexible and improve the education systems. However, despite these measures the average youth unemployment rate in the European Union (27 countries) has remained virtually stable at around 18% over the last two decades.
This long-term negative trend makes it clear that supply-side measures do not suffice to reduce youth unemployment in Europe. This is because the labour market in Europe is severely undermined by a weak aggregate demand. Supply-side responses alone will not solve this negative issue.
In addition, the crisis and its austerity policy responses have augmented the labour market crisis and have impacted negatively on the position of the young in our society. Austerity measures have led to a reduction in the possibilities of using public investment for stimulating aggregate demand. In addition, the cuts on public expenditures have had severe consequences in terms of social compensation through the welfare system.
It’s now time to promote progressive economic and social policies to come out from these severe crises (financial, economic, and social). What Europe needs in order to create more jobs for the young is an employment-focused fiscal stimulus and an increase in public investment. The increase in public investment should be marshalled towards initiatives which will lead to job creation (e.g. investment in new cutting-edge technologies, large infrastructure projects, industrial expansion, among others). Such a policy combination should help expanding productive capacity in Europe and stimulate aggregate demand (also via crowding-in private investment), with the end results of creating more jobs.
Positive steps are taking place towards this direction both at national and European levels. In this context it is worthwhile mentioning the policy proposal of the Party of European Socialists (PES) which advocates for a Europe-wide youth guarantee to ensure that every young person in Europe must be offered a job, further education or work-focused training at the latest four months after leaving education or after becoming unemployed (see Combatting youth unemployment, Report adopted by the PES Presidency on 09/01/2012).
Where to find the money for these initiatives? They could be financed using the Structural Cohesion Fund, or with the introduction of a European-wide financial transaction tax, or with project bonds. What has become absolutely clear is that austerity measures which have put governments under a significant amount of pressure to cut public expenditure in order to reduce their debt levels have not only slowed down the recovery but have also exacerbated the long-term European problem of youth unemployment.