FEPS Fresh Thinking

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.

Author :


  1. I fully subscribe to the view of addressing youth unemployment through demand side rather than supply side concentration. In most developing worlds like South Africa where youth unemployment has been on the upswing, supply side policy continued to prove unsuccessful in addressing unemployment, largely due to the fact that structural challenges remain apparent and permanent. What both developing and developed worlds should learn from on-going financial and economic crisis is that we need to rethink our socio economic policies and create enabling environment for self-sustainability than that of continued dependency. Taking into account the austerity measures across the globe one should understand that challenges continue to be more than solutions in Europe. Austerity measures will require support from both ends – civil society, private sector and government.
    South African growth has continued driven by unsustainable rising private credit extension and consumption rather than more sustainable growth in production-driven sectors of the economy. Since South Africa is not immune to the global crisis, the spill over effects continued to assure domestic economy and one should anticipate that youth unemployment will remain above current level s.

  2. as a short term measure why does europe not decrease the working week. Gving the older generation who are near retirement time to prepare for retirement, while getting young people into employment. Here in ireland it must cost 4-5 times as much to keep a young family out of work and supported by the state , as it would to decrease the working hours of someone approaching retirement and supplement their income for lost hours. . This could be a win win situation for the youth unemployed and the older generation learning how to be active in retirement which in turn would greatly reduce the health requirements from the state to looking after inactive elderly people who give up work.without having replacement activities in place. The working week could be pushed back up as the countries recover to full employment.

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