Jobless in Europe

• Author: Angana Banerji
• Position: a Senior Economist in the IMF’s European Department.

No country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order.—Franklin Delano Roosevelt, September 30, 1934

Eighteen million workers were unemployed in the euro area at the end of June 2014, more than the entire population of the Netherlands. Three million of those unemployed were between the ages of 15 and 24. But the absolute numbers don’t provide a full picture of youth unemployment (see Chart 1).

Scaling the number of unemployed workers by the labor force reveals a dire situation. The unemployment rate among young workers is at an all-time high in some countries in the euro area. The youth unemployment rate has always been higher than the adult rate because of the region’s rapidly aging population, which means that the 15- to 24-year-old workforce is smaller than the adult (older than 25) workforce. But the youth unemployment rate has increased faster than that for adults since the global financial crisis began in 2008, though there is wide divergence across countries. At the end of June 2014, more than 2 in 10 young workers were unemployed compared with 1 in 10 adult workers.

The young, the old, and the restless

U.S. President Harry S. Truman famously said, “It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.” Some commentators have pointed to the differences in magnitude between adult and youth unemployment and wondered whether there is a need to focus specifically on unemployment among younger workers.

All workers contribute to an economy’s capacity to grow by providing vital labor resources. Therefore, all unemployment is cause for concern.

The longer workers stay unemployed, the less they are able to produce because their skills become less relevant over time. This limits the economy’s ability to grow its way out of a recession; recessions end up lasting longer because of a less productive workforce. So it is of great concern that more and more workers in the euro area have now been unemployed for a year or longer, joining the ranks of the so-called long-term unemployed. The share of long-term unemployment was 53 percent for all unemployed workers and 40 percent for young unemployed workers in June 2014.

While unemployment places a heavy burden on all workers, high youth unemployment deserves special attention.

The experience of early...