What drives youth unemployment in Europe? Economic vs non‐economic determinants

• Date: 01 September 2018
• Author: Iva TOMIĆ
• DOI: http://doi.org/10.1111/ilr.12113
• Published date: 01 September 2018

International Labour Review, Vol. 157 (2018), No. 3

Copyright © The author 2018

Journal compilation © International Labour Organization 2018

What drives youth unemployment

in Europe? Economic vs

non-economic determinants

Iva TOMIĆ*

Abstract. This article explores the main determinants of youth unemployment in Europe

in the period 2002 to 2014 by estimating panel data models for the 28 Member States

of the European Union (EU). Heterogeneity is acknowledged by estimating models for

subsamples of countries with “high” and “low” youth unemployment rates. The main

results suggest that youth unemployment is more pronounced in countries with poor

GDP growth, a low share of construction activity and high public debt. Reduced mobility

(owing to homeownership), corruption, reception of a high level of remittances and a lack

of possibilities for young people to live outside parental homes are also important factors.

More than 5 million young people aged 15 to 25 were unemployed in the

28 Member States of the European Union (EU) in 2014. That is almost

10 per cent of the entire population of that age group and more than 20 per cent

of the entire unemployed population in the EU. Even in periods of economic

growth, the youth unemployment rate is generally higher than the overall

unemployment rate, but in the wake of the 2008 economic crisis it increased

more rapidly than the overall rate. In some EU countries, the rate rose by

more than 20 percentage points in the period from 2008 to 2014, increasing to

over 50 per cent, for example, in Greece and Spain by 2014, while in others,

such as Germany, the rate actually decreased in the same period.

Although the existing literature covers issues of youth unemployment in

Europe quite well, it is for the most part focused on the impact of the recent

recession on youth unemployment. It often overlooks the fact that some

*Research Associate, The Institute of Economics, Zagreb, itomic@eizg.hr.

An earlier version of this article received the 2015 Olga Radzyner Award from the Austrian

Central Bank (OeNB). This research is an element of the ZAMAH project, which studies the impact

of the recession on the structure and flow of youth unemployment in Croatia. The project is funded

by the European Social Fund (ESF) of the European Union (EU). The opinions expressed in this

article are those of the author and do not necessarily reflect the views of the institutions cited above.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

380 International Labour Review

countries have been struggling with this phenomenon for a long time. This arti-

cle tries to fill this gap by examining the main determinants of youth unemploy-

ment in European countries from a longer-term perspective, covering a period

that includes the Great Recession, from 2002 to 2014. The analysis uses data

for the 28 EU countries (EU-28) and, applying panel data models, attempts to

ascertain the main features that bring about high youth unemployment rates

and make them persistent in many EU countries. Cross-country comparisons

in previous studies (Brada and Signorelli, 2012; Boeri and Jimeno, 2015) show

that there are considerable differences between countries within the EU. The

study has thus taken this into account by estimating models for two subsam-

ples: countries with high youth unemployment rates and those with low rates

(hereafter referred to respectively as the “high-rate” and “low-rate” subsets).

In addition to considering the generally accepted indicators (principally mac-

roindicators) that have proven important in explaining high unemployment

rates (including among young persons), the study also assesses whether institu-

tional and structural factors, including non-economic ones, might bring some

new insights into the subject of youth unemployment in Europe.

Thus, the contribution of this study is threefold. First, it examines deter-

minants of youth unemployment among the EU Member States over a longer

term, which includes the recent economic crisis, in order to explore the extent

of persistence of the problem in some of these countries. Second, the study

acknowledges heterogeneity between these countries, especially in their labour

markets, by estimating models separately for those that experienced long peri-

ods of high youth unemployment and those that had much less to worry about

during the 13 year period under review. A third aspect is the study’s acknowl-

edgement that specific non-economic characteristics might help explain the

emergence and persistence of high youth unemployment rates in some of the

EU countries. Hence, the results of this research are also relevant to policy-

making. The fact that the study takes into account the different economic and

non-economic characteristics of each country while acknowledging differences

in their behaviour and recognizing that this issue is not only related to the eco-

nomic crisis should provide new elements that can help devise policies to com-

bat youth unemployment both in the EU as a whole and at the national level.

The remainder of this article is organized as follows. The first section

after this introduction briefly reviews relevant studies in the literature cover-

ing the main issues relating to youth unemployment in Europe. The next sec-

tion describes the data sample and the variables used in the empirical analysis,

building upon the findings from the literature; it also provides a short discus-

sion of the main empirical strategy, i.e. the panel data model estimation. The

third section presents the results of the econometric estimation, including the

sensitivity analysis that assesses the model on different sets of dependent vari-

ables. This section includes a more detailed discussion of the results, placing

them in the context of the existing literature, but also providing some new

insights. Finally, the concluding section provides a brief summary of the main

results and points to areas where they may be of particular value.