Youth Unemployment in Euro Area Requires Multipronged Solution

SUMMARY

The decline in economic growth in the euro area due to the financial crisis accounts for half the increase in youth unemployment in the region, according to IMF staff research released today.

 
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  • Higher growth can strengthen youth employment
  • Labor market reforms can help reduce persistent youth unemployment
  • Policies likely to work best as comprehensive package
  • And in the most vulnerable euro area economies—Cyprus, Greece, Ireland, Portugal, and Spain—the lack of growth accounts for about 70 percent of the rise in youth unemployment, the report finds.

    The financial crisis has exacted a severe toll on society in the euro area. Nowhere is this more apparent than in the headline-generating figures for youth unemployment, which peaked at over 50 percent in some countries in September 2014. Even today only 4 out of 10 workers between the ages of 15 and 24 in the most vulnerable euro area countries are employed. And if the euro zone’s recovery slows, these numbers could start to climb again.

    Young workers are critical

    While high unemployment is always undesirable, youth joblessness can be especially problematic in the euro area, which has an aging population and suffers from large amounts of unused labor and capital. And the longer unemployment lasts, the greater the erosion of skills and employability, and the more corrosive the effects on social cohesion and institutions.

    Without a vibrant young workforce, economies cannot afford to fund their social safety nets. They become vulnerable to slowing innovation and competitiveness and reduced growth potential, especially if their most talented youth choose to study and work abroad. This makes it especially alarming that a growing share of youth—reaching some 40 percent at end-June 2014—has been unemployed for longer than a year, joining the ranks of what are defined as the long-term unemployed.

    It is easy to blame the financial crisis in the euro area for the perilous state of affairs. But that doesn’t tell the whole story. Youth unemployment varies across the region. Some countries—Ireland, Greece, Spain, and Portugal—experienced a surge in unemployment during the crisis. But, with the exception of Ireland, these countries’ youth unemployment rates were already persistently above average before the crisis. In Italy and France, too, the high youth unemployment rates are, for the most part, a precrisis legacy.

    Growth is good

    The report finds that young workers are about three times more sensitive to changes in economic activity than adult workers, owing to their more fragile employment conditions. For example, they are three times more likely than adult workers to be hired on temporary...

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