Youth unemployment has become one of the most pressing issues in the European Union. Eurostat’s latest statistics show that more than 5.6 million people (23.1 per cent) in the under-25 labour force are unemployed in member states amid as an 18-month recession – the longest and most severe downturn since the 1930s – persists.
Youth unemployment is a gauge of the EU’s future economic potential
Affected severely by the euro crisis, the youth unemployment rate in the eurozone is even higher at 24.4 per cent. These statistics exclude Croatia, which just joined the European Union (but not the eurozone) with a youth unemployment rate above 50 per cent.
Part of the unemployment problem can clearly by attributed to a lower demand for labour, which dropped as a result of the recession itself and the austerity policies that were implemented in response. However, the persistence of unemployment is evidence of frictions and other barriers in the labour market.
In an idealised economy, lower equilibrium wages would largely compensate for lower labour demand, resulting in fewer job losses, and wages would rise again as the economy recovered.
The fact that employers report being unsatisfied with their potential hires despite a greater supply of available labour are indicative of the structural problems that need to be addressed to ensure a proper recovery.
Youth unemployment is particularly pernicious because companies are reluctant to hire young workers with less skill and experience and prefer to retain existing workers or hire those with an established record elsewhere.
The fact that some European countries make it very hard for companies to dismiss unsatisfactory workers increases the risk that firms take by hiring young workers, further deterring them from doing so. High unemployment results in higher welfare payments, lower tax revenue and potentially increased crime.
Youth unemployment in particular is a gauge of the European Union’s future economic potential. Some countries face constant brain drain, in which the brightest and ambitious young workers seek a more prominent career aboard, creating a vicious cycle.
One 2011 estimate shows that youth unemployment reduces European GDP by 1.2 per cent. The figure is undoubtedly higher for 2012 and 2013 and it does not include future losses that may occur when an entire generation lacks work experience.
Foreseeing the undesirable consequences of youth unemployment, European Union leaders held a summit last month in which they decided to divert €6 billion of the European Union’s 2014-20 budget on a youth unemployment reduction programme, focused on countries where the rate exceeds 25 per cent.
The European Investment Bank also agreed to increase lending to small and medium-sized enterprises (SMEs) that decide to recruit new graduates.
Another summit was held in the beginning of July in Berlin. The member states unveiled job and training schemes to rectify the mismatch between education and skills in demand. The approved budget will be used within two years to create or improve the quality of apprenticeship for inexperienced youth, equipping them with the skills and experience sought by employers.
However, critics held a pessimistic view toward the proposed €6 billion claiming that it is merely a drop in the ocean for countries like Spain and Greece where youth unemployment exceeds 50 per cent. The allocated funds may help alleviate the symptoms of youth unemployment without fixing the root causes. Culture and economic differences make it hard to devise a ‘silver bullet’ for the whole region’s difficulties.
The vocational training programmes which appear successful in countries like Germany and Austria exploit unique aspects of those economies.
Some economies do not have industries well suited for apprenticeships and in some cultures such programmes are stigmatised as signs of academic failure.
In the long run, it is crucial for each member state to eliminate structural barriers in their labour markets. The European Union can help by supporting certain programmes and promoting international trade but member states must take the lead.
In Malta, the May youth unemployment rate was 12.1 per cent, the fifth-lowest in the European Union. It has been on a general downward trend for several years due, in part, to the successful integration of Malta into the Schengen area and the creation of youth-orientated vocational programmes such as those provided by Mcast.
Nonetheless, economic conditions in Malta should further improve when the rest of the European Union recovers and, thus, this country has an interest in encouraging necessary reforms throughout the rest of Europe while continuing to explore potential domestic improvements.
David Casa is a Nationalist MEP.