Too many young people in both the developed and developing world are without work. The Biblical warning that idle hands are the devil’s workshop captures an important truth: Youth unemployment is a political as well as an economic challenge.
MILAN – Nobody is immune to the consequences of an economic crisis. But some are much more vulnerable – and suffer far worse – than others.
Young people have been the main losers of the Great Recession brought on by the 2008 global financial crisis – and not just in the advanced world. Millions have been pushed into highly unstable jobs, condemned to indefinite unemployment, or forced to move abroad in search of better opportunities. As Jean Pisani-Ferry of France Stratégie, a French government advisory body, points out, it is “much worse to be young today than it was a quarter-century ago.”
Indeed so. The International Labor Organization estimates that, worldwide, 73 million people aged 16-24 were unemployed in 2014. That number has fallen from 76.6 million in 2009, when the impact of the 2008 crisis was still fresh; but the pace of improvement is not exactly encouraging. Simply put, around 45% of the world’s economically active young people are either unemployed or are living in poverty, despite having a job. And, given inadequate statistical reporting in many poor countries, where populations tend to be younger, these figures almost certainly underestimate the severity of the problem.
The economic plight of young people is a global phenomenon – and one that Project Syndicate commentators have addressed repeatedly in recent years. But not all regions of the world are equally affected. In the advanced economies, the youth-unemployment rate ranges from 7.3% in Germany and 11.6% in the United States to a horrendous 48.4% in Spain and almost 50% in Greece. East Asia has an average rate of 12%, while in North Africa and the Middle East it hovers at around 30%.
Scary Numbers
Data on youth unemployment require careful scrutiny. Daniel Gros, the head of the Center for European Policy Studies in Brussels, and Steven Hill of the New America Foundation point out that many people aged 16-24 are in school, with little contact with the labor market. As Gros notes: “Only 9% of Greek teenagers are labor-market participants; two-thirds of that number cannot find a job.” The resulting figure for unemployment among Greek teenagers – below 6% – “is not reported widely because it is much less alarming.” Or, as Hill puts it: “The perverse result of this way of counting the unemployed is that the more young people who pursue additional education or training, the higher the youth-unemployment rate rises.”
This is no mere technical detail. Assume, for example, that a country has 20 young people: two have a job, two are seeking one, and the rest are in school. The unemployed would represent only 10% of the cohort – the so-called youth-unemployment ratio; but the unemployment rate would be 50%. In 2015, the youth-unemployment rate in Greece was 50%, while the unemployment ratio among teenagers was a mere 7.5%. From this perspective, the eurozone has no youth-unemployment problem at all.
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But this is an incomplete picture. In 2013, around 300 million young people globally were “NEETs” – not in employment, education, or training. When we focus on advanced economies only, the NEETs total 10.2 million in the US and 14 million in the European Union. And, according to a recent Eurobarometer survey, more than half of Europeans aged 16-30 feel marginalized.
A Global Drag on Global Growth
Arguably the most worrying aspect of the economic environment for young people today is how little it has improved since the crisis, even by the standards of a discouragingly timid global recovery. A high degree of youth marginalization is depriving the world economy of its most powerful growth engine.
In continental Europe, labor markets are skewed in favor of older workers. In contrast to their American counterparts, Europe’s youngsters find their attempts to be more entrepreneurial frustrated by stifling regulation. Add to that an obsession with fiscal austerity and the result is what Nobel Laureate Joseph Stiglitz, in a withering critique of eurozone policymakers, calls Europe’s “economic madness.”
In the Middle East, NYU’s Nouriel Roubini correctly notes that political and economic chaos, by “fueling extremism, resentment of the West, and in some cases outright terrorism,” is preventing young people from fulfilling their potential. In Africa, youth unemployment is more a consequence of sluggish labor demand.
The problem is made worse by globalization and the “Fourth Industrial Revolution” – the term Klaus Schwab, founder of the World Economic Forum, uses to describe how “[n]ew technologies and approaches are merging the physical, digital, and biological worlds in ways that will fundamentally transform humankind.”
Globalization rewards specialized skills – and so marginalizes those who do not possess them. And Schwab argues that new technologies change “the nature of work itself, rendering entire sectors and occupations obsolete, while creating completely new industries and job categories.” This explains why in 2015 some 38% of employers worldwide faced trouble finding the right kind of talent – especially among young people, who are supposed to possess more updated skills than older workers.
But skills mismatches materialize in various ways. By 2020, for example, Germanywill lack one million workers skilled in science and technology. And Dennis Nally, Chairman of PricewaterhouseCoopers, points out that the rise of emerging markets creates jobs in places where it is hard to find the right people.
In other cases, though, the problem is overabundance. Mark Esposito and Terence Tse note that China’s youth unemployment is rooted in the dominance of the manufacturing sector, which employs more high-school graduates than university-educated workers. Similarly, in India, one in three university graduates up to the age of 29 is unemployed.
Exit, Voice, and Idle Youth
When the young are idle, economies lose dynamism, innovation falters, and valuable human capital is wasted. But the political consequences can be even more alarming. Albert O. Hirschman’s seminal book Exit, Voice, and Loyalty provides a useful framework to understand how the marginalization of young people leads to mild or extreme political disasters. When the quality of a political system declines, its members can withdraw (“exit”), improve the situation through direct action (“voice”), or passively accept decay (“loyalty”).
Exit is the least traumatic way out of the problem – especially for top professionals. In Africa, for example, the legal outflow of skilled people to developed countries has intensified. Columbia University’s Jagdish Bhagwati argues that this is the inevitable consequence of economic backwardness. The “brain drain” (especially in the health sector) reflects developing countries’ inability to absorb the skills they actually need. According to Serufusa Sekidde, a consultant with Oxford Policy Management, 80% of countries where there are fewer than 22.8 skilled health workers for every 10,000 people are in Africa.
Interestingly, both Bhagwati and Sekidde (himself part of the brain drain from Uganda) think one remedy would be to tax the earnings of this skilled diaspora to help develop their home countries’ healthcare systems. This, and foreign aid, writes Sekidde, “would benefit Africa both immediately and in the long run,” as opposed to “foolish attempts at restricting people’s mobility.”
Yet the brain drain is not just an African challenge; it affects emerging economies like China and India and even developed regions like the eurozone. Since the “euro crisis” struck the economies of southern Europe in 2009, an army of highly qualified, mostly young professionals – doctors, engineers, academics, and others – have either moved to more robust EU economies such as Germany and Britain or have emigrated to the US. Meanwhile, there are plenty of jobless young people in Portugal and Spain who have left to seek work in the Portuguese- and Spanish-speaking countries of South America and Africa.
And what of my own homeland, Italy? No country in the advanced world has been as vulnerable to the brain drain. In 2010, I claimed that adverse demographic trends in Italy were creating a sort of benign gerontocracy, encouraging the young to leave in droves. The Silicon Valley entrepreneur Adriano Farano is more scathing:
My life as an entrepreneur would have been a nightmare had I stayed in Italy. The World Bank ranks my country 87th in the world for ease of doing business, far behind the US (fourth), France (29th), and even Botswana (54th). This reflects a Kafka-esque bureaucracy, a high level of organized crime and corruption, and Italy’s generally conservative business culture.
Pulling up stakes is likely to remain a popular alternative for young Italians. Noting their dissatisfaction with the state of their country, Paola Subacchi of London’s Chatham House ruefully concludes that “not even a young, buoyant prime minister like Renzi can persuade them to stay.”
Voice, to continue the Hirschman analogy, has certainly been heard in recent years. In 2011, the greatest global mobilization since 1968 led to the emergence of peaceful movements like Occupy Wall Street and Los Indignados in the West and the initially peaceful Arab Spring in the Middle East. And now China’s leaders fear that its graduate unemployment rate could fuel Tiananmen-style unrest.
While the protests of 2011 had no unified theme, Roubini points out that youth marginalization was a common factor. Five years on, these movements have done little to improve conditions for young people, but – for better or worse – they have permanently transformed politics. As for the aftermath of the Arab Spring, Marwan Muasher, a former foreign minister of Jordan, finds some solace in Tunisia – but laments the “authoritarianism, corruption, outdated education systems, and unemployment” that characterize the Arab world.
In Europe, Occupy-style movements have questioned the austerity orthodoxy, fueling support for populist movements such as Syriza in Greece or Podemos in Spain. And in the US, Occupy Wall Street was a direct precursor to Senator Bernie Sanders’s remarkable, youth-driven campaign for the Democratic Party’s presidential nomination. Throughout the West, Stiglitz notes, young people “perceive the absence of intergenerational justice, and they are right to be angry.”
Finally, there is loyalty to the system, the stance that Hirschman defines as embodying resignation. For the least skilled, quiescence is often the only choice. But it leads to social disaffection, political paralysis, and economic stagnation, especially in fast-aging countries, where, as Princeton University’s Harold James emphasizes, the young have little influence.
Project Syndicate commentators identify a number of remedies, not least to mitigate the skills mismatch in both rich and poor countries. All blame obsolete education systems. The OECD’s Andreas Schleischer argues that “in the past, education was about imparting knowledge. Today, it is about providing students with the tools to navigate an increasingly uncertain world.”
Mary McAleese, a former president of Ireland, emphasizes the need to develop differentiated education systems, ranging from Germany’s vocational schools and apprenticeships to programs that give students access to international experience. McKinsey’s Mona Mourshed urges private companies to cooperate more with educators to ensure that curricula keep pace with employers’ needs.
From a labor market perspective, Rolf Dorig, Chairman of Adecco Group, and the Brookings Institution’s Kemal Derviş agree on the importance of guarantee schemes to ensure that young people obtain a job or a traineeship soon after graduation. To this end, the Bertelsmann Stiftung’s Justine Doody and Daniel Schraad-Tischler argue that governments should end the labor-market dualism that limits young people’s ability to move from temporary work to permanent employment.
Perhaps most important, young people need to be empowered. To avoid a repeat of the Arab Spring, Mohammed bin Rashid Al Maktoum, prime minister of the United Arab Emirates, has symbolically nominated a 22-year old as his country’s minister of youth. In graying societies, lowering the minimum voting age to 16 or capping the age of parliamentarians at 65 might be acceptably “soft” ways to dilute the power of older generations.
If one thing is clear, it is that a new social contract between generations is needed to rejuvenate economic dynamism and growth. Equally important, if the marginalization of young people becomes irreversible, they will exercise exit, voice, and loyalty in ways that are more likely to be destabilizing than inspiring.
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Raghuram G. Rajan & Rohit Lamba
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MILAN – Nobody is immune to the consequences of an economic crisis. But some are much more vulnerable – and suffer far worse – than others.
Young people have been the main losers of the Great Recession brought on by the 2008 global financial crisis – and not just in the advanced world. Millions have been pushed into highly unstable jobs, condemned to indefinite unemployment, or forced to move abroad in search of better opportunities. As Jean Pisani-Ferry of France Stratégie, a French government advisory body, points out, it is “much worse to be young today than it was a quarter-century ago.”
Indeed so. The International Labor Organization estimates that, worldwide, 73 million people aged 16-24 were unemployed in 2014. That number has fallen from 76.6 million in 2009, when the impact of the 2008 crisis was still fresh; but the pace of improvement is not exactly encouraging. Simply put, around 45% of the world’s economically active young people are either unemployed or are living in poverty, despite having a job. And, given inadequate statistical reporting in many poor countries, where populations tend to be younger, these figures almost certainly underestimate the severity of the problem.
The economic plight of young people is a global phenomenon – and one that Project Syndicate commentators have addressed repeatedly in recent years. But not all regions of the world are equally affected. In the advanced economies, the youth-unemployment rate ranges from 7.3% in Germany and 11.6% in the United States to a horrendous 48.4% in Spain and almost 50% in Greece. East Asia has an average rate of 12%, while in North Africa and the Middle East it hovers at around 30%.
Scary Numbers
Data on youth unemployment require careful scrutiny. Daniel Gros, the head of the Center for European Policy Studies in Brussels, and Steven Hill of the New America Foundation point out that many people aged 16-24 are in school, with little contact with the labor market. As Gros notes: “Only 9% of Greek teenagers are labor-market participants; two-thirds of that number cannot find a job.” The resulting figure for unemployment among Greek teenagers – below 6% – “is not reported widely because it is much less alarming.” Or, as Hill puts it: “The perverse result of this way of counting the unemployed is that the more young people who pursue additional education or training, the higher the youth-unemployment rate rises.”
This is no mere technical detail. Assume, for example, that a country has 20 young people: two have a job, two are seeking one, and the rest are in school. The unemployed would represent only 10% of the cohort – the so-called youth-unemployment ratio; but the unemployment rate would be 50%. In 2015, the youth-unemployment rate in Greece was 50%, while the unemployment ratio among teenagers was a mere 7.5%. From this perspective, the eurozone has no youth-unemployment problem at all.
Secure your copy of PS Quarterly: Age of Extremes
The newest issue of our magazine, PS Quarterly: Age of Extremes, is here. To gain digital access to all of the magazine’s content, and receive your print copy, subscribe to PS Premium now.
Subscribe Now
But this is an incomplete picture. In 2013, around 300 million young people globally were “NEETs” – not in employment, education, or training. When we focus on advanced economies only, the NEETs total 10.2 million in the US and 14 million in the European Union. And, according to a recent Eurobarometer survey, more than half of Europeans aged 16-30 feel marginalized.
A Global Drag on Global Growth
Arguably the most worrying aspect of the economic environment for young people today is how little it has improved since the crisis, even by the standards of a discouragingly timid global recovery. A high degree of youth marginalization is depriving the world economy of its most powerful growth engine.
In continental Europe, labor markets are skewed in favor of older workers. In contrast to their American counterparts, Europe’s youngsters find their attempts to be more entrepreneurial frustrated by stifling regulation. Add to that an obsession with fiscal austerity and the result is what Nobel Laureate Joseph Stiglitz, in a withering critique of eurozone policymakers, calls Europe’s “economic madness.”
In the Middle East, NYU’s Nouriel Roubini correctly notes that political and economic chaos, by “fueling extremism, resentment of the West, and in some cases outright terrorism,” is preventing young people from fulfilling their potential. In Africa, youth unemployment is more a consequence of sluggish labor demand.
The problem is made worse by globalization and the “Fourth Industrial Revolution” – the term Klaus Schwab, founder of the World Economic Forum, uses to describe how “[n]ew technologies and approaches are merging the physical, digital, and biological worlds in ways that will fundamentally transform humankind.”
Globalization rewards specialized skills – and so marginalizes those who do not possess them. And Schwab argues that new technologies change “the nature of work itself, rendering entire sectors and occupations obsolete, while creating completely new industries and job categories.” This explains why in 2015 some 38% of employers worldwide faced trouble finding the right kind of talent – especially among young people, who are supposed to possess more updated skills than older workers.
But skills mismatches materialize in various ways. By 2020, for example, Germanywill lack one million workers skilled in science and technology. And Dennis Nally, Chairman of PricewaterhouseCoopers, points out that the rise of emerging markets creates jobs in places where it is hard to find the right people.
In other cases, though, the problem is overabundance. Mark Esposito and Terence Tse note that China’s youth unemployment is rooted in the dominance of the manufacturing sector, which employs more high-school graduates than university-educated workers. Similarly, in India, one in three university graduates up to the age of 29 is unemployed.
Exit, Voice, and Idle Youth
When the young are idle, economies lose dynamism, innovation falters, and valuable human capital is wasted. But the political consequences can be even more alarming. Albert O. Hirschman’s seminal book Exit, Voice, and Loyalty provides a useful framework to understand how the marginalization of young people leads to mild or extreme political disasters. When the quality of a political system declines, its members can withdraw (“exit”), improve the situation through direct action (“voice”), or passively accept decay (“loyalty”).
Exit is the least traumatic way out of the problem – especially for top professionals. In Africa, for example, the legal outflow of skilled people to developed countries has intensified. Columbia University’s Jagdish Bhagwati argues that this is the inevitable consequence of economic backwardness. The “brain drain” (especially in the health sector) reflects developing countries’ inability to absorb the skills they actually need. According to Serufusa Sekidde, a consultant with Oxford Policy Management, 80% of countries where there are fewer than 22.8 skilled health workers for every 10,000 people are in Africa.
Interestingly, both Bhagwati and Sekidde (himself part of the brain drain from Uganda) think one remedy would be to tax the earnings of this skilled diaspora to help develop their home countries’ healthcare systems. This, and foreign aid, writes Sekidde, “would benefit Africa both immediately and in the long run,” as opposed to “foolish attempts at restricting people’s mobility.”
Yet the brain drain is not just an African challenge; it affects emerging economies like China and India and even developed regions like the eurozone. Since the “euro crisis” struck the economies of southern Europe in 2009, an army of highly qualified, mostly young professionals – doctors, engineers, academics, and others – have either moved to more robust EU economies such as Germany and Britain or have emigrated to the US. Meanwhile, there are plenty of jobless young people in Portugal and Spain who have left to seek work in the Portuguese- and Spanish-speaking countries of South America and Africa.
And what of my own homeland, Italy? No country in the advanced world has been as vulnerable to the brain drain. In 2010, I claimed that adverse demographic trends in Italy were creating a sort of benign gerontocracy, encouraging the young to leave in droves. The Silicon Valley entrepreneur Adriano Farano is more scathing:
Pulling up stakes is likely to remain a popular alternative for young Italians. Noting their dissatisfaction with the state of their country, Paola Subacchi of London’s Chatham House ruefully concludes that “not even a young, buoyant prime minister like Renzi can persuade them to stay.”
Voice, to continue the Hirschman analogy, has certainly been heard in recent years. In 2011, the greatest global mobilization since 1968 led to the emergence of peaceful movements like Occupy Wall Street and Los Indignados in the West and the initially peaceful Arab Spring in the Middle East. And now China’s leaders fear that its graduate unemployment rate could fuel Tiananmen-style unrest.
While the protests of 2011 had no unified theme, Roubini points out that youth marginalization was a common factor. Five years on, these movements have done little to improve conditions for young people, but – for better or worse – they have permanently transformed politics. As for the aftermath of the Arab Spring, Marwan Muasher, a former foreign minister of Jordan, finds some solace in Tunisia – but laments the “authoritarianism, corruption, outdated education systems, and unemployment” that characterize the Arab world.
In Europe, Occupy-style movements have questioned the austerity orthodoxy, fueling support for populist movements such as Syriza in Greece or Podemos in Spain. And in the US, Occupy Wall Street was a direct precursor to Senator Bernie Sanders’s remarkable, youth-driven campaign for the Democratic Party’s presidential nomination. Throughout the West, Stiglitz notes, young people “perceive the absence of intergenerational justice, and they are right to be angry.”
Finally, there is loyalty to the system, the stance that Hirschman defines as embodying resignation. For the least skilled, quiescence is often the only choice. But it leads to social disaffection, political paralysis, and economic stagnation, especially in fast-aging countries, where, as Princeton University’s Harold James emphasizes, the young have little influence.
The Search for Solutions
Not surprisingly, youth unemployment tops the global policy agenda. In 2012, the ILO adopted a Call for Action on Youth Employment, and the EU launched its Youth Employment Initiative. The United Nations has placed the issue in the 2030 Agenda for Sustainable Development. But, too often, bold-sounding plans lack the substance (and resources) to be effective, and other pressing matters – for example, the refugee crisis, the Brexit referendum, and pandemics – divert attention from the problem.
Project Syndicate commentators identify a number of remedies, not least to mitigate the skills mismatch in both rich and poor countries. All blame obsolete education systems. The OECD’s Andreas Schleischer argues that “in the past, education was about imparting knowledge. Today, it is about providing students with the tools to navigate an increasingly uncertain world.”
Mary McAleese, a former president of Ireland, emphasizes the need to develop differentiated education systems, ranging from Germany’s vocational schools and apprenticeships to programs that give students access to international experience. McKinsey’s Mona Mourshed urges private companies to cooperate more with educators to ensure that curricula keep pace with employers’ needs.
From a labor market perspective, Rolf Dorig, Chairman of Adecco Group, and the Brookings Institution’s Kemal Derviş agree on the importance of guarantee schemes to ensure that young people obtain a job or a traineeship soon after graduation. To this end, the Bertelsmann Stiftung’s Justine Doody and Daniel Schraad-Tischler argue that governments should end the labor-market dualism that limits young people’s ability to move from temporary work to permanent employment.
Perhaps most important, young people need to be empowered. To avoid a repeat of the Arab Spring, Mohammed bin Rashid Al Maktoum, prime minister of the United Arab Emirates, has symbolically nominated a 22-year old as his country’s minister of youth. In graying societies, lowering the minimum voting age to 16 or capping the age of parliamentarians at 65 might be acceptably “soft” ways to dilute the power of older generations.
If one thing is clear, it is that a new social contract between generations is needed to rejuvenate economic dynamism and growth. Equally important, if the marginalization of young people becomes irreversible, they will exercise exit, voice, and loyalty in ways that are more likely to be destabilizing than inspiring.