The Disaster of Youth Unemployment

This is a demographic disaster.

From the Guardian:

Unemployment among Europe‘s young people has soared by 50% since the financial crisis of 2008. It is rising faster than overall jobless rates, and almost half of young people in work across the EU do not have permanent jobs, according to the European commission.

There are 5.5 million 15- to 24-year-olds without a job in the EU, a rate of 22.4%, up from 15% in early 2008. But the overall figures mask huge national and regional disparities. While half of young people in Spain and Greece are out of work, in Germany, Austria and the Netherlands it is only one in 10. In a further six EU countries, youth unemployment is around 30%. Of those in work, 44% are on temporary contracts.

The same phenomenon exists in the United States:

And why is this such a staggering  problem?

Firstly, the psychological impact: a whole lot of young people have never become integrated with the workforce. Many will become angry and disillusioned, and more likely to riot and rob than they are to seek productive employment. There is a significant amount of evidence for this:

Thornberry and Christensen (1984) find evidence that a cycle develops whereby involvement in crime reduces subsequent employment prospects which then raises the likelihood of participating in crime. Fougere (2006) find that increases in youth unemployment causes increases in burglaries, thefts and drug offences. Hansen and Machin (2002) find a statistically significant negative relationship between the number of offences reported by the police over a two year period for property and vehicle crime and the proportion of workers paid beneath the minimum before its introduction. Hence, there are more crime reductions in areas that initially, had more low-wage workers. Carmichael and Ward (2001) found in Great Britain that youth unemployment and adult unemployment are both significantly and positively related to burglary, theft, fraud and forgery and total crime rates.

Additionally unemployment is correlated with higher rates of suicide and mental illnesses like depression. And of course, the longer the unemployment, the rustier workers become, and the more skills they lose. Frighteningly, the numbers of long-term unemployed are rising:


Second, the economic impact: people sitting at home doing nothing don’t contribute productivity to society. In a society faced with falling or stagnant productivity, that is frustrating; there are lots of people sitting there who could be contributing to a real organic recovery, but they are not, because nobody is hiring, and (perhaps more importantly) barriers to entry and the welfare trap are crowding out the young, and preventing the unemployed from becoming self-employed. It also means higher welfare costs:


That leads to higher deficits, and greater government debt.

So it is not just a demographic disaster; it is also a fiscal one.

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35 thoughts on “The Disaster of Youth Unemployment

  1. Pingback: The Disaster of Youth Unemployment « azizonomics | World Money Newsletter

  2. Maybe this unemployment can be channelled into something positive. If the consumerism can be diminished people may want less and therefore concentrate on a different purpose.

    • Good often comes out of bad. Clouds have silver linings. The problem is that most of the government’s policies (e.g. bailouts) are stopping the bad systems from breaking and being replaced by better systems

  3. Aziz, I agree with you. There are no job opportunities, the morale is down ( even the most qualified unemployed people start self selecting themselves out, by thinking they are not good enough for positions when they have been turned down once or twice) and welfare is hindering the progress by providing an easily accessible living stipend in the Western world. It’s easy to criticize and find fault in what we see. The real issue is how do you propose we right the wrong?

    • Well, people disagree strongly over the solutions. The camp I am in is that we need to cut back regulations and barriers to entry and minimum wage laws so that the unemployed can more easily start businesses and become self-employed.

      But on the other hand many people believe that what we need is more and bigger stimulus spending. This may create jobs in the short term, but more or less it would end up being another handout to big corporations and financial firms and wasteful and uneconomically viable firms like Solyndra. And many of those jobs may only last in the short term.

      We need better business conditions, with less barriers to entry, so that we can have organic growth.

      • “The camp I am in is that we need to cut back regulations and barriers to entry and minimum wage laws so that the unemployed can more easily start businesses and become self-employed.”

        You can’t possibly believe this! The only thing a solution like that would lead to is exploitation. Wealthy businessmen would cut pay and become even more wealthy. It would never help small business owners because the barriers to entry would still exist as the power players would invest in those laws to thwart competition.

        Even if everyone was moral and had everyone else’s interests in mind, not everyone is capable of running a business. I find it naive to think that the only thing holding people back from starting a company is minimum wage laws and barriers to entry. Coming from the prospective of the U.S. , I can hardly buy that argument. You have immigrants and people that come from nothing that try to start businesses all the time. If they found these laws so utterly repressive they wouldn’t come here – the U.S. Remains one of the most business friendly countries in the world without resorting to extreme oppression of workers, like in China. Some people succeed in entrepreneurship and some fail. The point is: for those that fail, and for those that are incapable of running a business, there have to be other job solutions.

        • Jon,

          I have noted your previous comments and conclude you have Socialist leanings. I came from a Working class background (Father still works at 63 on a meat slaughter line) So I too should be socialist. But I am not.

          If I wanted to employ a junior, I would have to comply with a raft of laws and pay them a wage that does not equate with their lack of skills, my time training and their lack of productivity while training. Combined with various labour laws and administration, it is not worth the hassle, and I am benevolent! So this is why youth unemployment is high.

          If a Junior wants to work in a certain field he should show initiative and earn an apprentice wage. If they are industrious and striving they will earn money for their boss and remain employed.

          They should work before they undertake further education. On the job training is the best training. You learn skills a Professor can’t teach because they don’t have the experience themselves!

          You thinking is all screwed up. You obviously don’t understand why someone wants to make a hiring decision. Unless you are the Government and want to reduce the headline unemployment rate by funding various organisations.

        • Jon,

          Except if you are a banker. Right?

          Capitalism doesn’t mean that if you own a tire shop, that you can go into a parking lot and slash tires at will.

          The Dodd-Frank Bill we eventually be 10,000 pages long. This will not make our banking system safer, but infact allow and encourge banks to use the loopholes that a 10,000 page document implicitly implies.

          “Perfection is not attained when you have nothing left to add-on, but rather when you have nothing left to take off.” Some French guy talking about his plane.

        • @ Buddy Rojek. I was trying to resist saying this but I couldn’t help myself:

          Buddy,

          I have noted your previous comments and conclude you have conspiracy/religious nut leanings. I came from a Lawyer, teacher, military, banker class background (Mother still works at Bank of America) So I too should be aspire to be one of these things. But I do not.

          “If I wanted to employ a junior, I would have to comply with a raft of laws and pay them a wage that does not equate with their lack of skills, my time training and their lack of productivity while training. Combined with various labour laws and administration, it is not worth the hassle, and I am benevolent!”

          “So this is why youth unemployment is high.”

          No. Youth employment is so high because: A. You majored in something that would not lead to you being gainfully employed, or you could not market yourself. B. You were tricked into believing that all you had to do was go to A college and MAJOR in SOMETHING, not learn how to market yourself or network, and easily be employed. C. Corruption is selling the futures of generations to the highest bidders. D. The financial system wreaked havoc on the world economy and for the sake of feigning austerity, services that cost a pittance for govts are being cut – like education.

          All you can muster is a bunch of red herrings and comment on my supposed “socialist” leanings. Why dont you provide evidence for how a bunch of uneducated people will magically create their own businesses simply because minimum wage laws are not as “harsh?” I’ve never seen any evidence in my life to suggest that all of the sudden people will start creating businesses once the “repressive” regulations go away. People that know how to create and run businesses will always do so as long as regulations aren’t unreasonable – I disagree they are to such an extent that no one can create a business; though the mere fact of being a “regulation” doesn’t mean all regulations are right. People that feel that they aren’t good enough to work from someone else probably won’t – at least not in overwhelming numbers as is implied – up and decide to take on the risk of starting their own businesses.

        • Jon, the reasons you give for elevated youth unemployment are true. However, the reason that Buddy gives is also true. Business is being strangled by barriers to entry and creeping regulation. It costs $1 million to acquire a taxi licence for New York City. In the old days, any unemployed guy with a car could become a taxi driver. Yes, this probably led to two or three crimes or accidents resulting from incompetence for every thousand new drivers. But unemployment — especially among the young — never spiked in the way it is doing today. I think massive unemployment is much more dangerous.

          The same is true for food carts, lemonade stands, people growing produce in their gardens. All of these things today require licensing. Running a lemonade stand often requires attendance of a two week health and safety certificate, which can cost upwards of $1,000. This stuff is ridiculous, and people who want to work cannot because of these barriers to entry.

          This does not mean I endorse absolute libertarianism; things like medicine should only be practiced by those who have jumped through hoops.

          At the same time, the left are confused about regulation. This is because things like OTC derivatives, Congressional insider trading, corporate donations to political candidates are NOT regulated. In my best case scenario, we would deregulate the simple trades (e.g. taxi, food cart, etc) and re-enact Glass Steagall, as well as force derivatives onto exchanges.

          Today is the worst of both worlds; the financials and corporations are massively under-regulated, and the ordinary guy who wants to work for a living is massively over-regulated.

        • “The same is true for food carts, lemonade stands, people growing produce in their gardens. All of these things today require licensing. Running a lemonade stand often requires attendance of a two week health and safety certificate, which can cost upwards of $1,000. This stuff is ridiculous, and people who want to work cannot because of these barriers to entry.”

          I definitely agree that some regulations are onerous, and indeed, quite unnecessary.
          As I said: “People that know how to create and run businesses will always do so as long as regulations aren’t unreasonable.”

          I just disagree with two assumptions for which evidence has yet to be provided: 1. That many college students want to be entrepreneurs 2. That minimum wage laws are the most onerous burden to entrepreneurs, and that once they are lessened a large amount of people will start to create businesses out of the blue.

          Entrepreneurs, correct me if I am wrong, represent a minority of the workforce. Surely the reason they are in the minority of the workforce has more to do with what type of person it takes to be an entrepreneur, the risks of starting a business, and the expertise required than it has to do with minimum wage laws?

        • @ Aziz,

          Thanks, by the way, for maintaining decorum and civility even when we vehemently disagree. It’s hard to find that on the Internet!

        • I agree with Jon that very few people (from my experience) want to be entrepreneurs.

          However, things like reducing the minimum wage would do a lot to entice existing businesses to hire young people, but it’s doubtful whether the young people would want to start working the day after the legislation was enacted for those very low wages (over the short term they’d probably want to live in with their parents and waste time online).

        • Entrepreneurs, correct me if I am wrong, represent a minority of the workforce. Surely the reason they are in the minority of the workforce has more to do with what type of person it takes to be an entrepreneur, the risks of starting a business, and the expertise required than it has to do with minimum wage laws?

          At different points in history — and possibly the majority of history — the self-employed have made up a majority, even an overwhelming majority of the workforce (think back to subsistence farming, hunting and gathering, etc). I don’t know what proportion of the population want to be entrepreneurs, but if other companies aren’t in the position to offer them jobs, they need to have that option, and unless you have access to a lot of capital (to deal with licensing costs, overheads, etc), as well as an understanding of legalese, you really aren’t.

          I wouldn’t say a lack of entrepreneurial spirit — particularly in America, a nation of immigrants, and a nation of entrepreneurialism — would be the first issue I would look at. Do I think there is less entrepreneurial spirit and skills than 50 years ago? Sure. Do I think there would soon be a lot more entrepreneurial spirit if red tape was slashed? Yes. And I think there would be even more if all but the vulnerable and genuinely needy (disabled, sick, children, elderly, carers, etc) were kicked off welfare (although it is probably unwise to do this during a depression, but that is another story).

          As for what is the most onerous burden, well, I don’t know. I tend to believe it is not minimum wage laws but rather what I would call petty interference (licensing, inspections, planning committees, licensing fees, etc).

          The logical conclusion of a minimum wage is the excessive levels of internship we see today. Internship is probably worse than low wage work, because it very often pays no wage at ALL. Without a minimum wage, a lot of interns would probably get something for their labour.

          Thanks, by the way, for maintaining decorum and civility even when we vehemently disagree. It’s hard to find that on the Internet!

          Yeah, I operate on the principle that whoever throws the first insult in an argument is the loser. This is ESPECIALLY true on the internet, where there are almost no physical consequences for insults.

        • the self-employed have made up a majority, even an overwhelming majority of the workforce (think back to subsistence farming, hunting and gathering, etc)

          Though I wouldn’t call this entrepreneurship. All of these activities were the common practice of their daily lives, activities performed often in groups.

          And the US does rank high in this particular (World Bank) index: http://www.doingbusiness.org/rankings

          If you’d want my opinion on what it would take to fix youth unemployment, as usual, I wouldn’t be able to give a straight answer. There’s also globalization, the dynamics of bubble-driven economies, deleveraging, the debt burden, the ever evolving shape of a country’s economy etc. Instead of giving prescriptions I prefer Bill Bonner’s approach of “descriptivism” – just noting what comes before my eyes and relishing the very rare moment when I think I have a glimpse of something that’s true.

        • Instead of giving prescriptions I prefer Bill Bonner’s approach of “descriptivism” – just noting what comes before my eyes and relishing the very rare moment when I think I have a glimpse of something that’s true.

          That’s more or less what I’m trying to do. I don’t know what the biggest cause is, and I can only speculate as regards cures.

  4. I find amusing this 18-24 yrs. range. In my country any “serious” person wouldn’t work until after 24 yrs. of age because otherwise he’d be either a common worker not pursuing a college degree, or a person that’s pursuing a college degree but is not very serious about learning and wants to earn money to pay for entertainment (or other not knowledge-related pursuits). Not that what’s happening here is of any relevance or necessarily good, just wanted to add a touch of international flavor.

    PS: I see the age of 15 mentioned – now maybe this is stretching it a bit too far – sounds like child labor :P

    • Andrei, people who are in college are not part of the labour force. And many people graduate college at 21. So those that are in college are not counted.

      I personally think that work experience gained before the age of 24 is pretty important. It is in those crappy jobs that we truly learn about the world. I worked at a burger bar, and I worked as a door-to-door salesman before I started writing.

  5. Andrei you are right. Where I come from at 15 I was “voluntarily” picking cotton in high school and by age 24 I was expected to be a properly married woman with at least 2 kids. The only pursuit that was to be accomplished was to find a family that was able to pay a good enough dowry to the family. And God forbit not to get “kidnapped” by my future husband and let my family go “dry” on dowry. Getting an education was not a proffesional pursuit but a personal one ( to increase the changes of meeting a worthy spouse that would meet the family standarts). Unfortunately, the expectations back at home are still true.

  6. Andrei, people who are in college are not part of the labour force.

    I didn’t know that, now it makes more sense; I wonder how consistent and accurate is this measurement across all of Europe though – e.g. how do they count those age 15 (people not in high school??). The age of college graduation moved lower recently (after some reforms) in my country as well – but a few years back, starting school at age 7 then with 12 years of pre-college education and 5 yrs. in college one would have finished college at about age 24.

  7. There is always the Millitary service. A coup d’etat is always around the corner when Politicians from certain philisophical leanings sense change.

    My greatest fear as an Australian, is if we can’t stop a few refugee boats with our Navy, how could we stop a flotilla of hungry angry Indonesian youths backed by a General looking to seize our oil and gas.

    Our Citizens are unarmed (Except for farmers with a single action rifle) and our Army small.

    The US lost the War in Iraq and Afghanistan, how could they defend us?

    • Buddy,

      I would be more worried about “wealthy” refugees from the failing western world, invading OZ with their digital fiat markers.

      Getting out at the top or close to it, is THE first sign that a bubble is popping.

      • Very True Fo-Sho. The amount of Chinese setting up businesses in Australia under the “Invest 1.5Million in a Business Visa” is alarming in the sense that the Chinese elite are sniffing out greener pastures. This is why Australian Real Estate is holding up. Foreign immigrant demand.

        See http://www.immi.gov.au. if you have $1.5M to invest and want residence in Australia

    • @Buddy: I wouldn’t worry about an invasion of Australia unless the international order really breaks down in a catastrophic fashion. And besides, it’s much easier to defend when invaded than it is for an invader to possess (this goes to a great length in explaining the failures of USA’s invasions).

  8. Perhaps its just my anecdotal experience, but I’m getting tired of explaining to my elders, how the the monetary and fiscal regimes are crashing.

    Such themes as debt has grown faster then GDP over the last 30+years (Like we pay our taxes in GDP anyway, is an absurdity in the least) or globalization is flatting the wage structures of the work place and our western governments have yet to adjust for this structural change or exponential growth will always collapse inwards as nothing grows for ever.

    It is easy and obvious to point out such common historical themes such a normalcy bias, state & media propaganda and flat out greed & corruption as precursors economic collapse. But currently, the screams seem to be falling on deaf ears.

    If there ever was/will be a “silver lining” to the ongoing Great Recession, one major positive is that the current 18-35 year old demo. (Which I have dubed “The Janitor Generation”) will be much more economically literate. We, of course, will not all agree on the direction, degree and structure of our economies, but rather atleast be able to have a coherent discussions that don’t include such current silly ideas such as:

    “Solving a debt crisis with more debt”

    “Go out shopping to support the war effort”

    “Printing money equals prosperity”

    “Mark-to-model accounting”

    The economic literacy will not be a voluntary one for the Janitor Generation. It will be born out of necessity, once it has become clear that the current solitions being employed, no longer fix the problems.

    It must also be pointed out that the “Janitor Generation” will not be free from greed, manipulation of governance and all of the prior failings of history. That we will make mistakes along the way, will be unavoidable. We just won’t be able to use the same “kick the can down the road” strategies, that is currently en vogue with the current generation in power.

    • If there ever was/will be a “silver lining” to the ongoing Great Recession, one major positive is that the current 18-35 year old demo.will be much more economically literate.

      Yeah. I am economically literate by accident. I had to learn about it, because it dominated the world I became an adult in.

  9. Pingback: The Disaster of Youth Unemployment |

  10. Agree about the barriers to entry being a problem. The minimum wage thing is more tricky. If you reduce it drastically without offering some sort of living stipend – folks may not bother. You can eliminate minimum wage if folks that are working are guaranteed a basic income should their employment be unable to generate enough to live on.

    The other thing is there are a huge number of job vacancies in the US for example. Millions. But employers keep saying that they remain unfilled because of a ‘lack of skills’. But that’s simply an excuse because employers are unwilling to train ppl on the job and spend the time and money on workers. They expect colleges and universities to provide automatons that were specifically designed for the roles and functions of a particular position in their company. The government should agree to pay the wages for anyone hired for these so called unfilled jobs provided the employer provides training and then takes over after a 6 month period.

    The mention of entrepreneurship is interesting. This should be taught at all levels of schooling. If people had a better sense of what it is and entails and had a basic knowledge of accounting and finance – they would more likely become entrepreneurs. And even if they just became employees – having an entrepreneurial mindset would be a major asset for their employers. But you need the institutions that would provide seed money and capital for entrepreneurship to be a more widespread phenemonon. Sadly – banks would rather lend to folks flipping houses and the government would rather spend a trillion dollars on a stupid war.

    • The minimum wage thing is more tricky. If you reduce it drastically without offering some sort of living stipend – folks may not bother. You can eliminate minimum wage if folks that are working are guaranteed a basic income should their employment be unable to generate enough to live on.

      Paying part welfare is cheaper than paying full welfare…

      The government should agree to pay the wages for anyone hired for these so called unfilled jobs provided the employer provides training and then takes over after a 6 month period.

      Interesting idea. Paying part welfare is cheaper than full welfare, and such a program would certainly be cheaper than bank bailouts. Would it breed dependency? More corporatism? Maybe.

    • @ Vmoses “The minimum wage is more tricky”

      I agree. That is why I contacted my Treasurer, Wayne Swan, ans said cut all the Welfare Departments and provide a minimum safety net to cover basic food shelter and clothing, then open up the wage laws to a market price ( No minimum wage) The ones who want to work to buy non necessities (iPad, a car, entertainment and most consumer goods) will work. In time they may get a promotion and earn more money with their on the job skills.

      If you cut the Government Departments, reduce rent and other operating costs, the welfare % will have a bigger allocation to support the unemployed bureaucrats.

      Wouldn’t it be lovely to have a job for life on $60k. That is a starting wage for most Government workers in Australia. My father would have to put in 50 hour plus weeks day in day out at the Meatworks to earn that! At least he is feeding people. What are Government workers doing????

  11. Jon, you must be a Socialist. Calling someone a nut is the oldest trick in the Socialist book. You don’y give yourself intellectual credit. I never said you were a Socialist nut. I said you had Socialist leanings.

    I am an Athiest, but I do believe that religious text have wise advice, since they were written by the “Learned” Men. That does not make me a Conspiracy Religious nut.

    Amateur!

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