Friday, July 27, 2012

How Bad is Youth Unemployment in Southern Europe?

Youth unemployment in Europe has captured worldwide headlines during the crisis, with new highs being reported almost weekly.  The current figures paint a daunting picture in the south of Europe: in May, 52.1% of young people in Greece and Spain were out of work, with Portugal (36.4%) and Italy (36.2%) not too far behind.

This week, Steven Hill published a piece in the FT where he argues that these figures are simply not true and that such numbers are inflated because they include everyone not in the workforce, even those who are in training programs or in school (this is traditionally why youth unemployment figures are higher than the overall total.) He prefers to use the ‘youth unemployment ratio’, which is

# of unemployed youth____
total population aged 15-24

Using this measure, the numbers look quite different: Spain’s youth unemployment is 19% compared with 13% for Greece.  These figures are a little older than May so there may have some deterioration recently but the point is, that using the ratio, the situation doesn’t seem as dire.

Does it matter?  To a certain point, yes.  It gives us a better picture of life on the ground in the countries hardest hit by the crisis.  This helps explain in part why there is not the sort of social unrest that one might expect with over half the population out of work.  Southern European unemployment rates for decades have been hard to interpret.  In the 1980s, well before the boom years, Spanish unemployment was in the double digits but no-one really thought 16-18% represented reality because of the thriving underground economy.  In the last few months, a number of Spanish politicians have remarked to me that if total unemployment were really around 25%, there would be social chaos.

But from another perspective, it seems more of an academic debate.  Hill notes that the German youth unemployment ratio is 4.5%.  So, Spain’s level is still more than four times higher than Germany’s.  Plus, surely some young people in the South are in training programs and universities because there simply are no jobs – the classroom rather than the café as the refuge for the discouraged worker.

While much of the current debate centers on getting through the short term manifestations of the crisis – the bond yield roller coaster, for example, an important question is what the long-term implications of the crisis are for Europe’s struggling countries.  Young qualified workers are leaving. In the first half of 2012, Catalonia saw net out migration for the first time ever and was the Spanish region that lost the largest population – over 37,000 inhabitants.  The International Federation of Catalan Organizations estimates that the majority of those leaving are young, college educated people who in many cases are going abroad. Reducing unemployment by having young workers flee the country is not something many politicians would see as a win.

There are likely to be long-term demographic implications as well. Italy, Greece and Spain already have some of the lowest birthrates in the world.  Recessions typically have the effect of lowering the birthrate as couples delay childbearing until their economic situation improves.  Historically, this has not usually altered total fertility, just postponed it. But there is some reason to think that the protracted economic crisis may have far more serious consequences for the crisis of fertility in Southern Europe.

That is because these are also countries where the age at first birth is exceedingly high.  Spain, for example, has the highest age in the world at 29, with Italy close behind at 28.  Postponing childbearing under such circumstances is likely to reduce it further as women begin to push up against their biological clocks, in spite of advances in fertility treatment.

Lower birthrates  will mean rapidly aging populations and a higher dependency ratio.  Without large numbers of new immigrants, there will be fewer people of working age to pay for the elderly, which will in turn put greater pressures on the state and lower benefits.

So, while the common measure of unemployment may overstate the actual numbers of young people who are out of work, the job situation in Southern Europe is likely to have long-term consequences that lock the region into a vicious cycle. 


  1. Hello Trisha, thanks for your thoughts and insights regarding my Financial Times column on youth unemployment. Certainly, I agree with you that youth unemployment is a problem today, and is likely to remain one for some time. And I stated that in the FT column (though didn't dwell on it because FT has a strict word limit for columns). The real question is whether or not the methods we are using for calculating things like unemployment rates give us an accurate depiction of reality. In the case of the current method being used for youth unemployment – which unfortunately merely copies the method used for adult unemployment even though a far higher percentage of youth are not counted "in the labor force" because they are not “available for full-time work” since they are attending school or vocational training -- is clearly insufficient. I really think economists need to work harder to come up with a better method for youth unemployment.

    But you raise other interesting issues in your illuminating post, above and beyond youth unemployment. Here are a few thoughts in return:

    1) Real unemployment rates in Spain – yes, my sources tell me the same thing about current levels of unemployment in Spain among adults, namely that the 25% figure does not reflect reality. The unemployment rate is actually less – though no one seems to know by how much – because of the growing number of people working under the table. Particularly with severance pay requirements in Spain still being quite burdensome (from the employer's perspective) despite recent reforms, many workers are agreeing to work "without contract" so that the employer can avoid the legal requirements for hiring and firing, severance, etc. While that sort of behavior on the part of employers and employees is understandable, it certainly is a reflection of the stress that the Spanish job market is under. And using such ad hoc coping means doesn't really do much to put the situation on a more stable footing. Spain's labor rules also favor older, more established workers over youth, which is causing additional stresses and fractures, generational tension etc.

    2) Native out-migration, especially among young and educated people. This is a tricky one, allow me to explain. No one would say that a young Californian who picked up and moved to New York or Texas or Florida to get a job was somehow a tragic situation. Mostly because, over time, other young people from New York or Texas are going to move to California or Florida or elsewhere in the US. That's the type of natural ebb and flow of migration that one should expect. In fact, one of the critiques of the European system has been that while capital has been hyper migratory, labor has not been (primarily due to reasons of language and culture). So should we now lament such labor migration?

    I recall a recent conversation with a German friend who was lamenting about all the young Germans who are moving out of Germany. So I asked her, "where are they moving to?" When she said Austria and Switzerland, I couldn't help but laugh. That's like someone from Oregon complaining that their young people are moving to Idaho or Washington.

    So I actually view the out-migration of young Spanish people as a positive, and something that Europe needs to get used to. Sure, to the extent that it represents a brain drain from Spain, that is a downside. But Spain needs to do more to attract businesses from other parts of Europe to relocate to Spain, and with it will come those businesses' skills and expertise. If Europe is to have a dynamic continental economy, it really can't work any other way, can it?

    (I will continue in a second post, since it appears that I am limited to a certain number of characters)

    Steven Hill

  2. Part II of my post.

    3) Birthrates and dependency ratios -- I know there's a lot of alarm about this, but I'm not convinced that the situation is as dire as some estimates are making it out to be. First, as economists like Dean Baker have pointed out, there actually are advantages to having lower population densities, namely less demand on infrastructure, less demand on the environment. But in terms of things like dependency ratios, recent history shows us that the most crucial factor in all of this is labor productivity. If you can increase labor productivity, declines in dependency ratios don't have to impact living standards. For example, the dependency ratio in the early 1960s was approximately 18 workers to one non-worker (18:1). Today it is four workers to one non-worker (4:1) with trends showing it climbing to about 2 to 1 in the future. Note that the change from 18 to 1 to 4 to 1 was FAR more dramatic than the change from 4 to 1 to 2 to 1, yes? How were we able to make that transition? Through increases in productivity.

    So that's the real problem in Spain, in my view, is that it's labor productivity is rather low compared to its main competitors. That's the real challenge that Spain has to deal with.

    Though, I will also say that there is significant evidence that those countries that make it easier through family planning policies for women to BOTH have children AND work outside the home have higher birth rates. Places like Scandinavia, France, even the UK, have done more to make it easier for mothers to work. As one pundit has put it, "Feminism is the new natalism." Interestingly, the places that have employed fewer of these sorts of policies, such as Spain, Italy and even Germany (though some positive changes in Germany under a female chancellor), are all formerly fascist countries who at one time had "cults of motherhood" that used societal pressure to discourage women in the workforce. It seems to me that these cultural influences are still prevalent in Spain and Italy in particular.

    Anyway, those are a few thoughts to add to your very interesting and illuminating post. Thank you for discussing these issues.


    Steven Hill

  3. It was nice to know your thoughts, Steven. Unemployment really is the root cause of many other problems in different nations. Crimes and malnourishment are example to that. It is always good to have a safety net such as an income insurance but being able to strike the main issue is something that should be dealt with strictly.


  4. Wow very entertaining post.Unemployment and no money this is the solution for you. Ive notice that there are many 1300 Number in Australia that giving to a business to give them many clients. Most busineses are using smart numbers to easily remember by their clients.