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. 

Higher Education and the Crisis

Yesterday, on the way into town from the airport in Seville, where I am giving a series of talks, my university host and I were talking about the state of higher education and the economic crisis.  He was bracing for another round of pay cuts he and his colleagues fear are in the works on top of the 5-10% they took as the slowdown in the economy started.

Higher education in Southern Europe is an area ripe for reform.  University systems in the region tend to be inefficient, highly politicized and bureaucratic.  At the same time, the differences between the north and the south in terms of the relationship between unemployment and underemployment, and educational attainment are illuminating. A recent study by Gallup shows that at the highest levels of education, the same lower levels of unemployment characterize the citizens of both Northern and Southern Europe - about 5% - in both regions. It is at the lower levels of educational attainment (that describes a larger percentage of southern Europeans) where the big gaps exist.  Here, although those with lower educational levels have higher unemployment rates in both the north and south, unemployment rates of this group are roughly twice as high in the south as the north. The report concludes that in Southern Europe “there is an oversupply of labor for low-skill jobs, and a shortage of highly skilled workers …that limits their potential growth.”

This is related to the S&P’s conclusions in its latest round of downgrading the debt of many European countries that “problems are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU’s core and the so-called ‘periphery’.” Reforming and investing in better higher education would be one way to help close the gap by raising the skill level and productivity in Southern Europe.

How likely is reform to happen? As Rahm Emanuel so famously said, ‘never waste a good crisis’ and some see in the current one a silver lining. In some ways, it may provide opportunities for reform that did not exist previously.  This month, Science published an article on the state of Greek higher education. It describes the precarious state of universities in a country where few institutions are internationally competitive. The crisis has caused the reduction in salaries by 20% and budgets halved.  However, it also has led to the passage of a new law restructuring the system, which is plagued by highly politicized university administrations that have always blocked reforms.  While university rectors have gone to the Supreme Court to block the law, it has wide backing in Parliament and a new law governing research is expected to have an easy passage next month.

It is also possible that just as we hear that ‘more Europe’ is the solution to Europe’s financial woes, ‘more Europe’ may become part of the debate about investments in the area of higher education and research. A very recent paper by Jo Ritzen and Luc Soete for the EU think tank, Notre Europe, notes that European institutions have existed along side national ones for a while now to help promote research and that they had already begun to overshadow them before the crisis hit.  The authors view the crisis as a way to further the process and move more authority to European funding institutions. One change they call for is the transfer of public funding in basic and applied research from the national research councils of the member states to the European Research Council. They view the national organization of research as inefficient and stifling of innovation.  

Whether member states would willingly cede their funds to a European agency remains to be seen. I think it is clear, however, that with the crisis in many countries, scientific research will need to rely more heavily on European funds; Greece, for example, is already almost entirely dependent on European structural funds for its research budget. So, whether we or national governments who have strongly held the view that higher education is their, not Europe’s domain, see this shift as a good or bad thing, I think there is likely to be some momentum toward more Europe and more coordination in research investments.