The causes of high youth unemployment

In most countries, youth unemployment is much higher, at least double, than the adult unemployment rate.⁵ The main reason for this is that young people, despite possessing, on average, higher educational levels, are endowed with fewer skills, and are less experienced than adult workers. Moreover, youth unemployment is persistent over time, since about one-third of youth unemployment is long term. In addition, in the case of young people, unemployment is a more serious problem since it erodes human capital, it prevents the accumulation of work experience, thus it produces negative effects on lifetime income and career possibilities. All this raises the risk of young people being excluded from the labour market for a long time (Bell and Blanchflower, 2011), leading to what has been called a “lost generation”, i.e., people who never enter the labour market (Scarpetta et al., 2010) or who enter it in bad conditions. In many countries, youth unemployment refers to individuals aged 15-24 years, although other ages are sometimes considered. An alternative indicator has been recently proposed: the number of young people who are “neither employed nor in education or training” (NEET): see O’Higgins (2012) and Bruno et al. (2014c).

First of all, it should be noted that significantly high (cross-countries and over time) correlations exist between youth and total unemployment rates, i.e., some important common factors at the national level affect the real job opportunities of the whole working- age population. In this respect, three ample groups of common determinants can be identified to explain (country’s differences and trends) overall and youth unemployment rates (see Marelli et al., 2013). A first group of causes includes macroeconomic cyclical conditions. A second group of variables determining unemployment and labour market performance includes demographic, individual, social and structural conditions. A third group of variables includes policies and institutions. It is particularly relevant, since almost two-thirds of noncyclical unemployment changes over time are explained by changes in those variables (OECD, 2006).

Let us focus now on youth unemployment rates. A specific strand of literature investigates the particular reasons for the worse labour market performance of youths compared with adults; some studies derive key institutional and policy implications. For example, a key issue is that, although young people are generally more highly educated than adults, they often lack the other two components of human capital: generic and job-specific work experience. This adds to another problem, i.e., the mismatch between knowledge acquired through formal education and the skills required by the labour market.⁶ Thus, it is the existence of a “youth experience gap” that especially harms the employability of young people. A good match between labour demand and supply mainly depends on school-to-work transition (STWT) processes, which are quite heterogeneous among countries and change over time.⁷

Regarding the institutional variables specifically affecting youth unemployment, in empirical studies emerged the role played by minimum wages and by the extent to which temporary contracts may be used. Moreover, while employment protection legislation (EPL) and lay-off regulations affect worker turnover and duration of unemployment more than influencing the unemployment level, such regulations are more significant for younger than for older people.⁸ Turning back to the macroeconomic determinants, most empirical studies have confirmed the greater cyclical sensitivity of the youth unemployment rate compared to the total unemployment rate, especially because of the weaker work contracts among young workers than among older workers.⁹ As a matter of fact, following severe recessions, hardships for young people in both acquiring a job as a new entrant and remaining employed are enhanced; in fact, being discouraged by high YUR, many young people give up job search altogether; in such circumstances, they decide to postpone job search and continue their stay in the education system, but in other cases the outcome is even worse, since they join the NEET group.

In addition to the greater immediate impact of economic crisis, especially financial crises¹⁰, on YUR than on adult unemployment rates, further evidence concerns the persistence of unemployment over time and the increasing share of long-term unemployment (e.g., Caporale and Gil-Alana, 2014; Bruno et al., 2014b and 2014c). As a matter of fact, long periods of unemployment erode the skills of young workers, reduce their employability, cause a permanent loss of human capital and make unemployment persistent. Even before the recent crisis, OECD (2005) stressed that young people in general - and in particular youngsters with low human capital and few skills - are particularly exposed to long-term unemployment, unstable and low quality jobs, and perhaps social exclusion.

A point to be stressed is that the crises exacerbated structural problems existing in many countries, especially problems concerning the transition from school to work; in fact, owing to the reduction in labour demand, school-leavers compete with more jobseekers for fewer vacancies (see Scarpetta et al., 2010). O’Higgins (2012) observes that not only young people are more vulnerable to a crisis’s effects than older adults but also that such effects are more long-lasting for the young; making unemployment more persistent.