The global youth unemployment crisis

By Felix Salmon
December 22, 2011

When Occupy Wall Street launched, there were hopes and fears that it would recapitulate the Arab Spring. Those hopes and fears sprang largely from a simple fact: that both OWS and the Arab Spring are characterized in large part by angry, unemployed young people.

As we come to the end of 2011, it’s worth taking note of the fact that stunningly high youth-unemployment numbers are increasingly a global phenomenon — and that this is a new thing, which postdates the financial crisis, and which doesn’t seem to be improving anywhere.

Here are the numbers for a few key Eurozone countries: you can see not only that Spain and Greece have almost unthinkably high youth unemployment approaching 50%, but also that Ireland, in particular, has seen its youth unemployment rate go through the roof since the crisis, from below 10% to over 30%.

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And don’t think that the US is any better, it isn’t. The US measures youth unemployment once a year, in July, and that series looks like this:

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The thing to note here is not just the absolute level — youth unemployment is now 18.1%, and for blacks it’s 31% — but also the sharp rise. Countries differ in how they measure unemployment, but however it’s measured, it’s going up alarmingly, and the level in the US is in exactly the same ballpark as the levels we saw in the Middle East which caused the Arab Spring. We’re lower than Egypt and Tunisia, but we’re higher than Morocco and Syria:

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The Economist had a great article on youth unemployment in September, saying that its negative repercussions “will be felt for decades, both by those affected and by society at large”. In peripheral European countries, youth unemployment causes a massive brain drain, and in all countries there’s a clear link between youth unemployment and the crime rate. In turn, if a higher crime rate leads to a higher incarceration rate, then a significant chunk of a whole generation essentially loses the opportunity to have a successful career, since having prison on your resume tends to be very harmful indeed for job prospects.

And as far as total future national income and wellbeing is concerned, we’re causing huge amounts of damage here:

Youth unemployment leaves a “wage scar” that can persist into middle age. The longer the period of unemployment, the bigger the effect. Take two men with the same education, literacy and numeracy scores, places of residence, parents’ education and IQ. If one of them spends a year unemployed before the age of 23, ten years later he can expect to earn 23% less than the other. For women the gap is 16%. The penalty persists, though it shrinks; at 42 it is 12% for women and 15% for men…

Unemployment of all sorts is linked with a level of unhappiness that cannot simply be explained by low income. It is also linked to lower life expectancy, higher chances of a heart attack in later life, and suicide.

As for the particular case of America, one big effect of the lack of jobs for young people is a significant rise in student-loan debt. The Economist drily notes that “as they build up debts, not all these students will be improving their job prospects”.

The global financial crisis had many causes, and there’s a lot of blame to go around. But the one group which is almost entirely blameless is the group being hit the hardest, over the long term, by the crisis. And I worry very much about how the global economy will fare in decades to come as this cohort of workers, angry and deeply scarred by the post-crash economy, is tasked with driving economic growth.

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Comments
15 comments so far

Very quickly, I wanted to comment on the ambiguity of your phrase “both OWS and the Arab Spring are characterized in large part by angry, unemployed young people.” It may be that you mean OWS and the Arab spring are characterized AS angry, unemployed young people, but your muddled construction leaves open the possibility that you mean OWS and the Arab spring comprise angry, unemployed young people. This second possibility is a pet peeve of mine, as OWS is frequently delegitimized by claims that the individuals participating in it are merely jobless bums. In reality, unemployment at OWS is ~13%, not significantly above the national 11% national average, nor the ~12% Tea Party average.

Posted by randomguy | Report as abusive

“And don’t think that the US is any better, it isn’t.”

While the trend is disturbing, the problem isn’t YET comparable to that Europe faces. There is really no comparison between 20% unemployment and 50% unemployment.

Moreover, that chart from the Middle East dates back to 2008. Given that youth unemployment has doubled in Europe, and doubled in the US, what makes you think that it hasn’t doubled in the Middle East as well? Those Arab Spring riots didn’t stem from 20% youth unemployment and it is disingenuous to pretend otherwise.

Finally, there are two hidden factors in play. First, unemployment for this demographic is strongly influenced by the prevalence of college education. The more young adults who are attending college instead of seeking jobs, the lower the unemployment rate. Second, the *size* of the younger generation is very different between Europe (at one extreme), the US (in the middle), and the Middle Eastern countries.

Combine a *large* influx of young adults with unemployment rates well over 50% and you have massive social unrest. Europe has high unemployment but far fewer young adults. The US has much lower unemployment rates and fewer young adults.

But if unemployment continues to rise among the young? Sure, eventually we’ll have serious trouble. This is a real concern — just not an imminent one.

Posted by TFF | Report as abusive

“And as far as total future national income and wellbeing is concerned, we’re causing huge amounts of damage here”

Who exactly is the “we” in that sentence to whom you are ascribing causality?

Posted by right | Report as abusive

For an excellent and detailed treatment of this, read:

Polarization, immigration, education: what’s behind the dramatic decline in youth employment?
by Christopher L. Smith
http://www.federalreserve.gov/pubs/feds/ 2011/201141/201141pap.pdf

Posted by jussibjorling | Report as abusive

“and which doesn’t seem to be improving anywhere”

It actually does improve in Germany, the most populous country of the EU, where your chart shows that youth unemployment is much lower than even *before* the crisis, and where general unemployment rates are the lowest in 20 years.

And German companies are now starting to fill open positions with young qualified people from the PIIGS countries, helping to lower the youth unemployment in these countries.

The biggest country’s economy being strong and healthy and able to help to drag the rest out of the mess is an advantage of the EU that’s missing in the US.

Posted by AdrianBunk | Report as abusive

Mr. Salmon: kudos on an excellent piece. This issue is probably the most grave one the world faces today, worse even than the Eurozone woes, the risk of Chinese bank failure, or just about anything else (save perhaps North Korean nuclear meltdown). The un(der)employment of the world’s youth may be a symptom or byproduct of other problems, but it has become so large and persistent in its own right that it will become the ultimate source of the world’s economic and social malaise.

Posted by Dr_Stonewafer | Report as abusive

As my grandmother would say, “too many cooks and not enough bottlewashers”.

If you train people to be chefs but you need ten times as many bottlewashers is it surprising you end up with too many of the former and have to import immigrants to perform the latter?

Meanwhile addicted consumers demand more and more for less and less, forcing their children out of jobs and passing over the wealth of Nations to China. If this was war, China would be winning it hands down – and with no losses. Actually, it IS war, the same weapon as used in every other war – money. China learned from how the West won the cold war: by bankrupting Russia. Why are people surprised the tables have been turned this time?

To get out of the crisis we need more growth, not more austerity. If you cut spending, the economy shrinks; when the economy shrinks, debt increases as a proportion of GDP. If you talk up growth and add in real incentives for corporates to invest their cash hoards to drive growth, perhaps through selective tax breaks, the economy grows, tax revenues grow, and the proportion of debt shrinks even if you pay none of it off.

In the 1930s depression interest rates were increased and this lack of liquidity caused things to get worse. Today, economic contraction is having the same effect, and the young are the ones who have to learn to cope with it.

Posted by FifthDecade | Report as abusive

@FifthDecade

“To get out of the crisis we need more growth, not more austerity.”

The alternative to austerity is not more growth, the alternative is a large-scale bankruptcy of governments and banks with a huge impact on the global economy (and much higher unemployment rates than today).

“If you talk up growth and add in real incentives for corporates to invest their cash hoards to drive growth, perhaps through selective tax breaks”

The problem is that this won’t work:

Take BMW as an example – they are running their factories in 2011 on average over 110% (sic) of the nominal usage rate for coping with the demand. They don’t need tax breaks as motivation for investing into growing their production.

Many other companies have the opposite problem of not having enough customers for their products – they would not invest in growing their production, no matter what tax breaks are offered.

Therefore tax breaks would result in more debt without much additional growth – making the debt problems even worse.

Posted by AdrianBunk | Report as abusive

I think TFF has hit upon something there. If we drum the idea that a college education is a necessary and required thing for a reasonably successful life into the heads of the young populations of middle eastern countries, then first, large numbers of them will go wildly into debt to pay for a rapidly-escalating-in-price college education, which creates demand for debt and debt products from Wall Street and secondly, they’ll be out of the job market for a few years, which reduces their unemployment rate by reducing the number of people looking for work (demand reduction).

Now, of course if the wonderful and perfect capitalist global free market doesn’t create enough high-paying jobs once those students graduate (have to pay back all that debt, don’t you know, so we can’t go into non-renumerative work like elementary teaching), then we’ll have an interesting situation on our hands…

Posted by Strych09 | Report as abusive

Strych, you might enjoy this one (though it is hardly a new meme):
http://www.popecenter.org/commentaries/a rticle.html?id=2474

Posted by TFF | Report as abusive

@Strych09

“large numbers of them will go wildly into debt to pay for a rapidly-escalating-in-price college education”

Don’t assume that all the world has the problem of high tuition fees that is plaguing the USA.

In countries like Egypt or Germany or Finland tuition fees at public universities are either non-existing or very low.

There is a big scale from countries (like the USA) where people pay much money for their college education to (e.g. some European) countries where university is free and students get paid money from their government for covering their living expenses.

Posted by AdrianBunk | Report as abusive

The differential between Germany and France is probably due to the unfit population.

If you remove them, the results are actually quite good then.

Posted by nicolas2 | Report as abusive

There are too many unqualified or inexperienced “young people” competing for very, very few jobs.

And what do they all want? To make enough money to marry and have a family! What part of unsustainable do SEVEN BILLION people not understand? This isn’t an unemployment problem. It’s an overpopulation problem.

When it’s those with few or no skills that increase in number most rapidly, social pressures escalate rapidly. Those without function in a sustainable society historically become the greatest threat to civil order. They are also, ultimately, disproportionate victims of any shortfall in any of the civil resources that sustain life.

Posted by OneOfTheSheep | Report as abusive

Can anyone say ‘overpopulation’? As technology has increased and relieved a few thousand workers of their tedium, so too have people lost respect for the earth. Less and less resources will leave us all fighting for scraps.

Posted by watkinskb | Report as abusive

You talk Global but don’t mention africa, asia or latin america. Very well done.

Posted by Latamer | Report as abusive
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