What can be done to reduce the high levels of youth joblessness in the world?

The aim of the ILO’s Action Programme on Strategies to Combat Youth Marginalisation and Unemployment is to develop interventions to combat youth unemployment and exclusion. The main output of the Action Programme will be a strategy document to guide the formulation of future youth employment policies and programmes. It will be based in part on a series of country studies, two regional papers and this summary paper.
In this paper I set myself a bold task – to evaluate youth joblessness in the world and what can be done to improve it. First I examine the youth labor market in general and the youth labor market in particular in five areas of the world 1) OCED 2) Transition economies 3) Latin America 4) Asia and Africa. There are many similarities, not least of which is the fact that youth unemployment is approximately double adult unemployment in most countries of the world. This ratio appears to decline as unemployment increases. Second I look to explanations for youth joblessness and rule out a) wages b) minimum wages c) cohort size d) shifts in industry composition e) trade f) technology g) increased female participation and rule in the level of aggregate demand in the economy. Unemployment makes young people very unhappy, which suggests it is not a conscious choice as some may believe. The army of the unemployed is a conscript rather than a volunteer army.
Third I document that there are substantial supply responses to economic incentives in the youth labor market. High unemployment encourages young people to stay on longer at school and get more education. The young are more likely these days than was true in the past to continue living with their parents. I also document a number of worrying responses which include increased drug taking, more participation in crime and increased suicide.
Fourth I examine strategies to deal with youth joblessness. Increased youth wage flexibility does not seem to be the right strategy: there is little evidence to suggest that the young are being priced out of jobs. Over the last decade or so there has been a decline in many countries in the wages of the young relative to adults. Minimum wages, which interfere with the market setting of wages, can help to improve poverty but if set too high can increase unemployment. Schemes to encourage self-employment, which provide advice on how to set-up in business or which help to overcome capital constraints may have some value. Active labor market policies have generally not been very successful in improving the situation of the disadvantaged young. I make a series of recommendations for narrow targeting and careful monitoring.
Finally, because it appears that solutions to youth unemployment are driven by what happens to overall unemployment, I examine macroeconomic policies that have been suggested can be used to beat it. Unfortunately we are a long way from understanding why aggregate unemployment is so high and why it has trended upwards over the last couple of decades. High unemployment does not seem to be primarily the result of job protection, trade union power or wage ‘inflexibility’. There is some evidence that overly generous benefits do tend to raise the level of and the duration of unemployment by making work less attractive. Quantitatively the impact of benefits is small: as an example Italy has high unemployment but low benefits. There are two components of the aggregate unemployment problem to be understood. First, cyclical movements in joblessness – why does unemployment in general and youth unemployment in particular go up and down in large irregular cycles? Second, why in so many countries has unemployment trended secularly upwards over the last few decades. It appears the main explanation for the cyclicality rests with changes in commodity prices in general and the oil price in particular while explanations of the upward trend have to do with unemployment benefits and labor taxes, the internal mobility of the population, home ownership and the existence of a well-functioning private rental sector.

• http://www.cesifo-group.de/de/dms/ifodoc/docs/Akad_Conf/CFP_CONF/SC_CONF_1999-2006/ESP_2001/PAPERS/esp01-blanchflower__221806_en.pdf