Youth unemployment: at crisis level

Over the past decade youth unemployment has reached crisis levels in many countries. In developed economies population demographics are changing. Employees are retiring later and staying longer in the workforce.

At the same time, the financial crisis that reached its height in 2008 has shrunk the pool of available jobs and means that school leavers and new graduates are often going head to head with older, more experienced workers.

As a result, says Cass Business School professor of human resource management Nick Bacon, young workers are struggling to find adequate employment. He likens it to being in a “job queue”. He says: “As soon as jobs become thin on the ground, people with less experience get pushed to the back of the queue, so it becomes harder and harder for young people to get into the jobs market to build up that experience that employers say they need.”

In the UK in 2012, youth unemployment cost the economy £10.7bn in lost output, which will increase to approximately £28bn in just a decade, according to the Association of Chief Executives of Voluntary Organisations (ACEVO). The term NEET originated in the UK, meaning youths who are not in education, employment or training. In Greece and Spain more than half of young people are unemployed and NEETs are estimated to cost the EU €153bn (1.21% of GDP) a year. Jobless levels of 25% or more are common in Europe, the Middle East and North Africa.

Youth unemployment and dissatisfaction was one of the major triggers for the Arab Spring that has affected many countries in North Africa and the Middle East since 2010. The actions of one frustrated fruit seller in Tunisia sparked a wave of protests that caused riots, demonstrations and civil wars across the region.

Social unrest has also risen in the EU, sparked by the eurozone crisis, with numerous protests in Greece between 2010 and 2012. “In Greece unrest was prompted by a sense of unfairness about how the Greek economy is treated by the rest of Europe, as well as youth unemployment,” says Bacon. “It normally needs a particular trigger to mobilise young people to act as a group.”

Global estimates of youth unemployment are around 75 million. This number would triple if underemployed youth were included in the International Labour Organization estimate. “This represents not just a gigantic pool of untapped talent,” states McKinsey & Company in its report Education to Employment. “It is also a source of social unrest and individual despair.”

Minorities suffer most from un- and underemployment. In the US, figures show unemployment rates among young blacks are twice as high as those for their white counterparts. “The problem is very alive in the US,” says Bacon. “There’s a connection between an education system that’s not producing enough people with the right skills and a long-term decline in the average earnings, particularly in the bottom quartile.”

In Turkey, with one of the youngest populations in Europe, youth unemployment reached more than 20% in May 2013. Turkey came fourth in a list of the 10 most unproductive countries in Western Europe, according to the OECD. “Countries all over Europe are recognising the dangers a ‘lost generation’ of young unemployed present to social stability and future economic prosperity,” notes this year’s Lloyd’s Risk Index.

“It’s a danger and a risk,” says Zurich Insurance in France chief executive Anne Charon. “Companies have workforces that are getting older and are not open enough. Even if you have fantastic, innovative and creative teams who want to move their business forward, to some extent they will stay as they are. Having young people on board is really an opportunity to open minds with fresh ideas and see things from a different angle. Having said that, the key to success comes from a mix of young and experienced staff, who are able to jointly provide support to the table.”

Low-skill, low-wage economy

It is a Catch-22 situation. Young workers cannot get a foot on the jobs ladder because they lack experience, experience they are unlikely to get until they land their first job. There are a variety of government initiatives trying to encourage employers to take on new graduates and school leavers including the EU’s Youth Guarantee. However, in reality only around one-fifth of UK companies are willing to employ somebody straight from college or university, reveals Bacon.

“You start to see youth unemployment problems accelerate around 2005 and actually predating the recession, but the recession then makes it worse,” he says. “Inevitably when you get people with lots of experience coming back into the labour market, young people do get pushed further back.”

Young people who are unemployed for a long time will earn less throughout their whole lives, studies show. “The group we’re all worried about is school leavers with no qualifications, because we just know they’re twice as likely to be unemployed,” says Bacon. “They are condemned to a lifetime of being in and out of work, and when they’re in work, it’s very low paid occupations that are very insecure. This is the lost generation that everybody is very concerned about.

“Our overall human capital in the country starts to deteriorate if we don’t provide clear incentives and benefits for trained-up young people who have done well at school,” he concludes. “People will get dispirited and question what training and education is for. This is an important issue for universities given that students are paying more for their education. If that investment is not going to pay off in terms of enhanced earnings for all students then it may deter some young people from investing in education, and the UK may slip into a low-skill, low-wage economy more quickly as a result.”

Youth unemployment is closely interlinked with another global crisis, the shortage of people with critical job skills, according to McKinsey. Nearly 40% of employers say a lack of skills is the main reason for entry-level vacancies.

The Forum of Private Business (FPB), which represents over 18,000 small and micro businesses in the UK, says while its members are keen to give young people opportunities to succeed, many are being discouraged because of “recruitment risks”, which are “too difficult to bear in the current environment”. Several FPB members also felt young people were not adequately prepared by schools for the workplace.

Employers have difficulties with succession-planning, reveals the FPB, because there is no longer a retirement age. Companies struggle to let go of older workers (many of whom are choosing to work longer into retirement due to the difficult economy), even if they are unproductive, as a result of barriers such as HR law and concerns about employment tribunals.

The solution

To avoid future deterioration of human capital the private, voluntary and public sector need to work together to close the gap between young people’s skills and the experience demanded by employers. Young people need both the hard and soft skills to progress in education or work and too many have limited access to high-quality work experience and information and advice, says ACEVO.

Employers, education providers and youth live in parallel universes, says McKinsey, and need to become more engaged. By including work placements as part of their studies, students will be more able to build up a track record that is likely to impress prospective employers when they leave school, says Charon.

“When they leave school, graduates often do not have any experience from a professional point of view,” she says. “They have some theoretical knowledge, but not always practical skills. In business schools we are now seeing that students are obliged, during the course of their degree, to take on internships, which is a good way for them to reinforce their CVs when they arrive in the work market.”

Zurich also makes use of the fresh perspective a younger workforce can offer when it comes to strategic decision-making. It pulls together young staff from all areas of the business to brainstorm. Winning ideas are put into practice at a group level. The company also has a junior committee tasked with challenging the firm’s country committee, a formal group comprising the legal, risk and communication heads for Zurich in France.

As well as offering work placements and recruiting plenty of young talent into the organisation, Charon stresses the importance of offering training and clear opportunities for progression. “When you invest for two years in young talent – training him or her and giving opportunities to be visible, to engage other people in the company – at the end of two years I don’t want to see them leaving and going to a competitor. So we do our best to retain our talent.”