European Elections Special

The Temp Trap

What measures can fix youth unemployment? Some simple solutions will do – as long as we correct a big mistake from the past.

Youth bore the brunt of the recent economic and financial crisis and continue to do so today: Between the onset of the crisis in Q4 2007 and Q3 2013 (latest figure available), the average youth unemployment rate in the European Union rose from 15.3 percent to 23.5 percent. In Southern European countries the situation is even more dramatic: in Spain and Greece youth unemployment rates are approaching 57 percent, nearly 40 percentage points higher than at the onset of the crisis; in Italy and Portugal, 40 percent and 36 percent of youth in the labour force were unemployed in Q3 2013, respectively, up about 20 percentage points since Q4 2007.

Easy but helpful measures

Beyond these average figures, there are significant differences in the chances of unemployment among youth. In several countries, including Germany, highly qualified graduates still have excellent chances on the labour market. However, in some other European countries, the crisis has turned unemployment into a generalized problem affecting youth at all levels of education. In addition, some graduates depending on their field of study have greater difficulties than others in finding jobs or ones that match their qualifications. The big difference is that, once job creation restarts, one can expect highly-skilled youth to find work quite quickly and unaided while further efforts will be needed for the least skilled.

In the face of this youth unemployment crisis, the OECD has launched a Youth Action Plan detailing actions that countries could take to improve youth labour market outcomes. First of all, it is important to keep in mind that unemployed youth have very different needs that cannot be met by any one-size-fits-all measure.

For those who are job-ready, the first line of cost-effective measures should be to provide them with job search assistance in terms of putting them in touch with vacancies and helping them with their CVs and to prepare for job interviews. These are relatively inexpensive measures that have proven extremely effective in the past, hence they are particularly well suited to the tight budgets of many European countries. For youth facing greater problems in obtaining jobs, wage subsidies or reductions in social-security contributions for firms who hire young people may be required.

At the same time, given budget constraints, these measures must be targeted at the most disadvantaged youth, those who would face significant difficulties finding work on their own. Similarly, it is important to prevent youth from becoming disconnected from the labour market.

Deregulation caused unemployment

Of course these short-term measures need to be complemented by reforms in the education system to improve the employability of youth or in labour market institutions to remove obstacles to employment creation that will only bear fruits in the longer term.

For instance, one of the reasons for high youth unemployment now lies, amongst other things, in the policy of market deregulation of the 90s. The opening up of a large gap in the 1990s between very rigid employment protection of workers on permanent contract and much fewer restrictions on temporary contracts led to a significant increase in the proportion of youth working in temporary jobs and hence to greater vulnerability to recessions.

Since then, there have been a number of reforms to reduce the duality of the labour market – the different treatment of workers on permanent and temporary contracts – and the OECD has been encouraging countries to pursue these reforms. This is not to say that more flexible temporary contracts should disappear altogether but rather that they should be real stepping stones for youth into the labour market. One must remember that as fast as temporary jobs are destroyed at a time of economic downturn, they are also the first to be created when the economy restarts.

So, they should not be totally demonized and in many cases they can be stepping stones for youth entering the labour market to more stable jobs later on. They can become traps when they are of poor quality – for instance those that are too short to provide any learning opportunities – or when there is a high overall reliance on these contracts by employers seeking greater flexibility in the face of very rigid rules on permanent contracts. While institutional reforms take time to bear fruit, countries should engage in social dialogue now to ensure more labour market resilience in the future.

Cooperation between Germany and Spain

Many initiatives have already been launched to bring youth unemployment down, but it is too early to say whether they have been effective. For instance, many of the measures taken address structural issues facing youth when entering the labour market and it will take some time before they bear fruit. This is the case for example for the EU Youth Guarantee initiative which countries are still in the processing of putting in place. On the other hand, there is a significant cyclical component to the current high youth unemployment rates and, in many countries, job creation has yet to pick up sufficiently to lower youth unemployment.

Within the reform process and in the context of these initiatives, cross-country cooperation is very important. The gap between low-youth-unemployment-countries like Germany and high ones, like Spain, is widening, making it extremely important for countries to learn from each other and possibly even pursue joint projects for the fight against youth unemployment. Countries who have been successful in keeping youth unemployment at bay can be examples of good practice.

Spain can learn from Germany in terms of ensuring good access to quality vocational education and training alongside more academic studies. Spain can also be a lesson for Germany to be aware of the risk of creating a segmented labour market between those in low-paid temporary jobs and those in higher paying permanent jobs.

Read more in this debate: Moritz Pfeifer, Claire Courteille-Mulder , Daniel Tkatch.

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