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The economic outlook has weakened significantly over the past six months, which is not good news for employment or the prospects of those looking for work. But action targeted on youth and the long-term unemployed can, and must, be taken.

Can anything be done in today’s hard times to get people back to work? Even prior to the latest economic slowdown, job creation during the recovery was anaemic in some major OECD countries, notably the United States and Japan. As a result, the OECD unemployment rate had by September 2011 only fallen by 0.6% from its Great Recession high of 8.8% in October 2009. Thus, there were still 44.8 million unemployed people in the OECD area in September 2011, some 13.7 million more than before the crisis.

At the same time, a striking feature of the ongoing jobs crisis has been the large diversity in terms of labour market performance. At one extreme, seven OECD countries–Australia, Austria, Japan, Korea, Luxembourg, Norway and Switzerland–have all maintained unemployment rates in the 3.5-5.5% range; at the other end of the scale, seven countries still had double-digit unemployment rates in September 2011, these being Estonia, Greece, Hungary, Ireland, Portugal, the Slovak Republic and Spain. The US unemployment rate remained stubbornly high at over 9%. The weak economic outlook is a major concern for all, but particularly the latter group of countries.

In those countries where unemployment has increased significantly, the main losers have been youth, temporary workers and the long-term unemployed, meaning those out of work for a year or more. Prolonged spells of unemployment are damaging as they increase the risk of skill depreciation and a loss of self-worth and motivation. Long-term unemployment is also associated with higher risks of poverty, marginalisation, ill health and school failure for the children of the affected workers.

Promoting job-rich economic growth is not easy, but it must be central to any recovery strategy. However, it is not sufficient for tackling the legacy of lost opportunities that occurred prior to the crisis when stronger economic conditions failed to reduce inequalities in both income and access to well-paid and productive jobs. Indeed, as shown in OECD’s forthcoming sequel to its 2008 report on Growing Unequal?, some of these inequalities have deepened further (see references).

In particular, more needs to be done to achieve lasting improvements in the labour market outcomes for young people who have been hit disproportionately hard by the recession. In the third quarter of 2011, the unemployment rate for young people aged 15 to 24 was 17.2% in the OECD area compared with 7% for adults, aged 25 and over.

NEET challenge

But these data paint only part of the picture of the difficulties young people now face. More generally, youth who are neither in employment nor in education or training–the so-called NEET generation–are at high risk of marginalisation and exclusion from the labour market, especially the longer they remain outside the world of work. In the first quarter of 2011, this group accounted for 12.2% of all youth aged 15-24 in the 30 OECD countries for which data are available, up from 10.7% in the first quarter of 2008. This represents 22.3 million young people, 14.2 million of whom were inactive and not studying, and 8.1 million of whom were unemployed.

In the context of a weak jobs recovery, a significant and growing proportion of youth, even among those who would have found jobs in good times, are at high risk of prolonged unemployment or inactivity, with potentially negative consequences for their entire careers and livelihoods. These so-called “scarring effects” include constant difficulty finding employment and persistently lower pay than their peers. Moreover, young people leaving school in the years ahead are more likely to struggle to find work than previous generations.

The labour market challenges facing young people are nothing new and have been a preoccupation of governments for many years. Indeed, youth issues have been a recurring theme of the OECD’s reflections on employment policy over the past 50 years.

We know from this body of work that there are no quick fixes for ensuring that all young people can get off to a good start in the labour market. And while some countries are doing a better job than others, they all face the same kinds of pressures. But we also know that while stronger job creation is a key part of the solution, it will not help all youth unless it is accompanied by other measures. The OECD’s report in 2010, Off to a Good Start? Jobs for Youth, which summarised the key lessons from 16 country reviews, has highlighted a wealth of good practices to help youth to get a first foothold on the career ladder.

Essentially, a two-pronged approach is required, on the one hand, to tackle the underlying structural barriers that stop youth from getting a firmer foothold in the labour market and, on the other hand, to address the crisis-driven rise in the number of youth who are not in work or in school.

The first set of policies is about giving all young people a better start in the labour market. To start with, “preventive” measures must be taken to improve early childhood education and care, particularly for children from low-income families and disadvantaged backgrounds. To be fully effective, these measures need to be sustained throughout the period of compulsory schooling. This, in turn, will help minimise school drop-outs.

However, these measures need to be reinforced by efforts to achieve a better match between the skills young people acquire at school and those needed in the labour market. A considerable proportion of young workers are over-qualified for their jobs, although this proportion tends to decline with age. To reduce the skills mismatch, education systems need to be more responsive to changing skill needs and to increase the options available, for example by offering more vocational courses.

Finally, barriers to youth employment also need to be removed. In particular, overly-strict regulations on permanent employment contracts can prevent entry-level jobs from acting as a stepping stone to more stable careers, and become dead ends instead. Also, if minimum wages are set too high, they can act as a disincentive for employers hiring inexperienced and low-skilled young people.

The second line of policy action, that of tackling the rise in youth joblessness since the start of the crisis, is rendered more difficult by the fact that the crisis compels financially-stretched governments to give priority to cost-effective interventions. That means focusing on the most disadvantaged groups, including the long-term unemployed and others at risk of exclusion.

Job-search assistance programmes have been found to be the most cost-effective early intervention for young people who are considered ready to work. Temporary extensions of the social safety net can also prevent poverty among unemployed youth. As some countries have shown, wage subsidies can be used to encourage employers to hire low-skilled unemployed youth. However, in order to minimise the subsidiation of hirings that would have taken place anyway, these subsidies must be carefully targeted, for example on small and medium-size enterprises or on apprenticeship contracts. There may also be scope to expand opportunities for “study and work” programmes to improve skills and job prospects.

Finally, more intensive, remedial assistance should be targeted on those youth at greatest risk of social exclusion. While back-to-the-classroom strategies might prove counterproductive for them, training programmes taught outside traditional schools, combined with regular exposure to work experience and adult mentoring, are often better strategies for these disconnected young people.

In short, investing in youth and giving them a better start in the world of work must be a priority for policymakers. Otherwise, the hardcore group of youth who are left behind will grow, meaning more young people facing poor employment and earnings prospects, with more difficult policy challenges as a result. In a context of ageing populations, as well as today’s unusually tough financial environment, OECD economies and societies simply cannot afford the large economic and social costs that such an outcome would entail.

References

More articles by John P. Martin available at www.oecdobserver.org

See www.oecd.org/employment

OECD (2011), Divided We Stand: Why Inequalities Keep Growing, Paris

OECD (2011), OECD Employment Outlook 2011, Paris

©OECD Observer No 286 Q3 2011

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