Regional Focus: Youth unemployment remains high in Western Europe
The economic downturn in Western Europe over 2008-2009, following the global financial crisis, caused rising unemployment across the board, but is particularly severe amongst young people aged under 25 who lack the experience and expertise to compete successfully for job vacancies.
Spain, Italy, Ireland and Greece are the worst-affected countries in the region, with the impact affecting consumers and companies. Youth unemployment is likely to remain high in 2010 and 2011.
- EU statistics estimate that total unemployment in the eurozone was 10.0% in March 2010. Unemployment in Western Europe was 9.4% in 2009 compared to 7.4% in 2008, with companies making lay-offs or freezing recruitment due to the economic recession;
- However, youth unemployment (defined as a percentage of the economically active population aged 15-24) is much higher than the average. EU statistics report that it was 19.9% in March 2010 in the eurozone and 20.6% across the EU-27;
- The highest rate of youth unemployment in Western Europe was in Spain, at 41.2% in March 2010, where industries such as construction have undergone a severe downturn. The Netherlands had the lowest rate of youth unemployment, at 7.4% in March 2010, due to a more shallow economic recession and government policies on youth education and training;
- Youths are bearing the brunt of unemployment as they lack the skills and experience to get jobs. Some companies are encouraging shorter hours and work-sharing instead of making redundancies, limiting the potential for new jobs. The impact includes a higher likelihood of crime and psychological damage amongst youth. It also affects companies whose prime market is young people, given that higher youth unemployment means lower average incomes and spending power;
- Prospects for youth unemployment in the short-term are gloomy, particularly as public-sector jobs are likely to be cut in many Western European countries to help reduce government debt levels. Many governments have plans to create more jobs for young people, such as vocational training or providing incentives for companies to hire more staff, although high public debt will limit funding.
|% of labour force aged 15-24|
Source: EurostatNote: Greece latest data refers to December 2009.
- Spain has the highest unemployment rate amongst youths in Western Europe, at 41.2% in March 2010 compared to 36.3% in March 2009. The country’s real GDP contracted by 3.6% in 2009 and is expected to shrink by 0.4% in 2010, causing job layoffs, company failures and recruitment freezes. The situation is particularly bad because of the sharp downturn in the construction and services sectors, but also because of Spain’s two-tier labour system whereby a large proportion of workers were on temporary contracts that were not renewed during the economic downturn;
- In Germany, the largest economy in Western Europe, youth unemployment remains below the eurozone average. It stood at 10.0% in March 2010, having fallen from 10.1% in the previous month. This was attributed to better than expected job creation in the construction and tourism sectors, as well as a government-led programme for short-term flexible work;
- In the UK, national statistics estimate that the number of 16-24 year-olds out of work rose from 925,000 to 929,000 in December 2009-February 2010 compared to the previous three months. Unemployment amongst 18-24 year-olds was 17.7%, an improvement on 18.2% in August-October 2009;
- Although EU statistics on Greece only reach December 2009, when youth unemployment was estimated at 27.5%, the economic situation in the country in 2010 following an EU/IMF bailout amid the government debt crisis is likely to cause much greater unemployment. Greece has a historic trend of high youth unemployment owing to rigid labour markets, a high minimum wage and a skills mismatch in the economy;
- The Netherlands has the lowest youth unemployment rate in Western Europe, at 7.4% in March 2010, although this rose from 6.3% in March 2009. This may be due to government policy, which only provides benefits to young people who are in education or training, and not to those who are simply actively seeking work.
Impact on young consumers
- The most direct impact of high youth unemployment is lower average incomes and spending power amongst 15-24 year-olds. This implies lower spending on non-essentials and has other effects, for instance encouraging more people to stay living with their parents instead of creating new households;
- Rising numbers of young people in Western Europe are choosing to return to, or continue their education instead of seeking jobs. This should increase the skills and qualifications of the workforce and boost future income potential: in 2009, a Western European consumer with a tertiary education earned an average annual disposable income of US$38,840 compared to US$26,543 for someone with a secondary education and US$16,022 for someone with only primary education. This does however place greater strain on educational resources and risks having an ‘overqualified’ workforce with higher salary expectations in the future;
- Mass youth unemployment also has important psychological effects, for instance by increasing the risk of depression, lowering confidence and creating a ‘lost generation’ of workers who grow up with poor job prospects. It also increases the risk of crime, harming the business environment.
Impact on companies and government
- In general, 15-24 year-olds account for an important proportion of income (and therefore spending power) in Western Europe. In Germany, they accounted for 12.4% of total annual gross income in 2009. In Turkey, which has a higher proportion of 15-24 year-olds as a percentage of the total population, the figure was much higher at 19.8%;
- The youth demographic is an important consumer market, especially for sectors such as entertainment or clothing and footwear. Lower average incomes and spending in this group could have a serious impact on certain companies;
- Other businesses, for instance those in the educational or training sectors, may benefit from increased demand from young people. Moreover, lower budgets amongst young people will benefit companies offering low-range or essential goods and services;
- For governments, high youth unemployment effectively means lower income tax revenues and increased expenses through benefits. It also increases the risk of crime and ill health, all of which place strain on state resources at a time when many Western European governments are preparing to make major spending cuts to tackle debt levels.
|% of total gross income|
Source: Euromonitor International from national statistics.
The onus to reduce youth unemployment has fallen on governments and regional authorities:
- In May 2010, new EU legislation on social security came into force, designed to make it easier for EU citizens to move from one country to another in search of work, for instance by allowing temporary worker registration and enabling job seekers to claim six months of unemployment benefit in another EU country, instead of the three months previously allowed;
- Many countries, for instance Germany and the UK, are attempting to place greater importance on vocational and training support for young people, as well as provide more apprenticeships to young school-leavers;
- Many governments also offer incentives for companies. In the UK the government offers ‘golden hellos’ for companies that employ someone who has been unemployed for more than six months. The EU also wants to give greater flexibility to companies in terms of contracts and terms;
- However, these efforts are likely to be made difficult by the parlous state of government budgets in the region. For instance the IMF expects Italy to have a general government gross debt equal to 118.6% of GDP in 2010, while Greece’s is estimated to be 133% of GDP. Many countries plan to make significant spending cuts, hampering the speed at which youth employment can recover and public-sector job cuts in the short-term may cause the situation to deteriorate.
Overall unemployment in Western Europe is forecast to rise to 10.7% in 2010 and 10.5% in 2011, with youth unemployment also likely to increase. Severe public-sector cuts, expected in countries like Greece, will worsen the situation in the short-term, although the wider economic recovery in Western Europe (real GDP growth is forecast to be 1.8% in 2011 compared to 1.2% in 2010 and -4.1% in 2009) should create more private-sector jobs.
In 2010 in Western Europe, unemployment will continue to be worst in Spain (20.2%), Turkey (15.7%) and Ireland (14.6%), and most moderate in Norway (3.6%) and Switzerland (4.8%). Governments intend to take a range of measures to boost employment: Portugal, for instance, says it will offer €2,500 for employers who take on staff aged under 35, and exempt them from paying social security contributions for two years, while Italy has made additional use of a special fund which pays 80% of the salaries of workers who have been temporarily laid off during an economic downturn.
For younger consumers, the situation is likely to remain difficult for at least the next three years, while companies targeting the 15-24 demographic will see weak spending power in this group. However, there will be opportunities for companies offering low-priced products and services and also in niche areas such as education and training.