Youth Unemployment in the EU: Facts and Fiction

by Henri Erti. Originally published on 2013/09/22

“The Youth Employment Initiative” proposed by both the European Council and Parliament has been declared as another necessary program to adjust the instabilities in the EU labour market. Specifically such program would guarantee quality employment for the youth and assist in developing the skills demanded in the highly competitive labour markets. The problem of this initiative is the fact that the alarming youth unemployment numbers are largely exaggerated. Therefore, statistical cherry-picking has generated inefficient governmental policies based on shaky empirical fundamentals.

Instilling Fear

Daniel Gros argued in his Project-Syndicate column that the youth unemployment statistics are misleading for several reasons. First, measuring unemployment itself can be a confusing procedure because a distinction of the actual labour participation rate from the unemployment rate is an ambiguous process. Currently the youth unemployment rate includes people between the ages of 15-19 and 20-24. However, the majority of the people in the first age group are in school and would not be contributing with their low skills to the labour force regardless. The second subgroup of ages 20-24 consist a high number of people pursuing higher education and working in part-time jobs. Consequently de facto labour participation rate among these two subgroups is far less than the fear mongering media suggests. In other words the percentage of unemployed young people looking for work (ratio) is smaller than the more visible rate of unemployment. Gross aptly noted that a 50% youth unemployment rate does not mean that half of the youth is out of work. Instead, we must examine the ratio of labour-market participants and contrast such variable with the overall population of that age group.

Politically Unprofitable Numbers

The youth unemployment numbers from Spain (48.9%) and Greece (49.3%) have been in the headlines for quite some time. Although such numbers at first sight appear alarming, we must have a more comprehensive understanding and presentation of the facts. The Eurostat reports both unemployment rate and ratio per country basis, but the largest attention in the public domain has been given to the rate measurement. In fact, the youth unemploymentratio in Spain is 19% and in Greece 13%. Although such ratios are nothing to brag about, the difference from the rate is strikingly large. Naturally these numbers do not serve any effective purpose in political rhetoric or mass riots; such low youth unemployment rates would hardly justify additional public spending programs. Or so one would expect. By magically printing €6 billion to fund a program, which “would particularly support young people not in education, employment or training”, the Youth Employment Initiative is supposedly an ambitious and crucial step towards a more effective and dynamic labour market in the EU. Unfortunately great and noble intentions do not guarantee great results.

Who Creates Jobs?

With incorrect data on unemployment and distressed voters, the youth unemployment  question has become a cause célèbre for many European governments. Attracting votes with dubious promises, rent-seeking politicians have successfully lured us to believe that it is the governments’ responsibility to create jobs at the expense of the private sector, which has failed us. Demanding more public spending to create “quality” employment for the youth certainly attracts younger voters to support the growth of centralization. Shockingly to many young people, such previously unthinkable and radical policy proposal has become a completely sensible and popular principle of government existence. We mistakenly blame the private sector for its inability to provide economic growth even though the root of the problem is governments’ intervention to the markets. The very same applies to labour markets. Through price-controls, minimum wages and labour unions the job markets are becoming increasingly inflexible and unsustainable.

The Engine of the World

If youth unemployment developed to a real acute issue, we should not run to the government to seek solutions with inaccurate data. We need to remind the government to stay out of the labour market. Job creation is not the governments’ duty. Furthermore, entrepreneurs are not obligated to create jobs for the sake of public welfare; the only responsibility of business owners is to create maximum amount of profit. Additionally, private production, hence entrepreneurship is a private choice and not a public or moral duty. Businesses and employers do not owe us a job on the basis of our needs, which we wrongfully proclaim as natural entitlements. We don’t deserve a job so long as we cannot prove our actual value in the highly competitive labour market. Nobody deserves a job, but rather earns an opportunity to work. Sadly, such thinking has been replaced with a  dangerous attitude of “something has to be done by somebody, but not me”. Quite frankly, EU countries have a great deal of unfilled vacancies in various sectors. The problem is not the lack of open jobs, rather a lack of people wanting to accept such jobs. The thinking that a person is too good for certain jobs is one of the underlying reasons for the persisting economic downturn. As the saying goes, there is no such thing as a lousy job-only lousy men, who do not care to do it.

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