Brian Burkett of Heenan Blaikie explores the impact of and solutions to unemployment among the under 25 year olds in Canada.
The economic and financial crises that began in 2008 initiated a dramatic rethinking of basic regulatory frameworks at the state and international levels. Financial regulation, so-called macroprudential regulation and even the law concerning white-collar crime, among other areas, have received significant attention in the intervening years, and to varying degrees they have been reformed.
The law and policy underlying employment and the labour market have received, in relative terms, less attention. To be sure, there has been a huge amount of discussion regarding the need to “create jobs” and revive struggling economies. However, there has not yet been much discussion as to the employment law and policy challenges that we now face, or whether those challenges warrant a reassessment of the status quo.
Perhaps as a result, the growing youth unemployment crisis is only now becoming a subject of discussion in this regard.
At present, the number of unemployed young people (between the ages of 15 and 24) around the world is unprecedented – and growing. The potential consequences of this are profound: not only does unemployment have an especially destructive and long-term effect on young people as individuals, but, as a pervasive societal problem youth unemployment threatens to derail our basic expectations as to how an individual obtains his or her first job, builds a career and then retires. In particular, it is far from clear how many governments will be able to bear the substantial cost associated with the coming retirement of the large over-60 generation, and particularly if the relatively smaller cohort of young people today are unable to find meaningful work.
In short, today’s youth unemployment crisis calls upon us to urgently consider the legal, social, and economic underpinnings of the global labour market, and to consider how it can be reshaped to provide employment opportunities for our youth.
WHAT IS THE PROBLEM?
The sheer number of unemployed young people today is striking. In a report published in October 2011, the International Labour Organization found that there were approximately 75.1 million young people struggling to find work around the world at the end of 2010. This reflects both a dramatic and unusual increase in youth unemployment over the course of the financial crisis: while the average increase in global youth unemployment between 1997 and 2007 was less than 100,000 persons per year, the number of unemployed young people skyrocketed by 4.5 million between 2008 and 2009.
The countries that have been especially hard hit by the financial crisis have seen particularly remarkable youth unemployment rates since 2008. At the end of 2010, the unemployment rates in Greece, Italy, and Spain stood at 32.9 per cent, 27.8 per cent and 41.6 per cent respectively. Notably, it is likely that these unemployment rates significantly under-report the actual extent of youth unemployment due to the fact that they do not account for young people who have “dropped out” of the labour market due to their inability to find work. With respect to Ireland, for example, the ILO believes that the “actual” youth unemployment rate in 2010 was approximately 19 per cent higher than the official rate of 27.5 per cent.
It must also be emphasised that unemployment rates do not tell the whole story. For instance, between 2007 and 2010 the number of young people working in part-time employment surged in developed economies across Europe. Also, in Canada, Denmark, the Netherlands and Norway, approximately half of working young people were in part-time employment at the end of 2010. While part-time employment is not, in itself, necessarily indicative of underlying problems in the labour market, the ILO has found that the magnitude of the recent increase in this respect strongly suggests that young people are falling into part-time work because it is the only option available to them. As noted above, a similar and equally worrying trend is that a large number of young people appear to have chosen to stop looking for work and drop out of the labour force altogether due to their inability to find meaningful employment.
While it is clear that youth unemployment has increased dramatically as a result of the economic downturn that began in 2008, it would be a mistake to overlook the fact that young people in many regions have faced persistent barriers to participation in the workforce for some time. In a number of countries in the Middle East and North Africa, for example, approximately one in four young people have been unemployed for the entire 20-year period that labour market data has been collected in those regions. Somewhat similarly, a large number of young people in South Asia and sub-Saharan Africa (and other regions) fall within the category of the “working poor”, and have since well before the current global downturn.
It is also clear that young people in countries that navigated the downturn relatively unscathed are suffering. In Canada, for instance, TD Economics recently reported that more than half of the 430,000 jobs lost during the recession were occupied by young people – despite the fact that they accounted for only 16.5 per cent of the labour force. Moreover, youth employment has only increased by about 1,300 net jobs since the end of the recession, in contrast to the increase of approximately 400,000 net jobs for workers over the age of 25.
Considered together, these figures reflect a simple yet disturbing fact: a growing number of young people around the world who want to work cannot find a job.
WHAT ARE THE CONSEQUENCES?
The profound negative consequences of the youth unemployment crisis arise from the fact that, as the Harvard economist David E Bloom has noted, the world is relying on today’s young people to create global economic success and human security in the future. It seems unlikely that they will be able to fulfil this role in the face of the individual and societal effects of youth unemployment.
Indeed, the observed effects of unemployment on young people are varied, and go far beyond the obvious immediate financial strain that unemployment can cause. A number of studies have found, for example, that unemployment leads to increased incidence of depression and stress, and that it is linked to lower life expectancy and poor health later in life. There is also evidence that unemployment early in life can significantly reduce an individual’s future economic opportunities: not only is there a correlation between periods of unemployment early in an individual’s working life and reduced future earnings, but Japan’s “lost decade” demonstrates that young people who endured unemployment or underemployment during a prolonged economic slump may ultimately be passed over by employers in favour of new graduates when the economy eventually recovers. This is one of the many lifelong “scarring effects” that youth unemployment can have at the individual level.
The broader socio-economic effects of youth unemployment are at least as concerning. Indeed, there have been several widely reported incidents in which British, Greek, and Italian youth expressed their collective discontent through violence. As the ILO has noted, this was likely a manifestation of the growing distrust of political and economic institutions that is resulting, at least in part, from a persistent lack of economic opportunities. The Economist has also recently argued that there is evidence that strongly suggests that youth unemployment leads directly to an increase in crime.
Looking to the future, we must also ask what effect youth unemployment will have on our ability to finance the public pension and other social benefit schemes currently provided by many governments. As populations age around the world, relatively fewer workers will form the tax base responsible for a relatively larger cohort of retirees. This “demographic shift” will place a greater burden on public finances throughout the world. Indeed, the OECD has projected that public spending on the areas most affected by an ageing population – pensions, health care and long-term care – will grow faster than the economy in most OECD countries.
On top of this, “baby boomers” in many countries are staying in the workforce past the traditional age of retirement. In fact, a recent study of the Canadian labour market concluded that workers over the age of 60 had “stampeded” into the workforce in recent years. The need to compete with a greater number of older, more skilled workers is yet another barrier for many young people trying to find employment. More broadly, the sense that the existing order of social and economic institutions is working against younger workers, and in favour of their older counterparts, may lead to a destructive breakdown in notions of “intergenerational equity.”
Considered together, the foregoing suggests that today’s youth have relatively fewer opportunities to enter the workforce than their parents, but will nonetheless be expected to shoulder the increased public burden associated with assisting them in old age. Viewed from economic, social, and political perspectives, it appears that this status quo is unsustainable.
WHAT CAN BE DONE?
The root causes of the youth unemployment crisis are varied and, to some extent, the subject of dispute. What is certain, however, is that employers, governments, and supranational institutions must take action immediately if the worst consequences of youth unemployment are to be avoided. Accordingly, it is reassuring that a tentative consensus appears to be emerging at a high level as to how employment opportunities for young people can be improved.
At the labour market level, for example, there appears to be a general consensus that a “mismatch” has developed between the needs of many employers and the skills of recent graduates. Indeed, some countries have recently experienced simultaneous unemployment increases and labour shortages, and particularly in sectors or workplaces that rely on new technologies. In light of this, there is an emerging recognition that emphasis should be placed on creating and promoting apprenticeship and similar “practical training” opportunities for youth, and that employers and workers’ representatives must be involved in formulating and implementing these programmes at the local level.
There are also increasing calls to reconsider the nature and scope of the legal protections that some long-service employees presently enjoy to ensure that those protections do not effectively deny young people the opportunity to enter the work force. For example, in a recent policy note the OECD and ILO argued that the drastically different levels of legal protection afforded to “temporary” and “permanent” employees have made employers reluctant to hire young people, and have also made it difficult for young people in temporary positions to transfer to stable, long-term employment. More specifically, because it is relatively difficult (and costly) for employers in some jurisdictions to dismiss employees on permanent contracts, some employers will only consider hiring new employees on a temporary basis, if at all. Thought must be given to how legal protections of this nature can be modified to ensure that young people are not inadvertently left out of the work force.
At a more fundamental level, we should also question whether the existing legal, economic, and policy framework underlying employment treats young people fairly. Perhaps most urgently, we must consider how we can rebalance the various entitlements and burdens that presently exist to ensure that younger and older workers share equally in the benefits that can be gained from stable and rewarding employment. If we are unable to provide global youth with meaningful opportunities in this respect, it seems likely that we will face even greater, and perhaps insurmountable, challenges in the future. The time for action is now.