Youth employment and labour market segmentation

Ljubljana, 19th June 2012

Baudouin RegoutAdviser, Bureau of European Policy AdvisersReporting to President Barroso

2.1 1.2

SOURCE: McKinsey Global Institute

AveragegrowthPercent

2009 PPP USD, thousands

2.2 2.2

50

45

40

35

30

25

20

020052000199519901985198019751970

The EU-15 has grown its GDP per capita (marginally) faster than the U.S. since 2000

2.6 1.32.1 1.9

2008

…Thanks to a faster job creation

Related to population growth

Shifts in age structure

3.3

Increased participation rates

1.4

Unemploy-ment reduction

0.3

Total job growth

EU-15

United States

2.112.1

5.3

Additional jobs, 1995–2008Million

SOURCE: McKinsey Global Institute

Percent

1-unemployment rateParticipation rate

▪ Reforms of employment protection and unemployed activation

▪ Senior participation support through financial and behaviour incentives for workers and employers

▪ Youth specific measures against unemployment

▪ Hartz reforms improving employment services, activating the unemployed and deregulating the labour market.

Reforms in specific countries shows ‘lump of labour’ is a fallacy

20071995

▪ Treu and Biagi reforms flexibilizing labour market

SOURCE: McKinsey Global Institute

Since, the crisis pushed unemployment back over 10%...

2005

2006

2007

2008

2009

2010

2011

2012

0

2

4

6

8

10

12

JapanEU US

%

• Unemployment rates in Europe and other countries

Unemployment has increased since the crisis, by more than 8 million compared to early 2008 to reach about 24.8 million today. Past progress has been lost.

Euro area

Source: European Commission

… with a disproportionate effect on young people, who had more temporary contracts

0

2

4

6

8

10

12

14

16

18

20

22

24

2005 2006 2007 2008 2009 2010 2011

EU US Japan

Youth unemployment rates in Europe and other countries (under 25 year-olds)

JapanEU US

%

Source: European Commission

Youth unemployment is very high in some countries

21.8

51.1

7.9

22.8

19.4

26.7

35.9

24.8

21.9

8.6

32.8

28.4

51.2

19.0

30.3

34.3

27.3

33.9

24.9

36.1

9.3

17.1

15.1

16.5

28.8

17.4

13.6

Malta

0 10

< 10

10 - 20

20 - 30

30 - 50

> 50

% of labour force

Youth unemployment rates (March 2012)

Source: European Commission

Risk of a lost generation?

5

10

15

20

25

30

Men Women Men Women

Between 20 and 24 Between 25 and 34

2007 2010

Share of young people not in employment, education or training (NEET) as a % of the age groups 20-24 and 25-34

20102007

%

Source: European Commission

Where to go from here?

• Short term: • Measures to fight the economic crisis, restore confidence,

lending, and boosting growth • Measures to ensure flexibility and protect employment in a

different way (e.g., temporary unemployment schemes)

• Long term: • Structural reforms work. That means a.o. ensuring flexibility

with a (reinforced when necessary) social net, education, active labour policies, etc.

Segmentation: are temporary contracts stepping stones or dead ends?

-40

-20

0

20

40

60

EU27 Austria Spain Poland

%

Wage-penalty adjustedTransition rate from temporary to permanent contractsShare of temporary workers (dark blue - involuntary)

Austria• Mainly voluntary• Stepping stones• Low wage penalty

Spain and Poland• Mainly involuntary• Low probability to

move to a better job• High wage penalty

Source: Eurostat EU LFS 2010, RWI study based on SILC, DG EMPL calculations on SES 2006

Labour mismatches and employment traps an opportunity not to miss!

66,5

77,5

88,5

99,510

0

2

4

6

8

10

12

Evolution of unemployment rateand labour shortages

Une

mpl

oym

ent r

ate

(%)Labour shortage indicator (%

)

Note: while unemployment was reaching very high levels, labour shortages started to increase again as of end 2009 (“Q” = quarter)

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

Unemployment rate Labour shortages

Some European countries have made large cuts in youth unemployment

Youth unemployment2004–08 average, <25 age

Change vs. 1998–1994Percentage points

+4.2 percentage points

SOURCE: McKinsey Global Institute

Decrease youth unemployment – the Dutch experience

▪ Launched in 2003 to tackle youth unemployment

▪ Aiming at offering each young person a training position or a job before six months in unemployment are reached

▪ Targeting the halving of young people leaving school without a starting qualifications

▪ Implemented with high cooperation between local actors (city councilors acting like ambassadors, companies, employers organizations, vocational school)

The Youth Unemployment Taskforce Experience

Labor market outcomes: youth (<25) unemployment rate evolution

8,28,0

5,35,96,6-34%

Overview and objectives Measures (examples)

▪ Youth development and experience raising positions (JOP): youth having received unemployment or social assistance benefits for more than six months can participate in an internship of three months during which trainees keep their benefit and get a wage of EUR 450 per month from the employer

▪ Work Fist Trajectories: projects in which those asking for social assistance are put to work directly, i.e. as soon as possible after submitting an application, in low paid subsidized jobs (as incentive to look for regular job). The non compliance can deprive of part of the benefits

▪ Tax reduction for providing contracts to apprenticeships

▪ O&O: employers can make use of their sectoral training Fund (funded from contributions from member companies’ wage Bills) to provide on-the-job training

▪ Invite to social partners to introduce pay for low-skilled young people at the level of the statutory minimum youth wage

▪ Creation of regional reporting and coordination centers (RMCs) for early school leave

2004

16,416,0 15,3

200807

14,7

06

15,7

5

-4%

SOURCE: McKinsey Global Institute

The EU opens up opportunities for young people

TRAIN: LEONARDOSTUDY: ERASMUS

WORK: EURES

710 000 people so far > 80 000 placements a year 86% find it beneficial

14Presentation of J.M. Barroso to the informal European Council, 30 January 2012

3 million students so far > 200 000 a year > 90% satisfaction

1.3 million vacancies 25 700 employers registered 100 000 jobs/offers a year

Guarantee job, educationor training for each young

person within 4 months of leaving school

EACH MEMBER STATE TO:

Re-direct EU Structural Funds to give priority to

youth unemployment

Agree with social partners to increase number of apprenticeships and traineeships

Use existing EU support schemes to facilitate

youth mobility (with EU and/or

top-up national funding)

Develop youth jobs plans by mid-April as part of

National Reform Programmes

Presentation of J.M. Barroso to the informal European Council, 30 January 2012 15

A “Youth on the move” Pact (1)

A “Youth on the move” Pact (2)

Presentation of J.M. Barroso to the informal European Council, 30 January 2012

WHERE YOUTH UNEMPLOYMENTIS SIGNIFICANTLY ABOVE EU AVERAGE:

Action teams with Commission,

Member States & social partners

to develop youth jobs plans

Use of unallocated EU Structural Funds to fund

training and work experience