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IMF and ILO: young people at greater risk now than during previous crisis

| Text: Björn Lindahl

The current economic crisis has hit young people harder than previous crisis. Youth unemployment usually rises fast in an economic downturn, but this time it has risen by 6.5 percent compared to an average 4 percent during earlier downturns.

These figures were presented in Oslo in September in a joint report written by economists from the currency funds, the IMF and the International Labour Organization.  

Statistics were collected from the eight countries with the longest running statistic on youth unemployment, but covers the whole of the OECD. Germany and Japan have been excluded as two countries which have managed to keep youth unemployment under control. 

Youth unemployment has risen most in Spain. Between 2000 and 2008 it was 22.5 percent, but has now hit 38 percent.

ILO tabell

15 to 24 year olds are at greatest risk of becoming unemployed. That risk has risen over the past few years depending on which country you live in, your education and sex.

Becoming unemployed has greater consequences when you are young. Unemployment doesn't mean simply a shorter period of time with reduced income. 15 to 20 years after a downturn, people who lost their jobs and later found employment might still take home 20 percent less pay compared to those who didn't loose their jobs.

Generational consequences

Unemployment affects even the next generation. Children of unemployed parents do less well at school. There's a 15 percent increased risk of them having to redo a school year. A Canadian statistic showed children of fathers who became unemployed had a 9 percent lower income when they grew up compared to children of fathers who did not become victims of cuts. 

The report calls the economic crisis The Great Recession. It deals with it in three main areas:

  • Unemployment benefit has been the most important tool to limit the effects of the crisis. The unemployed rarely have any savings, so all support will be spent which again helps keeping demand up. Because of the support, people can spend more time and energy on looking for work which fits their qualifications. No other measure hits the nail on the head like unemployment benefits. 
  • Many countries have tried to cut taxes to keep up demand. If these are put back up it might undermine the recovery. Five countries - Japan, Greece, Iceland, Italy and Portugal - are already beyond what the International Monetary Fund considers a safe level of public debt. The US, UK, Ireland and Spain are perilously close to the limit.
  • Active labour market policies can prevent businesses loosing labour which they will need when the downturn ends. They can also speed up the recovery. Lowering taxes for businesses that employ more people is a good way of sharing the burden between those who have a job and those who haven't. Yet countries must be careful not to give too much support which could put off necessary adjustments to the labour market. There is always a risk of granting support to create jobs which would have been created in any case.

How to handle the crisis

ILO and economists from the currency funds give this advice on how to handle the crisis over the coming months:

  • No tax increases before 2011 in countries which can afford it. It could damage the recovery which is in its infancy.
  • Countries must not compete on salary levels. Exporting countries could strengthen their competition by doing it, but the risk is that all other countries follow suit which could lead to deflation - i.e. a drop in prices and salaries. When necessary, reduction of salary levels should only happen through collective agreements.
  • Continue labour market measures, but gradually reduce them. Support should mainly be targeted at building skills among people who've lost their jobs. Creating too many temporary jobs could lead to a permanent division of the labour market into two camps with widely different salary levels. 

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