Young people entering the labour market today face the daunting task of first finding decent jobs and then keeping them when they do. Unemployment rates are on the rise again as are informal, temporary and other non-standard forms of employment. Indeed, two out of every five young women and men worldwide are unemployed or working but living in poverty.
So how can we turn these trends around? That’s a question I and other authors seek to answer in a new ILO publication: Rising to the youth employment challenge: New evidence on key policy issues . The book, the latest of a series that the ILO has produced in recent years on youth employment trends and policies, examines new evidence on measures to promote youth employment, ranging from the growing trend of micro-business start-ups to the success of macroeconomic policies.
The book’s analysis demonstrates that governments can effectively intervene to boost youth employment and reduce youth unemployment through action taken at the macroeconomic level. Expanding public expenditure, for example – through the introduction of large scale subsidised employment and training programmes – is a useful policy tool to promote youth employment during lows in the economic cycle.
To be effective, however, government finances have to be in relatively good shape. Thus, when recession arrives, fiscal expansion should be implemented immediately, before the economic downturn itself leads to a significant worsening of the budget balance. An example of such an approach is the Youth Guarantee programme, which was introduced in the European Union in 2014. It is intended to provide young people, who are neither working nor in education, with quality education, training or work. The Youth Guarantee is by its nature countercyclical, expanding during lows in the economic cycle when youth joblessness tends to rise.
Subsidising firms to stimulate youth employment
Programmes such as the Youth Guarantee, which include subsidies to companies that hire young people, can be effective in stimulating youth employment.
However, design is key. Evidence presented in the book clearly shows the importance, for the long-run effectiveness of wage subsidy programmes, of incorporating elements that promote the formal or informal acquisition of employment-related skills and competences by young participants. Programmes need to last long enough to allow young participants to develop job-related competences and to “prove themselves” in the specific work environment. Moreover, subsidies have to be sufficiently generous to make them attractive to companies. To be efficient, they should target specific groups of young people – for example, those at risk of becoming long-term unemployed. And even more importantly, they should prevent existing workers from being replaced by newly hired and subsidised young people. Such wage subsidies are particularly effective during periods of recession when labour demand is low.
Do minimum wages significantly reduce youth employment?
The short answer is no: a careful review of the evidence shows that – in the overwhelming majority of cases – minimum wages have little or no negative effect on youth employment. Moreover, the potential discouraging effect can be reduced by strengthening employment protection legislation. The relevant question here is not so much whether we need more or less regulation, but how we combine different labour market institutions effectively.
Another important message emerging from our analysis concerns the need to focus on the promotion of quality self-employment and entrepreneurship. While turning to self-employment is often a coping mechanism for individuals and families lacking alternative opportunities, it is by no means a universally negative option. It is also clear that entrepreneurship programmes cannot on their own meet the challenge of promoting decent work for young people; nevertheless, they can constitute a useful complement to other active labour market programmes such as wage subsidies and training.
In high-income countries, the path to work for young people often involves temporary jobs and/or internships which are frequently unpaid. In low and middle income countries, three out of four young people are informally employed with no access to the employment related protections and benefits that formal workers take for granted; no access to unemployment benefits, pensions or health insurance. For highly-educated young people, temporary or informal jobs can be a stepping stone on the path to better-quality work. For others—particularly those with low levels of education—it is all too often a trap.
Our analysis shows that smarter labour policies can help to avoid that situation. For example, active labour market programmes can play a key role in formalising employment; public financial support for wage- and/or self-employment made conditional on legal registration of such employment can make formal work an attractive option for both young people and companies.
Article by Niall O’Higgins, ILO Senior Research Specialist, Youth Employment Programme
Source: ILO Newsroom