Unemployment among the Young

Unemployment among the young is something that has been under-discussed in the debate so far. For example, in about a month from now, the first of this year’s college students will start finishing up in Ireland. Last year the numbers read approximately 20,000 undergraduates each from the Universities and IT’s, 13,000 postgraduates from the Universities and approximately 2,000 from the IT’s. Thus, with the assumption that this year is the same as last year, there will be about 40,000 undergraduates and 15,000 postgraduates coming out of college and its past time to start a debate about policy for this group. Given that there is currently a public sector embargo on hiring and private sector hiring is so weak, the options for a lot of this year’s graduates do not look good. My guess is that over half the undergraduate students will go on to postgraduate but the insustainability of this as an employment response should be obvious if the labour market is not set to recover for the next few years.

HEA Stats

The recent budget packages are essentially a combination of back-to-work incentives, training schemes, incentives for training, extra third level places and so on. The total budget allocated for these measures is 128 million and they look like a very partial response at best, albeit a start.

Budget Jobs Response

Bell and Blanchflower released a paper earlier in the year that is a must-read for any policy-maker who reads this blog and is interested in developing policy to immediately rectify unemployment among young people. The article stresses the importance of not allowing young people to enter into early periods of unemployment and the potential long-run economic and psychological costs of not acting. It offers proposals such as job-sharing, mandatory training/schooling until age 18, development of “shovel-ready” labour intensive projects and so on. I think that we urgently need a policy document from a selection of government departments on how a package of such proposals could be rolled out, given the current budgetary constraints. I know many on this blog may argue that pricing ourselves back into international competitiveness is the only sustainable employment response, but in an environment with such low global demand it would be foolish not to think of urgent active responses for both graduates and non-graduates.

Bell and Blanchflower Article

19 thoughts on “Unemployment among the Young”

  1. I skimmed the B&B article and didn’t find the solutions summarised a good idea. “Job sharing” merely spreads the unemployment and doesn’t provide the necessary downward pressure on wage rates. Keeping the young’uns in school until 18 will make a nice impression on unemployment figures, but that’s about it.

    More importantly, the purpose of jobs is not to forgotten. They don’t exist to give people money or to give people something to do, but rather to satisfy consmuers’ desires. If they aren’t doing that, what’s the point?

  2. Jobs for young people have many purposes including training them. Its simplistic to say that every job needs to be about making a widget that someone will use immediately.

    The school-leaving proposal certainly would need to be debated fully before being brought in here. You have dismissed it immediately on the assumption that these kids are probably making a rational decision to drop-out and to keep them in wouldnt add to their labour market chances. Indeed, if these are disruptive kids or simply uninterested in the type of training available to them, they may even do damage to the prospects of the other kids. Previous evidence on school-leaving age increases (colm harmon has done these for ireland and england) tend to be positive toward them but these largely refer to raising it at younger age-groups. Colm, or someone else, may be better placed to assess the effect that something like this would have here. They are not proposing a pure RoSLA (raising of the school leaving age) anyway, but instead that all under-18’s would be in schooling or training.

    What’s your opinion on the best response to unemployment among 18-30 year olds in Ireland Matt – is downward wage pressure the only response and can this group even affect that given the current economy? Even in the framework you talk about, is there not a role for incentive packages for start-up firms and so on? Should we not even debate the role that groups like DETE, Entreprise Ireland and so on might play? Should we ignore potential reforms of public bodies charged with policy in these areas?

  3. I really like the B&B article – the real point of course is that at least someone is thinking about this stuff. The raising of the schooling age helps those that value education the least often for irrational (or inherited) reasons -so work as a policy on the population they are intended to target. And as Liam notes the plan is actually to minimise the numbers of NEETS – not in education, employment or training. Remember also that welfare policy in the UK tilted years ago to ensure that major disincentives exist to early drop out to NEET status so this is quite ‘joined up’. Interestingly, Matt, you also depress wages as you are holding a cohort out of the market and then releasing them later – raising labour supply for that cohort and hence lowering the price in that labour market.

    The key point in response to Liam’s post in my view is that the depression – mental and in long term earning capacity – is much greater on the young than on the older workers. If we let the graduate labour market tank we will regret it for a generation.

  4. i read in the papers recently that 1 in 8 people under the age of 24 are on the dole. those kind of stats do more that concern me about unemployment, i think the social cost – if the situation isn’t rectified – will be massive, and that’s before looking at the contribution this age bracket have to spending, revenue raising and labour output.

  5. I’m finishing up my degree in June and I’ll be off to UK in September to study more. Most of my friends are moving too. Most are seeking work, a lot are doing postgrads, and a small few are off traveling for a year.

    I know a lot of people who graduated engineering last year. As far as I know only a tiny fraction (<10%) are employed now. They’re especially disillusioned as engineering was sold to our generation as the best course possible in terms of employment prospects.

    It’s an interesting trade-off. If the govt does engage in employment stimulus (whatever that may be), should it target the middle-aged, who likely have dependents, or the young, who likely are dependents…

  6. I’m a final year student as well and its shocking how many of my peers have accepted going on the dole next September. I had convinced myself that somehow this generation was a bit more ambitious than my parents’ generation but sadly that doesn’t seem to be the case.

    The thing about an employment stimulus for post-grads and other young folk is that it would probably be much cheaper – people my age would be happy to work for €300 a week post tax, whereas an employment stimulus targeted at the next generation up would probably work out at a higher rate per person

    Its just had figuring out what to do with 20,000 Arts Students :/

  7. Folks, you really need to connect the circuit. You educate and train young persons ’cause you need em’. So what is the ’cause?’ Please think this through very carefully. It is neither simplistic nor intuitive. The answers are very unpleasant indeed.

    The authors articulate a very uncomfortable truism – we have too many people and not enough to occupy them. Simply put, supply significantly exceeds demand – and will do so for a very considerable time period. This raises the spectrum of generational ‘unemployment’ or should that be ‘under-employment’ – whatever! We need (or maybe we should consider) an alternative economic model – and this is not about to pop up any time soon. Internal resistance and inertia is too great.

    I get a state ‘salary’ – well a pension actually – so I am able and willing to work at any suitable employment that my age and experience would suggest that I could engage in – without any extra remuneration. This is part of the new economic Model-in-Use – a model that we either fashion to our needs or we have thrust upon us by force – not physical force, but the force of the mathematical law of exponential functions.

    I am in daily contact with college students. They (mostly) are living in some sort of fantasy-land. When they realize the truly awful future they face they are going to be very angry indeed. At that point I believe that removing to a remote and secure location might just be a good career move. As I said at the outset, please attend to the circuit.

    Brian P

  8. Perhaps I should have been more constructive rather than critical in my opening post.

    Liam,

    Yes, I suppose public institutional reform could occur. I didn’t conside any potential governmental solutions to the problem, as I know that any government intervention only deepen the depression. But yes, the government could stop punishing young endogenous businesses. That would be fine.

    Colm,

    While releasing a whole load of young people at school at once would sufficiently affect wages, why wouldn’t releasing those young people gradually have the same effect?

  9. Matt says: “…as I know that any government intervention [will] only deepen the depression.”

    I’d really rather if the guys from the Irish Liberty Blog didn’t espouse their evidence-lite claims on intervention whenever the word “government” is published on this blog.

    It is simply not true that “any” government intervention will deepen the depression. There isn’t a lot of evidence that large fiscal stimuli work; fine. However there is no shortage of evidence that small tweaks in mechanisms can have huge impacts that simply do not fit with any theory of rational agency, such as Thaler & Sunstein’s example of automatically enrolling workers into (and allowing easy opt-out) pensions schemes rather than simply allowing them to opt-in. Inertia is endemic, and governments may help move these things along.

    As for those of us entering the labour market, things truly are savage out there. I am entirely biased in this regard but if the state is offering €200 for every kid joining The Queue, I see little reason why it could not offer a scheme for the universities to pay €300 per week for year-long research assistantships for, say, 2500 graduates. Total additional cost = €13m.

  10. Although this is going off track, there is a whole load of evidence that “any” government intervention will deepen depression. Eg. keeping wage rates and prices up, continual inflation, promotion of consumption over savings, increased taxes, prevention of liquidation, etc.

  11. No, Matt.

    They are all fine examples of how *most* government intervention will deepen depression. I did not dispute that. Your assertion that “any” action will deepen depression is just not true.

    For example, suppose there is an optimal level of saving in an economy (and most economists think we don’t reach that point.) You seem to imply this yourself when you list “promotion of consumption over savings” as a bad thing. Then government encouraging saving rather than consumption would be a good thing; unless you assume that the rational agents of the free market save optimally. Thaler and Sunstein’s simple example shows that this is a big assumption. Not quite as big as assuming that any government action will make things worse, but almost.

  12. I see what you’re getting at. Fine, government intervention will only deepen recession if it persues bad policies (eg. increased spending, taxes…). Unfortunately for us, bad policies include the expansion of government intervention 🙁

  13. Not only will a big policy response to this issue fail on efficiency grounds – for the reason such responses invariably fail on efficiency grounds – but more to the point it would fail on equity grounds too.

    Graduates, particularly those coming out of the haze of heavy drinking that is Irish third level, are the people least in need of, and least deserving of, a hand-out.

    Indeed, efforts to insulate them from the vagaries of the real world will likely hinder competitiveness down the line.

    Let them fix up a used lawnmower and cut people’s grass – that will teach them humility and imbue them with a spirit of enterprise, instead of perpetuating the myth of entitlement which is the saddest legacy of the Celtic Tiger.

  14. Perhaps if the government weren’t spending so much money on high paid public service pay, administrators in the HSE who do nothing, etc., etc., there might be some money spare to help businesses hire young people (but I doubt it). I suspect the reality is that we can do nothing until we get our own house in order. The more we impede the market correction the longer people will be unemployed.

  15. Graham – Fine to disagree with intervention and it would be an interesting debate if you could summon the energy to comment sensibly rather than vent a prejudice about students.

    Brian – to be quite honest most of the students I teach seem a lot more connected to the reality of the current situation than your comments would suggest you are. “truly awful future” – you and I clearly differ in our meaning of the word ‘awful’. if being healthy and well-educated and living in a democracy is “truly awful” even if incomes are going to be lower, then we have certainly lost the run of ourselves.

    Andrew’s comments are entirely sensible. Utilising existing institutions to perform a “bridging function” such as internships and work placements is worth debating.

    In the meantime, if anyone would like to address the substantive point, I am happy to talk.

  16. Ciaran – your point is of course correct in some sense. Western society is hardly satiated with respect to consumption. We still have huge latent demand for education, healthcare and so on. One solution for the Irish situation is to get the stock of public spending to whatever level is neccesary, and to get pay down and increase the hiring of skilled workers. This relates to Ronan’s earlier post. More teachers, doctors, university lecturers and so on but paid less. At present, we have shut the public labour market down and not adjusted salaries anywhere near the size of the financial collapse. One of the main groups then getting absolutely whacked are young people trying to break into the labour market. Graham may think its optimal for these guys to “cut the grass” but I am sure that if he could speak articulately for a minute he means that a transfer from public to private sector might help. For example, transferring money from public sector pay to entreprise start-ups or simply tax incentives is an option that should be debated. There are a whole range of tax, welfare, direct stimulus packages and so on that should be debated before we adopt the Tidy Lawn initiative.

  17. Thanks John – I should have mentioned this event in my original post. It will be very interesting to see how the speakers address graduate unemployment in Ireland and also address the low global demand that was less prominent in previous waves of Irish unemployment. We simply have not had mass graduate unemployment before, particularly in a context where migration is not an easy option. I do not accept the arguments made by some of the commentators that this is not an issue. The Bell and Blanchflower paper cites a large body of literature suggesting a causal effect on longrun outcomes of short run unemployment spells. To be fair, they correctly argue that non-graduates and people with low schooling in general will fare worse and, of course, this will be the dominant group in terms of the unemployment numbers. But temporary bridging labour markets for graduates are not likely to cost near as much and potentially (but would need testing) have strong returns.

    The Labour Market Policies Paper is below – a very interesting review

    http://ideas.repec.org/p/oec/elsaab/75-en.html

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