The problem of youth unemployment has rightly been highlighted as one of the major issues facing European countries today. The newspapers have fastened on the shocking statistic that the unemployment rate among Spaniards and Greeks aged 15 - 25 is about 50 per cent, while the rate for the EU as a whole is about 20 per cent. These are alarming numbers, but they are also somewhat misleading.
As Stephen Hill pointed out in a piece in the Financial Times on June 24th, the unemployment rate may not be the best measure of labour market conditions among young people who have opportunities to stay in the educational and training systems rather than entering a depressed labour market. For this reason, an alternative measure, the unemployment ratio, has gained currency.
The conventional unemployment rate is the numbers ‘unemployed’ as a proportion of the ‘labour force’. The ‘labour force’ is the sum of the employed and unemployed. The ‘unemployed’ are those actively seeking work, but not at work. (For young people it is of interest to break unemployment down into those ‘looking for first regular job’ and those who are ‘unemployed having lost or given up previous job’.)
The problem with using the unemployment rate to measure labour market conditions among young people is that the denominator does not include those who are in the educational system or on full-time training courses. During a recession, the higher the proportion of a youth cohort that stays on in school or college or in training, the smaller the labour force and the higher the unemployment rate. This is perverse.
By using the whole cohort as the denominator, the unemployment ratio avoids this pitfall and it may be argued that it therefore provides a clearer picture of hardship being caused by the lack of employment. (Of course this is subject to the reservation that increased educational participation may involve putting square pegs in round holes, with some young people taking courses in which they have no interest.)
The limitations of the unemployment rate as a measure of labour market conditions among the youth population is acknowledged by Eurostat, who now publish both the ratio and the rate for the population aged 15-24. (Their recent figures for Ireland for 2011 are low and may not reflect the latest Census returns.)
The distinction between the unemployment rate and ratio certainly matters. Data in the recently-released 2011 Census of Population volume This is Ireland Part 2 show the population classified by ‘principal economic status’. These reveal an unemployment rate of 38.7 per cent among the population aged 15-24 compared with an unemployment ratio of 14.2 per cent. While the ratio of 14.2 per cent gives no grounds for complacency, it is less alarming than the headline rate of almost 40 per cent.
It is perhaps even more important to note that the unemployment ratio has not risen as dramatically as the unemployment rate since the onset of the recession in 2008. The Figure displays the three concepts based on the 2006 and 2011 Census data.
(The Table at the end provides more details.)
Whereas the unemployment rate rose by 140% the ratio rose by 90%. Thus, the rate tends to overstate both the level of unemployment among young people and the rate at which it has risen.
It may, however, be objected that the unemployment ratio includes all those who are not in the labour force in the denominator but excludes discouraged workers and similar forms of disguised unemployment from the numerator. This bias would certainly be significant among older workers, who are more likely to cease looking for work and to drop out of the labour force because no jobs are available. Its effect on the youth data, however, is smaller because labour force categories other than ‘employed’, ‘student, and ‘unemployed’ are relatively unimportant among the young. In 2011 less than 2 per cent of population aged 15- 24 are classified as ‘looking after home/family’!
None the less, to take account of ‘dsicouraged workers’ it is worth looking at another concept that has gained some currency . This is the NEET ratio. It refers to the proportion of the population that is Not in Employment, Education or Training. To calculate this ratio for Ireland I have assumed that those in ‘(full-time) training’ are classified as ‘students’ in the Census. The resulting ratio must, by definition, fall between the unemployment ratio and the unemployment rate. From the Figure we can see that it lies closer to the unemployment ratio. Moreover, it has risen less rapidly than either the unemployment rate or ratio. In 2011 the NEET ratio was ‘only’ 65 per cent above it 2006 level.
It is striking that the widely-used unemployment rate is so much higher, and has risen so much more, than the alternative – and arguably better – measures of the situation in the youth labour market.
The reason why the unemployment rate overstates both the level and rise in Irish youth unemployment is the high level of educational participation and its marked increase over the past five years. The proportion of the 15-24 year-old population in the educational system rose from 50.1 per cent in 2006 to 60.5 per cent in 2011. While not all of the additional years of schooling will be as productive as we would wish, being in the educational system is less wasteful than being unemployed. This aspect of the adjustment to the present crisis is concealed by the conventional youth unemployment rate.
None the less, we cannot lose sight of the collapse of employment among the youth population. In 2006 39.5 per cent of the population aged 15-24 was in employment. By 2011 this percentage had fallen to 22.5. Among those aged 20-24 the rate declined from 60.0 to 39.0. While the youth unemployment crisis may not be as severe as suggested by the headline youth unemployment rate, it is a crisis.