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Why the U.S. Has a Worse Youth Unemployment Problem than Europe

REPOST ARTICLE SOURCE:

http://business.time.com/2012/11/05/why-the-u-s-has-a-worse-youth-employment-problem-than-europe/

The latest unemployment statistics released this week on both sides of the Atlantic show that the number of jobless is continuing to youthjobsrise in Europe far above the rate in the U.S., and the picture is especially bleak for young Europeans under the age of 25. In the 27 E.U. nations as a whole, the youth unemployment rate rose to 22.8% in September, up from 21.7% the previous year. In Greece and Spain, that proportion is over 50%. In the U.S., meanwhile, the unemployment rate was essentially unchanged in October, at 7.9%, the Bureau of Labor Statistics announced Nov. 2. And the U.S. rate of unemployment among young people under 25 was 16%.

But such statistics are rather misleading because they don’t tell the whole story. They don’t include the millions of youngsters who are not in the labor market because they are continuing with their education or are engaged in training programs. If you take those young people into account, the picture is still grim everywhere, but the U.S. actually comes off as having a worse youth unemployment problem than Europe.

(MORE: The Jobless Generation)

The most marginalized group of young people are those who not only don’t have a job but are no longer in school, either. In the jargon of economists, these are the so-called NEETs, youngsters not in employment, education or training.

Their numbers have been rising everywhere, but they are especially prevalent in the U.S. According to the Organisation for Economic Co-operation and Development (OECD) in Paris, which has the best data on the subject, 14.8% of young Americans qualified as NEETs in the first quarter of 2011 (the most recent period available), up from 12.1% in the same period in 2007. In the E.U. as a whole, the figure was 13.2%, up from 11.5% in 2007.

Within the European numbers there are big variations. In Germany, Austria and the four Scandinavian countries of Denmark, Sweden, Norway and Finland, the figure is below 10%. Spain and Greece have high rates, as would be expected, of 17.6% and 18.2%, respectively, but the worst performer in Europe is actually Italy, with 19.5% of young people out of work and no longer in school or training. (A full set of statistics is available in the OECD’s latest Employment Outlook.)

Several factors set apart the countries with a relatively low proportion of NEETs. They all have particularly extensive professional training programs for young people. Germany’s apprenticeship schemes are the best known; they start early, at age 15 or 16, and mix classroom time with practical experience on the factory floor. The training lasts between one and a half and three years, and by the time they finish, most apprentices move straight into full-time employment. Some of them even end up as CEOs — Hermann Josef Strenger of the chemical giant Bayer, for example.

These nations also have state-funded higher-education systems that are virtually free, and so students have no need to go into debt, unlike in the U.S. And some of the Scandinavian nations, like Denmark, act tough with young people who refuse to participate in training programs — including reducing or cutting their unemployment benefits.

(MORE: The Declining Economic Might of the Once Coveted 18-to-34 Demographic)

On the other hand, the figures are so high for Greece and Spain in part because, compared with the U.S. and many of their European neighbors, a smaller proportion of young people are actually on the job market — about 30%, compared with 55% in the U.S.

“An unemployment rate of over 50% in Greece and Spain only indicates what is occurring among a relatively small fraction of the total youth population. If the other Greek and Spanish youth were, for example, participating in higher education, there would be less concern about their economic fortunes,” says Francis Fong, economist at the Canadian firm TD Economics, in a note that explains the NEET phenomenon. “Focusing solely on the unemployment rate can give an inflated view of the distress among the entire youth population.”

So why are young people in the U.S. so affected by this phenomenon? Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics, says the NEET numbers probably reflect the depth of the labor-market contraction in the U.S. during the financial crisis, which has actually been worse than in parts of Europe. At the same time, “American youth have fewer education and training opportunities than in Europe — especially following the dramatic cuts to U.S. state and local government education budgets during the crisis.”

Whoever wins the U.S. presidential election on Nov. 6 might want to take a look at that.

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