Youth unemployment in Spain has hit 51% amongst those aged 16-24. Greece and Italy equally record unprecedented rates of unemployed young people, and in Britain the number of people out of work in the same age group has hit a 16 year high with about 1 million young people looking for jobs.
Everyone agrees that the picture is dire and action is required urgently. What is hotly debated though is HOW to bring about an improvement on the job market for, what some observers are already calling, the ‘lost generation’?
The newly selected candidate of the Socialist Party for the presidential elections in Spring in France, Francois Hollande thinks he knows the answer. He wants to create jobs in the state sector by funding 150 000 new jobs through more borrowing.
Is Hollande right? Can youth unemployment be solved by creating jobs through government diktat in the state sector?
The countries hit worst by youth unemployment are traditionally countries that lack open labour markets. Observers agree that Italy has one of the least transparent labour markets in the developed world, where access to jobs depends on who you know rather than what you know. i.e. skills. Spain and France are similar in this respect. Job applications are often not advertised publicly at all. Nepotism is widespread in both countries which is often exacerbated by the fact that the gross of jobs in France and Italy are located in small to medium sized family firms. In many of these companies, personal loyalty is often valued over and above skills and abilities.
On top of this, there is a serious lack of employable skills since the education systems of many countries in the West have failed to create strong and effective links with local companies throughout the last two decades. The result is a large number of young people who either lack fair access to a transparent and open labour market, or lack the necessary skills to be employed.
Now, given the need for structural reforms, does Hollande’s determination to create 150000 jobs for young people in the state sector strike one as a long term solution to the problem of youth unemployment? I doubt it. What it threatens to do is to expand an already overstretched state sector (in France currently a staggering 54% of GDP), while at the same time increasing the indebtedness of France and its exposure to the volatile financial markets. Once financing France’s budget deficit will become even more difficult, the French government will have to shed the very jobs that it created to alleviate youth unemployment. As a consequence, France will be back to square one.
What is needed instead are reforms of employment regulations, creating the flexibility for companies to take on young people, improved transparency in, and access to, the labour market, and improvements in the quality of education to ensure young people have skills that are needed in the economy.
These changes require a concerted effort between educators, legislators and entrepreneurs. It may be hard way, but easy solutions, proposed by politicians for the sake of winning elections, are bound to backfire. Instead of phantom jobs, France needs serious reforms.
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