October 21st, 2016

Youth unemployment: a growing concern

By Mattias Lundberg and Matthew Hobson – Director of Global Partnership on Youth Employment, and Senior Social Protection Specialist, World Bank

Youth unemployment: a growing concern

Global growth and poverty reduction over the next 20 years will be driven by today’s young people, yet many of them face significant difficulties in finding productive employment. Recent estimates from the World Bank suggest that 250–300 million young people are unemployed or idle, and another 150–200 million young people around the world are in unpaid or poorly paid work.

In addition, between 2015 and 2030, some 600–800 million more young people will enter the job market – that is nearly 1 million people each month in India, and 1 million each month in Sub-Saharan Africa. The global economy will need to create millions of jobs each month simply to keep employment rates constant.

However, since the 2007–08 financial crisis, the pace of formal job creation has largely slowed. This is of grave concern to those who will enter the labour market, and to the hundreds of millions of youth who are currently unemployed, inactive or underemployed, or working in insecure jobs.

Unemployment levels among youth are generally higher for young women than young men. In the MENA region, the unemployment rate is 50–60 per cent higher among young women than young men. In 2012, a quarter of all young people worldwide – mostly young women – were NEET.

In the MENA region, South Asia, and Sub-Saharan Africa, between 40 and 70 percent of employed youth are in the agricultural sector, where productivity is lower and access to social protection schemes is rare. In rural areas, young people may not have access to land, productive inputs, technology, capital or markets.

Most young people, particularly those with little education, enter the labour market through the informal sector and take relatively unproductive and short-lived jobs. The informal sector is characterised by low pay, low productivity and high turnover. On the other hand, the informal sector is flexible, presents relatively few barriers to entry, and provides opportunities to gain experience and connections in the world of work.

Agriculture is the main sector and source of youth employment globally. While this is changing, and the share of agricultural employment is falling as economies grow and develop, agriculture will still provide the majority of employment opportunities for young people in Sub-Saharan Africa for the foreseeable future.

Why does youth employment matter for development?

In many countries (especially across Africa and South Asia), youth will represent over 40 per cent of the population, and over 30 per cent of the labour force, by 2030. This large population of young people presents an opportunity to create a ‘demographic dividend’, such as the one that was partly responsible for the rapid economic growth of East Asian economies in the 1970s and 1980s.

Young people around the world are at the forefront of innovation and entrepreneurship. The Global Entrepreneurship Monitor report for 2015 finds that young people aged 18–34 display the highest rates of entrepreneurial intention, and those aged 25–34 display the highest rates of start-up activity.[i] Younger entrepreneurs are often constrained by lack of access to resources, including financial resources, and legal and customary difficulties with ownership and rights.

There is some evidence that the consequences of unemployment can be more severe for youth than other age groups. For instance, prolonged unemployment in youth, or delayed entry into work, has potentially large effects on lifetime earnings.[ii] It can also affect human capital accumulation, physical and psychological health, and careers later in life. Youth who take longer to find stable employment, likely accumulate less human capital, including ‘soft skills’, than those who can begin on-the-job learning at an earlier age, and this can lead to lower earnings throughout the life cycle. Lost human capital also represents a loss in productivity to firms and the economy.

Unemployment can lead to delayed marriage and family formation, and delays in achieving the productive identity that marks the successful transition from youth to adulthood. Unemployment experienced at early ages is associated with discouragement, illness, stress and depression in later life, as well as with lower life expectancy.[iii] Difficulty in entering the labour market can lead to feelings of hopelessness and low self-esteem, especially among those who are in the process of forming occupational identities.[iv]

The World Bank’s World Development Report for 2011 and 2013 also suggest that unemployed youth may provide fertile ground for gangs, violent resistance movements and criminal activities. Without regular employment to provide structure to their daily lives, some youth can slide into disruptive or criminal activities.[v] Unemployed youth may also exhibit weaker civic engagement and disrupt otherwise well-functioning collective governance.

What drives youth unemployment?

Among the leading causes of youth unemployment is the protracted global recession and financial crisis from which the world is still recovering. Young people are more vulnerable than older workers to economic shocks: they hold more temporary or no-contract jobs, and they are more likely to leave jobs in their search for a suitable career.[vi]

The skills that young people have may not be appropriate or adequate for the jobs that do exist. An ILO survey in 2014 found that across 24 countries in Europe, between 25 per cent and 45 per cent of the employed are either over-qualified or under-qualified for their job.[vii] In a study of 27 low and middle-income countries worldwide, Sparreboom and Staneva (2014) found that only 47 per cent of employees were considered well matched.[viii] At the same time, young people too are feeling underprepared for work. Moreover, vocational training systems have traditionally focused on technical skills, whereas evidence is growing rapidly that other attributes, variously described as ‘soft’ or ‘non-cognitive’ skills are increasingly important to employers.[ix]

These dynamics are compounded by a number of other factors that keep young people from secure livelihoods. Young women may find it difficult to complete their education or work outside the home, bearing instead the burdens of early marriage and responsibility for childrearing. Young people who live in fragile or conflict-affected environments are likely to have fewer local opportunities for wage employment, and may have been forced to leave school early, and have experienced debilitating emotional or physical trauma, which can inhibit their ability to succeed in training or the workplace.

What works to facilitate employment among young people?

Sadly, there is little strong or consistent evidence of investments that work well to facilitate the transition to productive employment for all young people. The most consistent benefit appears to come from programmes that support entrepreneurship and self-employment. Vocational skills training will not by itself overcome the problem that there are few wage jobs available. While it may give an advantage to those who have received the training to obtain jobs, it will not increase the number of young people who find employment.

In general, youth employment programmes are more successful in middle- and low-income countries than in high-income countries, possibly because they target the most vulnerable populations. These results also reinforce the finding that entrepreneurship programmes are more successful in low-income countries than among high-income countries. Finally, there is strong evidence that comprehensive programmes, which integrate multiple interventions, are more likely to succeed because they are better able to respond to the complex constraints facing young people in low-income countries.

Sources

  • [i] Schott and Cheraghi 2015.
  • [ii] Kahn 2010; Gregg and Tominey 2005.
  • [iii] Bell and Blanchflower 2010.
  • [iv] Bowman 1990.
  • [v] World Bank 2012, 2013.
  • [vi] Lee et al. 2013.
  • [vii] ILO 2014.
  • [viii] Sparreboom and Staneva 2014.
  • [ix] See e.g. World Bank 2014.
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