An innovative solution to addressing youth unemployment

August 8, 2012

PROJECTS: Connected Consumption


With under 100 days to go until the November election in the US, we can expect to hear a lot more about jobs and employment. Both candidates claim they will “create jobs” but neither will go beyond anodyne discussions of how to get the economy growing faster.. They’re both devotees of the trickle down approach to employment – trying to expand production as rapidly as possible and hoping that the jobs appear.

For those of us who care about the degradation of the planet’s ecosystems, and climate especially, this brand of indiscriminate macroeconomic management is unacceptable. By failing to ask what’s being produced, we remain tethered to unsustainable patterns of production and consumption. We’re constructing a larger and larger hole to dig ourselves out of.

If we decide to look in more detail at the jobs shortage, an obvious place to start is with our youth. Young people are facing much higher rates of joblessness than other age groups. The International Labour Organisation reports that 75 million young people are now unemployed. Rates of nearly 50% in Spain and above 30% in other troubled economies are well known, but the labour market outlook in other countries is also grim.

In the US since 2008, the fraction of the workforce that is under age 25 has dropped by 13% while the 55 and over section has risen by 7.6%. A recent Pew Study found that among 18-24 year olds, only 54% were employed, a lower rate than at any time since the government began keeping statistics in 1948.

For young people who only have high school degrees, rather than college educations, the situation is dire. According to a study by Rutgers University, before the 2008 collapse, 37% of young high school graduates had full time work. Since then only 16% do, with 37% unemployed.

And even among college graduates, whose official unemployment rates are in the single digits, earnings have declined substantially over the last decade (11% for men and 7.6% for women). It is not surprising to learn that last year’s class suffered the highest level of stress on record, according to an annual survey of college freshmen taken over the past quarter century.

One reason the situation is so bad in the US is that nearly all the burden of adjustment since 2008 has been to lay people off, rather than share hours, as was done in Europe. The comparison is especially stark with Germany and the Netherlands, countries that did adjust hours, and who now have lower youth unemployment than they did in 2008.

If the US got serious about youth unemployment, employers could start hiring new graduates on 80% schedules, rather than at full-time. That would lead to many more new jobs, likely somewhere between 10% and 20% additional positions.

By concentrating on reducing schedules for young people as they start their first full-time jobs, it’s possible to get around a finding from behaviour economics that has bedeviled some kinds of work-sharing schemes: the endowment effect.

The endowment effect refers to the fact that people are very attached to things, money, or privileges that they already have. It’s hard to take them away. But when it’s a first job, the schedules and incomes that go with them are novel. Going from no paycheck to 80% of a hypothetical full-time salary isn’t experienced as a deprivation. Instead it’s a lucky break in a labour market that is unforgiving.

In the early 1980s, the government of the Netherlands initiated such a policy for its own hiring, which then spread to other sectors. Obama should announce something similar, showing his rhetoric about jobs is sincere.

It would be an innovative step that breaks through the gridlock of macroeconomic policy in the last few years.

Originally appeared on the Guardian UK, August 8, 2012. 


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