An effective plan to promote youth employment

Employment has, at last, been growing over the past year in Spain. Are young people benefiting from this growth? The answer, unfortunately, is no. Whereas total employment has grown by 1.6% between the third quarters of 2013 and 2014, it has fallen by 3.2% among the 16-24 year-olds. In part, this reflects a drop in the number of labor market entrants, but the data shows that the exit rates from unemployment for young people have stalled at the lowest level since the start of the crisis. Spain clearly needs to adopt a more radical action approach if it wants to avoid the risk of a “Lost Generation.” It is not enough to announce grand plans such as last year’s Strategy to Promote Entrepreneurship and Youth Employment or the recently introduced Youth Guarantee that consist mainly of hiring subsidies. What is needed are measures that offer true guarantees, especially to those most in need.

The data
More than half (52.4%) of young people in Spain are unemployed. While this figure is already horrifying, the picture is even worse when we look at unemployment rates by education level.

For workers aged 16 to 19 years old, unemployment rates go from a staggering 79% for those with at most primary education to 52% for those with post-compulsory vocational education. In the age cohort from 20 to 24, the corresponding unemployment rates are 61% and 45%, with a rate of 43% for university graduates. These numbers are especially worrisome once we realize that these two groups account for half of unemployed 20 to 24 year-olds. It is not surprising, therefore, that about half of unemployed youths have been in that state for over a year.

These unsustainably high unemployment rates are creating a serious NEET (not in employment, education, or training) or, in Spanish, nini problem (as highlighted in our blog Nada es Gratis, for example, in 2010, 2011, and earlier this year). The NEET rate among 16 to 29 year-olds in Spain was equal to one-quarter in 2012, a proportion only surpassed by Turkey among OECD countries (OECD, p. 362).

Moreover, it is important to stress that NEETs are not just discouraged university graduates. Around one-third of young people who have not completed compulsory education are NEETs and for youth with at most compulsory secondary education the corresponding rate is about one-fourth. Moreover, in the group of 25 to 30 year-olds, the NEET rate nearly doubles.

This dramatic situation threatens to create an entire “Lost Generation.” (For example, see this painful feature on a 23 year-old NEET in Cadiz recently published in El País.) Indeed, Spain is the OECD country with the second largest increase in youth relative poverty between 2007 and 2010, a period in which it grew by 5 percentage points (OECD, p. 113). (People are classified as poor when their equivalized household income is less than 50% of the median prevailing in their country.)

We have recently discussed these issues in a meeting organized by the London School of Economics and the Institute for the Study of Labor (for the IZA World of Labor project) on "Tackling Youth Unemployment" held at CEMFI in Madrid. The ensuing discussion focused on the measures that Spain should adopt to combat youth unemployment and, above all, to improve the employability of NEETs. Our presentations are available with a broad overview of the data (warning: depressing) and policy recommendations, to which we now turn.

Policies
First of all, we want to make clear that the current situation is not due to a wrong diagnosis of the problem. The Spanish government recognizes the problems and its diagnosis of the causes of youth unemployment is largely consistent with expert opinions. The true problem lies in the design of the policies, which are often insufficient, inadequate, or even contradictory.

The issue of labor market duality is a clear example of these contradictions. The deep segmentation of the Spanish labor market is widely considered to be one of the root causes of the poor functioning of the labor market. Young labor market entrants are the main victims of this segmentation. Yet, almost all the policies of the current Spanish government to combat youth unemployment rely on the creation of new types of contracts, which are even more precarious (temporary or part time) than the existing ones and that often have no clear training content, as explained for example here.

And the remaining youth policies consist essentially of hiring subsidies. In the current situation, hiring bonuses may improve the employment prospects of young people who have good skills, but they are expensive, and what is missing in Spain are measures to improve the employability of the large group of low-educated NEETs. The age limit on training and apprenticeship contracts has been raised to 30 and their use has been simplified to stimulate firm-financed training, but the number of these contracts is ridiculously low.

So how can Spain tackle this problem? We believe that the youngest NEETs should be encouraged to return to the education system to complete their studies. By contrast, the older ones should be offered tailored solutions that ideally combine work and training. In other countries, this task would fall on public employment services, but in the case of Spain, we doubt that it is a good idea. The role of the public employment services should be limited to identifying the young people who do not have the minimum skills required to find employment. The actual reintegration services should preferably be offered by private agencies. In addition, Spain could introduce training vouchers, so that the unemployed can choose both the type of training and the provider.

A lack of funds cannot be the excuse. Over the next two years, Spain will receive up to 1.8 billion euros from the European Union for the implementation of the Youth Guarantee. The aim is to ensure that anyone under-25 receives an offer of employment, education, or training within a maximum period of four months after leaving education or entering unemployment. Instead of using these funds to create more subsidies—the guarantee comes with a new subsidy of 300 euros per month and a maximum of 1,800 euros per contract, which supplements the existing ones—the government should develop a plan for the reemployment of the least qualified NEETs. In addition, it should exercise the option to increase the age limit for the Youth Guarantee to 29 years old.

In conclusion
We are well aware of the difficulties involved in engaging those NEETs who are furthest away from the labor market and in designing measures to enhance their employability. But we simply cannot afford to trust that the market will solve everything, through wage cuts, as the government seems to do. Without the genuine effort of all stakeholders—government, business, employees, social partners, and young people themselves—many of the latter will suffer the negative effects of this crisis throughout their working lives. That more needs to be done is clear. We just need to cite a single statistic: only 4.4% of the nearly 700,000 current NEETs have registered for the Youth Guarantee.

This post was first published on November 14, 2014 in Nada es Gratis as Un plan de choque efectivo para el empleo juvenil

Samuel Bentolila is Professor at CEMFI and Marcel Jansen is Associate Professor at Universidad Autónoma de Madrid.

Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.