Friday, August 13, 2010

Scarred for Life

The International Labour Organisation has just brought out a detailed report on the global crisis of youth unemployment. The report suffers from the inevitable ideological biases of the ILO. For example, the (very real) unemployment problems of young women are referred to directly more than 30 times, whilst those of young men are singled out less than 20 times. Even though youth unemployment is overwhelmingly a problem affecting young men (48 million unemployed) rather than young women (33 million unemployed). This is especially true in developing countries, but also in countries like Ireland and Sweden.

But the report is strongest in relation to the long-term consequences of youth unemployment: especially in relation to the 'scarring' effect on the future life course of those experiencing unemployment in their youth (see Section 3.3 starting on page 41). The report observes that:
Recent research by Giuliano and Spilimbergo builds on the premise that young adulthood is a particularly impressionable age for the formulation of beliefs about how society and the economy function. Their study concludes that a person exposed to a recession between the ages of 18-25 years is more likely to believe that life success is due more to chance than to hard work, to support measures of government redistribution but to have little confidence in public institutions at the same time... The unskilled youth are most at risk of detaching themselves from the labour force to remain dependent on the State for the remainder of their lifetime.
The ILO report does provide a thorough analysis of the cause of youth unemployment and policy prescriptions to mitigate the problem. They even have a handy diagram summarising all the barriers to youth employment:














But here again ideological blinkers prevent the authors from addressing some fairly fundamental features of the real economic landscape: there is no mention of the 'cost of labour', i.e.: wage rates. The minimum wage, for example, gets mentioned just three times in the entire report (and then only in appendices), despite its crucial role in exacerbating unemployment among unskilled workers - especially youth - in those countries with minimum wages and rising unemployment. It's not the only cause or even the main cause of youth unemployment - but it is a factor. When capital is in short supply and labour is in abundant supply (as it is in Ireland right now) then the normal workings of the labour market should see the substitution of labour for capital. But the minimum wage artificially boosts the price of labour, thereby reducing demand. And to those who would argue that the minimum wage plays a key part in boosting aggregate demand, I have to ask: why not insist on a minimum wage of €100 an hour? Sure we'd have a consumer-spending-led economic boom in no time...

Nevertheless, the ILO is right to point out the seriousness of the global youth unemployment problem. In ten and even twenty years time, the scars left by the current economic crisis will not be seen in our GDP figures and balance sheets, rather they will be seen in our failing housing estates and prisons as a generation of young people are condemned by bad choices, bad luck and bad policies to a lifetime of failure. We can't do anything about the bad luck (graduating in the middle of a severe global downturn, for instance), but we can do something about facilitating better choices and changing - or getting rid of - bad policies.

The benefits of doing so to our society and to our country will be vastly greater than anything we will allegedly gain from the continuing bail out of Anglo Irish Bank etc.

3 comments:

  1. So, the solution to this problem, or at least to alleviate the problem, is to reduce or abolish the minimum wage? While the economic fundamentals behind the move are sound, the problem is that such an action opens a huge can of worms - Trade Union strikes, A weakened government through this move and most importantly, if the government we have is to be seen as "right wing capitalists", then we'll see a surge in support for "left wing socialists", and what we don't need is a shift to more extremist parties.

    Economically a great idea, politically a dodgy one.

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  2. The problem of alienated young men on the dole could be solved very easily. Give them something to do for their money! Paying young people who are unskilled and unmotivated to just sit around or hang out on street corners is a sure-fire way of storing up trouble for the future. Instead, there is an inherent dignity in working for a living. Roosevelt knew it during the last Great Depression, when he created a number of federally-backed work schemes that not only paid people to work but also trained them in new skills and showed young people the value of working for their own living and not living on handouts. It also has value for the next generation, because these young men will have sons of their own who will either have fathers who don't know the value of work or fathers who valued work in their own youth and are handing that on to their own kids. It's our government's choice, right here and right now! What's stopping them?

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  3. @Panda
    I'd suggest a temporary measure - suspending the minimum wage for anyone under 25 for 3 years - defaulting back to the status quo ante unless there's a vote to continue. Unless we're willing to trial policy changes rather than wait 'til everyone's agreed change is a good idea, we risk continuing stagnation for an entire generation of young people.

    @ Hugh
    Agreed - like I said above: we've got to experiment more with doing things differently and doing different things. Regardless of what the cosy incumbents say or do.

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