Young people struggle in eurozone’s two-tier labour market

Despite more than five years of continuous economic expansion in the eurozone, the bloc’s young people still face high unemployment rates, precarious work, underemployment and inactivity, an analysis of European labour market statistics shows.

On the surface, the environment for European workers has improved significantly since the current economic expansion began in 2013 — joblessness ;is back below 8 per cent and wage growth has proved resilient.

But behind the headline statistics lies the uncomfortable truth that over the past decade the eurozone has developed a two-tier labour market, with young people in particular facing a challenging environment.

Europe has failed to reform a “sclerotic business environment”, said James Nixon, chief European economist at Oxford Economics; this “works for the people in jobs but for those people who are trying to get on is very tough”.

“For many young people the economic recovery is a myth,” said Julian Scola, spokesperson of the European Trade Union Confederation.

Youth unemployment is still high

Although the eurozone has been experiencing an uninterrupted economic expansion for the past six years, youth unemployment is proving persistent.

The proportion of workers aged between 15 and 24 who are unemployed is about 16 per cent, double that of the general population. This means about 2.3m under-25s across the continent are unable to find a job.

Joblessness is particularly concentrated in the eurozone’s peripheral economies, where the crisis hit hardest. More than 30 per cent of young workers are unemployed in weaker labour markets such as Italy, Spain and Greece.

High joblessness among young people “represents a considerable loss of productive capacity” and increases the likelihood they will “suffer from poverty and social exclusion throughout their lifetime”, said Nadia Gharbi, an economist at Pictet.

Young workers are more vulnerable

Young workers in the eurozone were the first to lose their jobs during the economic crisis. Youth unemployment rose more rapidly than that of the general population and peaked at 25 per cent in early 2014 — nearly 13 percentage points higher than the overall unemployment rate.

The problem has persisted since then. Not only do they find it more difficult to find a job but “their dismissals tend to be less costly”, said Stefano Scarpetta, director for employment, labour and social affairs at the OECD.

This “unfortunately creates incentives for employers needing to reduce their workforce to dismiss them”, he said. As a result, “the recent observed slowdown in the global economy is likely to weigh heavy on them”.

Many young people are idle

Although jobless rates remain high, they do not capture the full extent of the labour market challenges young people face. Mr Scarpetta flagged the fact that “some may not even enter the labour market when job opportunities are limited”.

In the first quarter of this year, about 3.7m people under 25 across the eurozone were not in employment, education or training — about one in 10 of the bloc’s young people. The situation is worst in Italy, where one in five under-25s are inactive.

Insecure jobs are rife

Even those young people in work tend to have less secure conditions than their older peers, with many employed on temporary and part-time contracts.

Last year, half of the eurozone’s young workers were in temporary jobs, near record highs. Only 13 per cent of them said they had chosen to take temporary contracts rather than permanent jobs.

About one in four of the under-25s who were in part-time jobs were unable to find a full-time job last year.

The inability to find permanent work was the most frequent reason cited by eurozone workers aged under 25 for taking a fixed-term contract.

While a temporary job is often considered a stepping stone into permanent employment, only one in five employees who took temp jobs three years ago have since moved on to permanent jobs.

This kind of insecure employment is highest in Spain, where nearly two-thirds of those with jobs are on temporary contracts. But even in much stronger labour markets such as France and the Netherlands, about half of young workers are on fixed contracts.

“In France getting the first permanent job is really hard work and you might have to do two or three temporary and very insecure placements before even you can begin to think of getting a permanent job,” said Mr Nixon.

More than half of young French workers had a contract lasting less than a year in 2018, and one in three had contracts lasting up to six months, according to data from the OECD.

Lasting effects

While southern European countries are the most affected, young people in most European nations are finding the labour market persistently challenging.

Only Germany has not seen a worsening in underemployment, non-employment or low pay for young people across eurozone countries in the decade since the financial crisis.

If a new economic downturn hits, young people will again bear the brunt of the shock, analysts say — but even if the continent’s economy continues to grow, the scar will be long-lasting.

“The evidence clearly suggests that the first 10 years of a career for a young person are crucial for longer term career prospects,” said Mr Scarpetta. “The disproportional increase in youth unemployment and inactivity during the great recession will unfortunately have long-lasting effects on a generation.”