Tackling the youth employment crisis: a macroeconomic perspective

The study explores the impact of the macroeconomic policy environment on youth labour. The paper is structured as follows. [Section one contains the introduction]. Section two examines the impact and implications of two major macroeconomic events: (a) the global financial and economic crisis of 2007-2009, and (b) the contentious fiscal austerity programmes in the Eurozone and the UK that commenced between 2009 and 2010 and persists today. The evaluation presented here suggests that a case can be made for reviewing the fiscal austerity measures given their contractionary consequences and adverse implications for the youth labour market. Section three interprets the drivers of youth employment outcomes from a long-run and cross-country perspective. Here, the perennial debate seems to be between those who subscribe to a structural, supply-side view of youth employment stemming from concerns about lack of appropriate skills and onerous labour market regulations and those who see lack of labour demand caused by the prevailing pace, volatility and pattern of growth as key determinants of poor youth employment outcomes. The evidence assembled here suggests that, while supply-side factors are certainly relevant, demand-side factors have a potent influence on the employment opportunities for young men and women. This is corroborated by evidence from enterprise-level surveys in section four that shows the typical binding constraints on the growth of the private sector. Such binding constraints are compatible with a demand-side interpretation of youth employment. Sections five and six focus on specific policy issues. Section five highlights the fiscal implications of labour market policies. They can be implemented at moderate cost (measured as a proportion of GDP). They seem to be quite effective in normal periods of growth. Hence, low and middle income countries can boost spending on labour market policies at moderate costs and expect to reap some dividends. Section six highlights the important role that the exchange rate regime plays in facilitating structural transformation and expanding employment opportunities both for young people and their prime-age counterparts. In particular, the lack of control over the exchange rate can turn out to be a debilitating impediment, especially during downturns, as the Eurozone economies have found to their cost. Section seven offers a conclusion by summarizing key findings and reiterating the key policy messages.

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