Avoiding a Lost Generation
IMF Blog, March 15, 2012
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Bibliographic details
- Authors: Nemat Shafik
- Published: March 15, 2012
Scope of the problem
- Young people defined as those aged 15 to 24 are the most affected by rising unemployment.
- Geographic and country-level statistics as reported:
- In Spain and Greece, nearly half of all young people cannot find jobs.
- In the Middle East, young people account for 40 percent or more of all unemployed people in Jordan, Lebanon, Morocco, and Tunisia.
- In the Middle East, nearly 60 percent of all unemployed people are young in Syria and Egypt.
- In the United States, more than 18 percent of all young job seekers cannot find employment.
- Youth unemployment threatens not only a lost decade in terms of growth but also a lost generation if the right policies are not implemented.
Legacy of loss — long-term consequences of youth unemployment
- Increased costs to the economy:
- Higher unemployment insurance and other benefit payments.
- Lost income tax revenues.
- Wasted productive capacity.
- Brain drain:
- Increased emigration, noted in Ireland and Iceland and historically in many Middle Eastern countries.
- Higher crime rates:
- Increased unemployment has been linked to higher crime rates.
- Lower lifetime earnings:
- Youth unemployment leaves a “wage scar” in the form of lower earnings that can last into middle age; the longer the period of unemployment, the bigger the effect.
- Lower life expectancy:
- Unemployment more generally has been linked to lower life expectancy, a higher incidence of heart attacks later in life, and even higher rates of suicide.
Road map to jobs — IMF’s policy focus and recommendations
- Macroeconomic priority:
- The IMF’s biggest contribution is helping member countries foster macroeconomic stability and restore economic growth, since job creation depends on recovery.
- Advanced economies (United States and Europe):
- Problem: inadequate demand; need to energize growth and employment.
- Structural issues in Europe: obstacles to hiring young people requiring labor market and competition reforms.
- IMF recommendations in policy dialogue:
- Reduce labor market segmentation.
- Lower barriers to competition, especially in the service sector.
- Implement growth-friendly tax reforms.
- Increase efforts in education and research and development.
- Emerging economies:
- Many have been growing strongly and some risked overheating.
- Countries running large external surpluses could help by boosting domestic demand and purchasing more goods produced elsewhere, including in advanced economies.
- Low-income countries:
- Weathered the 2008 crisis relatively well but used a lot of government resources and now need to rebuild fiscal buffers.
- Need to sustain employment and redirect spending toward high-priority areas such as health, education, and infrastructure, even if the global environment deteriorates.
- Access to credit and financial-sector measures:
- Recapitalize banks and restore confidence so financial institutions can resume lending and contribute to growth.
- In developing economies, many banks are lending but loans do not reach large segments of the population, particularly young people and would-be entrepreneurs.
Call to action
- For millions of young people around the world, a lot is at stake in 2012.
- Restoring global growth is crucial to solving youth unemployment, alongside policies to support job creation and credit.
- Global cooperation is necessary to achieve recovery and prevent futures from being blighted.
Avoiding a Lost Generation — Nemat Shafik, March 15, 2012