Unlimited Opportunities: Creating More Jobs for Young People in Emerging Market and Developing Economies

IMF Blog, January 22, 2019

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Young people make up approximately one-third of the working-age population in the average emerging market and developing economy.
Approximately 20 percent of 15- to 24-year-olds in the average emerging market and developing economy are neither in work nor in school; the average rate in advanced economies is 10 percent.
An IMF staff study finds that, if youth underemployment in the typical emerging market and developing economy was brought in line with the average advanced economy:
- the working-age employment rate would rise by 3 percentage points, and
- economic output would get a 5 percent boost.

Young people are essential to economic development and growth.
The social and economic costs of youth inactivity include lower trust in society and higher chances of social conflict.
On average, nearly 30 percent of young women in emerging market and developing economies are not working and not in school—almost twice the rate for young men in a similar position.
Estimates specific to policy impacts:
- If sub-Saharan Africa strengthened legal protections for women to the average in emerging Europe and Central Asia, there would be an estimated 10-15 percent higher employment and participation rates by young women.
- Indonesian provinces that raised formal minimum wages relative to average wages by 10 percent less than other provinces saw 1 to 1.5 percentage point lower youth unemployment rates.
- Liberalizing product market regulations from the average level in South and East Asia to the average in Latin America and the Caribbean would increase the participation rate of young men by 5 percent.

Greater gender equality in the workplace:
- Strengthen legal protections against employment discrimination for women to raise employment and participation without harming men’s chances.
- Address the economic consequences of having children as part of the gender gap strategy.
Better functioning labor markets:
- Limit overly strict labor regulations.
- Ensure severance payments are not too onerous.
- Establish a minimum wage that is not too high compared to the average wage.
- These measures are associated with improved employment and participation for young people out of school, particularly young women, and boost formal job creation.
More open product markets:
- Lower business start-up costs and administrative burdens.
- Improve access to capital and credit for young entrepreneurs.
- Increase openness to international markets to encourage competition, entrepreneurship, and better job quality.

Macro and micro “big data” analyses (tens of millions of individual-person data points) underpin the research findings and policy prescriptions.
Case study: Indonesia’s provincial minimum wage reforms demonstrate that relatively smaller increases in minimum wage (10 percent less relative to average wages) correlate with 1 to 1.5 percentage point lower youth unemployment rates, benefiting young women most.
Comparative policy simulation: legal protections and product market liberalization across regions produce measurable employment and participation gains for young people.

The United Nations’ Sustainable Development Goals for 2030 emphasize:
- substantially reducing youth unemployment, and
- ensuring that young people who are out of school have productive and meaningful employment options.
The recommended policies do not require a trade-off between younger and older workers; they benefit everyone and support strong, sustainable economic growth.

Source: Christine Lagarde and John Bluedorn, January 22, 2019