To Reduce Inequality, Employ Young People
IMF Blog, June 13, 2019
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Bibliographic details
- Authors: Burcu Hacibedel, Priscilla Muthoora
- Published: June 13, 2019
Overview and authorship
- Authors: Burcu Hacibedel, Priscilla Muthoora
- Publication date: June 13, 2019
- Study coverage: a group of 71 low-income and emerging market countries
Research approach and definitions
- Methodology: mediation analysis (an approach most often used in psychology, rarely used in macroeconomics) to identify driving forces behind changes in inequality and quantify their relative importance.
- Definition of "good times" and "bad times":
- First criterion: whether a country’s GDP per capita growth rate was positive or negative.
- Second criterion: the difference between that year's GDP per capita growth rate and the country’s average GDP per capita growth rate between 1981 and 2014.
Key findings on growth, youth employment, and inequality
- In good economic times, young people working helps to reduce inequality in low-income and emerging market countries.
- Channels examined: unemployment, access to finance, and government spending; unemployment—especially among young people—is identified as an important driver of inequality during both good and bad times.
- Quantified contributions:
- Reduced unemployment in general explains 41 percent of the reduction in inequality in low-income and emerging market economies during good times.
- Young people working more explains about over one third of that reduction.
- In bad times, 28 percent of the increase in inequality is because of an increase in unemployment.
- The increase in unemployment among young people is a key contributor to the rise in inequality.
- Differences between country groups:
- Youth unemployment explains less of the rising inequality in bad times in emerging markets compared to low-income countries.
- The results suggest that more jobs are created in good times, and fewer jobs lost in bad times in emerging markets compared to low-income countries.
- A possible reason for the difference is even higher levels of self-employment and informality in low-income countries.
Policy implications and recommendations
- Prioritize job quality and employment-support policies to reduce inequality in low-income and emerging market countries.
- Design structural reforms to boost productivity and long-term growth that also reduce large differences in income distribution.
- Since the bulk of the effect of growth on inequality comes from youth unemployment, governments should:
- Design policies to increase the employability of younger workers.
- Design policies to reduce the vulnerability of younger workers to economic downturns.
Source: To Reduce Inequality, Employ Young People — IMF blog (June 13, 2019).
