Youth Unemployment in Advanced Europe: Okun’s Law and Beyond

IMF Working Papers, January 21, 2015

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The crisis has intensified a previously chronic unemployment problem in Europe; youth unemployment is now at unprecedented highs in some European countries.
Much of the increase in youth unemployment rates during the crisis can be explained by output dynamics and the greater sensitivity of youth unemployment to economic activity than adult unemployment.
Labor market institutions play a significant role in explaining persistently high levels of youth unemployment.

Output dynamics and business cycle effects, including differential sensitivity of youth versus adult unemployment.
Labor market institutional factors:
- Tax wedge
- Minimum wages relative to the median wage
- Spending on active labor market policies
- Opportunity cost of working (measured by the unemployment benefits)
- Vocational training
- Labor market duality

Policies to address youth unemployment should be comprehensive and country-specific.
Focus areas:
- Reviving growth
- Advancing labor market reforms targeting the institutional factors listed above

Subjects: Employment, Labor, Labor markets, Output gap, Production, Unemployment, Unemployment rate
Keywords: business cycle, labor market dynamics, Employment, Europe, Global, labor market duality, labor market factor, labor market factors, labor market feature, labor market outcome, labor market variable, Labor markets, Okun’s law, Output gap, replacement rate, replacement ratio, Unemployment, Unemployment rate, WP, Youth employment, youth employment condition, youth unemployment

Source: IMF Working Paper "Youth Unemployment in Advanced Europe: Okun’s Law and Beyond" (January 21, 2015; Working Paper No. 2015/005).