US: Nosebleed Youth Unemployment: Will The U.S. Follow The Sclerotic Lead Of Europe? – by Alejandro Chafuen

When the last reports came out showing that youth unemployment had reached 16.2 % in the United States, alarm bells began to be heard in some quarters.  This is more than double the rate of unemployment of the adult population.  The rate is fast approaching the average youth unemployment rate in Europe which stands at approximately 24%.
Can we learn from the European experience?  Using data compiled by the economic freedom indices of the Fraser Institute in Canada, and the Heritage Foundation, in the United States, we recently looked at how economic freedom, labor regulations, social spending, and regulatory climate, correlated with youth unemployment.  Against our preconceptions, at least as shown with our simple static analysis, there were no convincing results.  I will spare the reader the statistical jargon and graphs and focus on apparent contradictions.


Economic freedom?: Denmark, first in economic freedom in Europe in the Heritage index, has a youth unemployment of over 14%, much more than Austria (8%) and Germany (7.5%), ranking lower in economic freedom.  Sweden, which has a similar score to that of Germany and Austria, has a youth unemployment of over 20%.
Labor regulations and freedom in the labor market? Using the Fraser Institute data, which shows very little divergence in EU labor regulations by country, we still see some that have similar scores, but that have huge differences in youth unemployment: Spain, which has over 50% and Norway with 9%.  The measurements for labor freedom in the Heritage index show much more divergence among European countries.  Two of the worst in terms of labor freedoms (Germany and Norway), have two of the lowest levels of youth unemployment, almost a third of the EU average.  Spain is ranked better than Germany and Norway, yet its rate of youth unemployment is as mentioned, 50%.
What about the welfare state? It is hard to find adequate data that would capture the structure, not just the amounts spent.  As an approximate measure we used the global social spending in European countries.  Some of the countries with the highest social spending, like Austria, had some of the lowest rates of youth unemployment.  Germany’s social spending is also above the EU average.  Countries with the same level of social spending in relation to the size of their economies, like Poland and Norway, have huge differences in youth unemployment, near 8% in Norway, and over 25% in Poland.
How about social factors such as family structure and culture?  During these last two decades family indicators and youth empIoyment have been deteriorating, but it is hard to find adequate cause and effect explanations.  Some measurements, like marriage rates, show that countries like Italy, Spain, and Portugal have lower rates than the European average.   Those who are postponing marriage, might find it easier to move back home.
If we play with statistics, and group countries in segments (cohorts), we would see some correlations showing that the countries that score better in economic freedom, labor and business regulations, have better odds of enjoying relatively low youth unemployment.  That is not the case with social spending.
I first showed some of these statistics earlier this week in Portugal, during the final stop of the “Free Market Road Show,”  a series of workshops organized by the Austrian Economics Center in 26 cities and 24 European countries.  I hope they are not discouraged by our data.  Correlations do not prove causation, but there is a need to improve measurements and look at other factors affecting youth employment.
I suspect that current statistics do not show the real cost of hiring and firing, and they also fail to capture the difference that exists between minimum wages, productivity of the youth, and welfare payments.  Focusing on other factors, such as culture and education, is also important.  Apprenticeships should receive special attention.  In countries with such schemes, the integration of the youth into the workforce begins in high schools.  They tend to have much lower youth unemployment.
So far only 5 European countries (Austria, Denmark, Germany, the Netherlands and Norway) have lower youth unemployment than does the U.S.  Samuel Gregg, of the Acton Institute, who recently wrote Becoming Europe, warns that the U.S. is drifting towards the same policies that generally lead to higher rates of joblessnes among the young.  The U.S. economy still scores better than most European countries in economic freedoms, but the trends are frightening.  Without a reversal, the U.S. will look more like Europe.  The youth will see their opportunities to earn a living dwindle, and work opportunities delayed.  Parents may want to ready spare bedrooms for the return of their offspring.
Emily Collins, Savannah Tibbetts, and Viacheslav Dvornikov contributed to the research for this piece.
* Alejandro Antonio (Alex) Chafuen, Ph.D., has been president of Atlas Economic Research Foundation since 1991. A member of the board of advisors to The Center for Vision & Values and a trustee of Grove City College, he is also the president and founder of theHispanic American Center of Economic Research. Dr. Chafuen serves on several boards including the Chase Foundation of Virginia, the Acton Institute, the Fraser Institute (Canada), and is an Active Honorary Member of the John Templeton Foundation.