Measures and Capabilities to Tackle Youth Unemployment in European Countries

Youth unemployment has been a reoccurring problem in European states and one of the most visible consequences of the Great Recession. The issue is of high public policy relevance due to the individual and societal costs involved. "Scarring effects" through spells of unemployment early on in a person's life can have long-lasting negative effects on income and life satisfaction and the economic costs of young people not in employment, education and training (NEETs) in the EU are estimated to be around 1.2% of GDP. However, we still now very little about how governments try to react to this challenge. Possible measures can include demand side policies (macroeconomic policies, social pacts, employment subsidies or public works programmes), supply side policies (education and training, job search assistance, labour market reforms) or measures to reduce the consequence of youth unemployment such as income support. The choice of measures matters for two reasons. First, the listed measures vary in their effectiveness of reducing youth unemployment. For example, education, training and job search assistance have been found to be of little value during economic downturns. Second and related to the first point, the measures vary in the degree to which they foster inequality. Less educated youth are most likely to become unemployed and thus suffer from scarring effects through the deterioration of their skills, stigmatisation, the loss of self-esteem or mental health problems. Therefore, even measures which are equally ineffective may differ in the degree to which they prevent scarring and thereby, further hurting weaker societal groups. Training measures for example are more likely to prevent scarring through skill deterioration than job search assistance. Therefore, the central research question of this paper is ‘which measures are taken by European governments to reduce youth unemployment?’ In answering the question, this research draws on empirical as well as theoretical considerations. Firstly, Eurostat data on the number of young participants in labour market measures and secondary literature on social pacts are used to provide an overview over the measures used by European governments since 2004. Thereby, it is argued that the choice of measures vary systematically between different varieties of capitalism (VoC). Specifically, countries tend to employ measures which are complementary to their existing institutional framework. For example, coordinate market economies (CMEs) rely predominantly on training measures which are linked to their dual apprenticeship systems. Secondly, based on the VoC literature and data on the incidence of social pacts, it is argued that governments in CMEs have the exclusive advantage of being able to foster social pacts with employers’ associations to increase the hiring of apprentices during employment crises. The wider implication of this argument for cross-country differences in youth unemployment is that not only do CMEs have generally lower youth unemployment rates, they are also more capable of effectively tackling rising youth unemployment during economic crisis.