Global youth unemployment, why?

Arnold Kling raises the issue that youth unemployment has risen disproportionately during the recession.  He raises three stories and says only one makes sense – his third story:

  1. Sticky wages,
  2. Shift in demand/technology
  3. His PSST story – where it is taking time for entrepreneurs to utilise labour/match skills following a structural shock.

This is all well and good, but there is a massive story missing here.  Young workers require training, and have no prior experience with which to base their quality on – they are a “risky investment”.

Firms pull back on investment during times of uncertainty and distress, as a result we would expect to see youth unemployment rise disproportionately around the globe.

That is why its always made sense to me to have skill training as part of any unemployment program, so that an unfortunate recession that leads to the exclusion of part of the labour market only has a limited long-term impact – without this type of intervention we run the risk that the young people suffering from misfortune today have permanently lower income as a result!

  • Further, his sticky wage story utterly ignores minimum wages: it’s predicated on youths having a lack of wage history, so no anchor point preventing downward adjustment. But that ain’t the binding constraint, at least not here.

    • Yar, and it ignores that a sticky wage prices “new entrants” out of the market by holding up the wage rate in an industry – given that in many circumstances new entrants can’t come in at a lower wage, due to the risk it is observed and leads to complaints about unfairness.

      However, I was focused on simply rising the investment point – as it was missing.

  • Millinillion

    Long time reader, first time commentor.
    I’ve been unemployed for a bit but recently have found a job. I agree with supporting on training to prevent hysterisis or at least as a quid pro quo for unemployment benefits. However many youth today are highly skilled so I’d question the benefit of more training (or maybe focus needs to be on getting the right training/degrees earlier).
     
     

    • I think the focus on getting the right degrees is key – a lot of the “skills” are really just consumption by people getting training, rather than actual skills.

      Its tough, but we need people to distinguish between education for the sake of enjoyment and betterment of your personal life, and education in order to build human capital in the workforce.  People don’t like to think of themselves as a labour input.