NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fewer Young People Will Not Solve Problem of Youth Employment



"Between 1970 and 1994, unemployment rates for the 15-24 year-old age group in 11 European countries rose, on average, 16 percentage points, from 4.2 percent to 20.6 percent."

On the surface it would seem a simple supposition: You're a country with a large number of young people between the ages of 15 and 24, and also with high youth unemployment rates. Gazing down the demographic road, you notice that declining birth rates eventually will shrink this population group. This should mean that in the future, with relatively fewer youths entering the labor market and hence tighter labor markets for young workers, youth unemployment rates should drop. Unfortunately, it's not that simple, and countries currently experiencing a crisis in youth employment -- which includes a number of European nations -- should not expect demographics to come to the rescue. Although youth unemployment rates are likely to fall as youth population shares decline, the effects of population change are small compared with the longer-term increases in youth unemployment rates in many of these countries.

In Cohort Crowding and Youth Labor Markets: A Cross-National Analysis (NBER Working Paper No. 6031) , NBER Research Associates Sanders Korenman and David Neumark consider "the extent to which youth labor market problems may be ameliorated by demographic change." They note that between 1970 and 1994, unemployment rates for the 15-24 year-old age group in 11 European countries rose, on average, 16 percentage points, from 4.2 percent to 20.6 percent. By comparison, the U.S. rate moved only 1.5 points over the same period, from 11 percent to 12.5 percent.

Declining birth rates in several European countries eventually should mean that fewer youths will be seeking jobs. But Korenman and Neumark say that will not do much in terms of resolving the crisis. They caution that " the evidence does not provide cause for optimism that demographic developments -- in particular, projected declines in the size of (the youth labor pool) -- will improve youth labor markets." For example, the authors observe that "many countries experienced baby busts in the 1960s." But while this meant fewer and fewer youths competing for jobs, youth labor markets continued to deteriorate.

Korenman and Neumark predict that over the next 10 to 15 years, countries possessing both high youth unemployment and the expectation of "large declines in youth population shares" -- Italy, Ireland, Spain, and Portugal -- should see some improvement resulting purely from the demographic shift. But the authors do not see demographics spurring "a return to the lower youth unemployment rates of the 1970s." Instead, Korenman and Neumark assert that "youth labor markets are much more responsive to general labor market improvements." Such improvements have "much more influence on the health of youth labor markets than do even large reductions" in the youth population.

-- Matthew Davis


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