In a recession, the youth unemployment rate often rises more sharply and recovers more slowly than the average unemployment rate. For example, the youth unemployment rate in the U.S. rose from 11.5 percent in early 2008 to a high of 19 percent in late 2009, then began a steady decline. However, many nations in Europe continue to face crisis levels of unemployment. An article in The Regional Economist examined this trend.
Economist David Wiczer and Research Associate James Eubanks, both with the Federal Reserve Bank of St. Louis, found that the youth unemployment situation in Europe was most dire in Greece, Italy, Portugal and Spain:
Wiczer and Eubanks explained that these countries have “rigid” labor markets, meaning those markets where employers are reluctant to hire young workers due to high hiring costs or difficulty in firing. Rigidity can result from such labor market features as high rates of unionization or universal statutory severance payments.1
The World Bank releases a “rigidity of employment index,” with higher scores indicating more rigid labor markets. In 2008, the average for developed countries in the Organization for Economic Cooperation and Development was 26. Portugal, Italy, Greece and Spain scored 43, 38, 47 and 49, respectively.
Wiczer and Eubanks concluded, “Bad labor markets have repeatedly been shown to have long-lasting effects on youth in many different countries. The postponed plans and stalled careers of millions of young workers are a national concern and should spur reflection on the institutions, policies and labor market structures that contribute to such different experiences across countries.”
1 For instance, 35 percent of workers in Italy, 25 percent of workers in Greece, 20 percent of workers in Portugal and 15 percent of workers in Spain are unionized, compared with 11 percent in the U.S. and 17 percent for the 34-member Organization for Economic Cooperation and Development.