The European efforts to avert a lost generation will fail. Unless we really improve Europe’s competitiveness and invest in the future, the young will become fed up with the EU.
If you’re young in Europe, you will have a difficult time to get your life started. Almost one in four of your friends will be out of work. If you live in southern Europe you’re really screwed: either you or your friend will be jobless. When you graduate from school or university, 30 percent chance you’ll find a job. This situation will last for years to come.
13 million lives wasted
While Europe has spent 1600 billion euros on the banking crisis since 2008, 5.5 million young Europeans are currently unemployed and sidelined. Another 7.5 million are ‘NEETs’: not in education, employment or training. The direct costs of this inertness are estimated at 153 billion euros. But the social price for this waste of human capital is much higher.
Therefore it is no suprise that the EU is very active on the field of youth unemployment. Dozens of programmes, projects and initiatives have been launched since the outbreak of the crisis. But still, the numbers are rising. Commission President Barroso calls youth unemployment ‘a ticking social and economic time-bomb.’ His colleague Kroes (Digital Agenda) is having ‘sleepless nights’ over it. EP President Schulz is even starker: ‘We saved the banks but are running the risk of losing a generation.’
Defusing the time-bomb
Together with the European Council, which convened in March on the issue, the Commission unleashes more programmes to defuse the time-bomb. These new plans are quite ambitious. Billions of euros of European funds have been reserved for ‘national action plans’, to bring down the youth unemployment figures. Further on the Commission is setting up a ‘Youth Guarantee System’ so youngsters get the right for training or a job within four months after graduating. Also the Commission is pushing for hard commitments from ICT companies, to provide training for digital skills.
All nice and bold plans, but they are no more than a drop in the ocean. Economic circumstances will suffocate them. And that is because the EU and the 27 member states are failing miserably. They don’t improve Europe’s competitiveness, are lax on the single market, refuse to reform the welfare state, nor do they invest in the future.
This context will kill all initiatives to avert a lost generation. As a disappointed senior euro zone official told Reuters, after another 6 billion euro package was presented last week: ‘the money pledged will never be enough. 60 billion will not be enough. It is our political response, it is not a response in substance.’
Where Europe fails
So why are these youth policies doomed to derail? First because vested interests prevail. Just take a look at the new EU budget for the period 2014-2020, that the European Council approved last month. This budget of almost 1 trillion euros should be an excellent opportunity to make Europe competitive and strong again. But the reality is that the old economy gets all the money. For instance more than a third of the budget will still go to agriculture, a sector that only generates 6% of European GDP. But Europe cannot grow if it favours bridges and farmers over innovation and the future.
The irony is that precisely the EU’s own priorities for 2020 are hit the hardest in the new budget: growth and jobs, sustainability, research and innovation. One example says it all: funds to create Europe-wide access to fast broadband internet have been slashed from €9,2 billion to a mere €1 billion.
Secondly, the single market remains fragmented: it is anything but a level playing field. The four freedoms of goods, capital, services and people are all limited because member states are afraid to integrate the market further. Why can’t I use Spotify across the border, or download movies on Netflix? Why can’t I bring my social rights to another country? Also framework conditions, like access to finance, innovation capacities and red tape remain poor. This leads to a single market that is unable to develop its potential. For instance Europe is clearly lagging behind in the international R&D competition, especially on high-tech.
The third reason why Europe’s youth unemployment rate is at 23 percent, are the national governments. In an interlinked world you cannot hide behind your borders and ignore the new dynamics of the world. ‘The world our children and grandchildren inherit may be starkly different from ours,’ says OECD Secretary-General Angel Gurría. Many EU member states haven’t done enough to remain competitive and do sound economic management. They have now been severely punished by the markets – and it is the young that pay the biggest price.
Hopeful signs
Reform itself is difficult because it attacks vested interest. Entitlements, such as pensions and pension age, fixed labour contracts and low taxes are at stake. Also the government itself has become an economic force. Already half of the EU economy is attributed to the public sector, in France it makes up 56%.
Europe’s money jars, the single market policies and national governments are focused on the past instead of the future. So if I were 20 I’d probably try and build my life outside this lost continent. But the picture is not that bleak. There are hopeful signs.
In Germany, youth unemployment has fallen dramatically in the last five years, from 12 to 8 percent. The Germans reformed their economy and labour market years ago, and are now reaping the rewards.
4% of the European labour population are freelancers, and this army of self-employed, flexible workforce is at 10 percent in the Netherlands. Young people realise that is has no use to continue applying for jobs. Instead they become web entrepreneurs or start up their own shop and services, thereby evading the closed doors of the labour market. A 16 year old Spanish boy even decided to move to the UK because in his home country he can’t set up his company.
Another light at the end of the tunnel are the ICT and sustainability sectors. They are the only ones growing in Europe, and growing fast – the ICT sector growing by 100,000 jobs a year. The Internet economy creates 2.6 jobs for every offline job lost.
The European Union and the national governments should be focusing on these hopeful developments, instead of making plans for the past and designing stopgaps against youth unemployment. Determined faces in Brussels won’t change a thing on the ground. Seven out of ten Portuguese students want to emigrate. Are we going to let them?
About the Author
I enjoyed reading your article Joop, but I question whether reforming the welfare state and the labour market will have the effects you have proclaimed. Most European countries have liberalised their labour markets in the past few years, including many of the nations in the South. While this has increased precarious jobs and brought down labour costs in most countries, it has not brought down unemployment significantly.
I will offer three reasons why I think this has happened.
First, there is the matter of the evolving nature of business in Europe, and throughout the world. Thankfully, mankind has invented new technologies at a remarkable speed, bringing down the weight of labour costs in the total unit cost of a good and service down. This is the reason the Economist Magazine gives for the reshoring of jobs to the United States. This is also a fact confirmed by numerous studies published by both Central Banks and consultancy firms, like PriceWaterhouseCoopers’ recent study on the weight of labour in firm costs in Portugal. Accepting this paradigm, it is not difficult to realise that the increase in private demand and savings that is obtained by increasing salaries is probably greater than the gains from ‘competitiveness’ that reducing wages could secure. This is key to explain why our ‘competitiveness’ is not secured by undermining the workers’ position in the wage-bargaining system, but by strengthening it, and giving all a purpose: the economic development of society.
Second, there is the matter of the experience of the departing worker. While we often view fired workers as surplus, it is often true that they are only so in the short-run. To fuel the destruction of jobs in the short-run, as labour market liberalisation does, is to permanently destroy that social capital. We all lose out on this knowledge, accumulated over the years. Economists often focus on the price to train replacement workers. Add to that the loss of a qualified and experienced worker, and there is a sensible argument against letting short-term minds in CEO offices use liberalised labour laws to impose so many long-term costs on their firms.
Lastly, I disagree that we can make people be more productive, competitive, whatnot, through coercion. Unemployment and poverty does not make a nation more competitive. Surely, Europe can learn that from the failed liberal experiments in Africa. When we do not give the average worker a good measure of economic security, with which he can endure endemic economic and social change, he will build, or have governments build, himself a shell to protect himself from the world. The ongoing rise in popularity of protectionism is evidence of this, as was the large number of dismissals for not adjusting to new technologies.
We are better off when we pay our workers well and fairly, when we value experience and when we empower rather than constrain workers to endure economic change. These are the forgotten lessons of social capability that are and will continue to cost Europe millions of jobs, inclusive and sustainable growth, and the greater welfare of all.
As a Southern European youngster myself, I think it is essentially wrong to blame the EU for our troubles. Statements like “the EU is creating this” or “the EU is responsible for that” only serve to lift the blame off those who are really responsible for this situation.
I’m sure the corrupt politicians of Spain, the lying politicians of Greece or the schizophrenic politicians of Italy are happy to see the EU being blamed for this situation. But the fault is all theirs. And by extension, since we were the ones who voted for those national politicians, the fault is also ours.