Determinants of Youth Unemployment in OECD Countries:
The Role of Education & Training Programs in the Aftermath of the Great Recession
By Elle Pfeffer
Advisor: Professor Laurence Ball
Johns Hopkins University
International Studies: Senior Thesis
Woodrow Wilson Undergraduate Research Fellowship
May 2015
I. Abstract
In the continuing aftermath of the Great Recession, many countries worldwide are
still struggling to combat escalated levels of unemployment. This paper will examine
youth unemployment from a comparative and historical perspective in member countries
of the Organisation for Economic Co-operation and Development (OECD). Specifically,
the paper will explore the results of a test of whether the differences in national training
and education systems identified as determinative by many experts and the comparative
political economy literature actually have evidence-supported positive results for youth
employment across different nations. It will also address the extent of youth
unemployment as compared to rates of unemployment for the general population.
II. Introduction
Youth advocates and national policymakers often point to soaring unemployment
rates among young people as an issue in dire need of fixing and one that will require its
own brand of solutions different from those targeted at unemployment generally.
Traditional efforts to combat unemployment typically involve governments pursuing
active labor market programs (ALMPs), which entail expenditure on public employment
opportunities and other job assistance services.1 Because of the specific vulnerabilities of
youth who face difficulty in transitioning from schooling into work, many experts and
international organizations have reached a consensus that the ALMPs utilized must
include a specific emphasis on skills training programs in order to effectively reduce
youth unemployment.
1 “OECD Glossary of Statistical Terms,” last modified April 16, 2002, https://stats.oecd.org/glossary/detail.asp?ID=28. 2 These programs vary by country and type of economy. Some are run by
governments and provide a kind of blanket skills certification applicable to many jobs
while others are privately run and reflect the needs of a particular firm. Some state-run
programs are referred to as technical and vocational education and training (TVET) while
private sector interventions tend to be in the form of apprenticeships — short term
opportunities for youth to be trained on-site that can sometimes lead to a job afterward.2
All of these efforts should be differentiated from on-the-job training (OJT), which can be
incentivized by governments, but is different from training provided for those who are
without employment.3
The goal of this paper is two-fold. First, it will question the legitimacy of
traditional measures of youth unemployment as accurate representations of the true
burden faced by youth in OECD countries. It will use this information to determine the
relationship between youth unemployment rates and those for the general population,
determining whether outliers from this traditional relationship might indicate the best or
worst practices of these countries in a conversation about methods used to encourage
youth employment.
Next, the paper will explore whether different types of education and training
programs achieve the employment results they promise (and that are promised by many
reports) and whether there are specific national conditions necessary for their success. In
what economic contexts today have training programs provided a positive return on
investment to workers, measured not only in monetary gain, but also in actual
2 Rita Almeida, Jere Behrman and David Robalino, eds., The Right Skills for the Job? Rethinking Training Policies for Workers (Washington, D.C.: World Bank, 2012), xi and 49. 3 Ibid. 3 employment? Have these programs helped youth transition from part- to full-time
employment (or education to employment) during and after the crisis in countries that do
have sizeable training infrastructures? Have these seemingly popular interventions
unintentionally caused the maintenance of high levels of part-time or temporary
employment? Do current attempts to build training programs in countries where they
have not historically existed (at all or just not successfully) have the potential to be
effective?
The paper determines that trends of youth unemployment are typically explicable
by total unemployment. Youth unemployment is generally about two times the rate of
total unemployment among the member countries of the OECD. The paper finds that the
NEET (Not in Education, Employment or Training) standard is more useful to measure
youth unemployment and paints a much more realistic and less inflammatory vision of
youth unemployment. Based on the simultaneous movements in total unemployment
rates, the paper shows that youth were not subject to a disproportionate burden of
unemployment during the latest financial crisis.
The paper also concludes that the consensus among international organizations
and advocacy groups on the beneficial effects of training programs and apprenticeships is
a myth. Ultimately, through a look at several case studies and other literature, the paper
will show that the reliance on and confidence in apprenticeship programs has been
overstated in their current form across most OECD countries. Many reports are found to
be too selective in their examples and do not consider complicating factors such as a
financial crisis. The number of firms across countries that employ these programs is
minimal as is the enrollment by young people so the training cannot reasonably be
4 expected to result in a large increase in aggregate youth employment. Yet, a similar look
at the success of these programs on an individual level shows that, in fact, they are mostly
characterized by failure or very minimal or localized effects. Current policy
developments surrounding the effort to employ more youth must differentiate themselves
from the past incarnations of training programs that have produced minimal results thus
far.
III. Methodology
The paper utilizes a variety of methods to reach its conclusions. In the first section
that addresses the measurement of youth unemployment and potential outlier countries,
data from the OECD and the World Bank has been collected and measured against total
unemployment in regression graphs created with Stata software. This paper employs the
standard definition of the term youth unemployment, which typically refers to the
percentage of people between the ages of 15 and 24 who are currently out of work,
though by some measures this upper limit is extended to age 29. Total unemployment, by
contrast, will indicate the overall population of working age of a given nation or other
restricted location including the youth age group. The rate shows the total number of
unemployed people divided by the labor force, a measure that includes those who are
employed by firms or self-employed as well as the unemployed provided they have
actively searched for a job in the past month.4
In addition to these traditional computations of unemployment, the paper also
utilizes a youth-specific measure called “NEET” that is increasingly being used in
4 “Data: Unemployment,” https://data.oecd.org/unemp/unemployment-­‐rate.htm. 5 contemporary accounts of youth unemployment. The general youth unemployment
statistic is too narrow, not accounting for all of the real economic conditions youth face,
and thus the NEET measure is needed as it is more meaningful. Since in many countries
youth between the ages of 15 and 24 are primarily enrolled in school, economists have
developed this new measure to account for this reality while quantifying unemployment.
“NEET” stands for “Not in Education, Employment or Training” and thus represents the
youth who are either truly unemployed or are inactive (i.e. out of school and not
searching for a job) out of the total youth population.5 Those who have jobs or are
enrolled in school or a training program are not NEET.
The second section of the paper, which focuses on the true utility of different
training programs across many countries, is primarily based on a textual analysis of
reports from sources such as the World Bank, OECD and International Labour
Organization (ILO) as well as those of independent researchers. Some of these sources
are used to present the current consensus on what works and what fails according to
institutional opinion when trying to combat youth unemployment. Others that go more in
depth provide important data and, often, a synthesis of program evaluation results for
training programs. Much of the information regarding developments in the United States
is based on material presented at the National Opportunity Summit hosted by Opportunity
Nation, a national strategy group, on February 26, 2015 in Washington, D.C., which
featured such speakers as U.S. Labor Secretary Thomas Perez and the Democratic
Senator from New Jersey, Cory Booker.6
5 “Data: Youth Inactivity,” https://data.oecd.org/youthinac/youth-­‐not-­‐in-­‐education-­‐
or-­‐employment-­‐neet.htm. 6 “Who We Are – Opportunity Nation,” http://opportunitynation.org/who-­‐we-­‐are/. 6 All research was conducted with sources that were either focused on OECD
countries or that could be utilized selectively for this subgroup of nations. Where more
general data is utilized it will be indicated, and thus the results of this paper are solely
applicable to member countries of the OECD. The OECD is an intergovernmental
organization, founded in 1961, at which the leaders of its primarily European or
otherwise Western and high-income member countries (plus Mexico, Turkey and Chile)
can discuss best practices.7 The organization also publishes papers featuring policy
recommendations on international and issue-specific economic topics, many of which are
cited in this paper.8
IV. Results
Youth Unemployment’s Relationship with Total Unemployment
During the financial crisis and, in many cases, continuing into the still ongoing
aftermath, many OECD countries suffered from extremely escalated unemployment rates.
For example, in 2012, both Spain’s and Greece’s total unemployment rates wavered
around 25 percent.9 The same year, those countries had youth unemployment rates of
about 54 percent.10 Looking instead at NEET, Spain and Greece both reached a rate just
over 30 percent.11 This suggests that even when factoring in the youth who are enrolled in
school, it is still harder for young people to attain employment as compared to the general
7 “About the OECD,” http://www.oecd.org/about/ and “Members and Partners,” http://www.oecd.org/about/membersandpartners/#d.en.194378. 8 Ibid. 9 “Data: Unemployment.” 10 “Unemployment, Youth Total (% of Total Labor Force Ages 15024) (modeled ILO Estimate),” http://data.worldbank.org/indicator/SL.UEM.1524.ZS/countries/ES-­‐
GR?display=graph. 11 “Data: Youth Inactivity.” 7 population (though perhaps not as hard as the baseline youth unemployment rate would
suggest).
Unemployment among young people raises red flags for many reasons. The
OECD itself writes that when out of work or a relevant education or training program for
a prolonged period, youth can become “socially excluded,” unable to rise out of poverty
or otherwise ameliorate their less than ideal economic circumstances.12 When the
International Labour Organization (ILO) met in Geneva in 2012, the conference resolved
that the state of having 75 million unemployed youth globally would have a “long-lasting
‘scarring’ effect on young people” that would “carry very high social and economic costs
and threaten the fabric of our societies.”13
The 75 million figure represented an increase of four million people since 2007
attributable to the financial crisis.14 While it is certainly correct that most countries within
the OECD suffered an increase of the youth unemployment rate from 2007-2008 and the
years of recession that followed, there is little evidence that the youth rate increased any
more rapidly than rates of total unemployment. This suggests that the effects of the
financial crisis were evenly distributed throughout the population within most OECD
countries.
Figure 1 regresses youth unemployment over total unemployment in 2012. The
results demonstrate two important characteristics of youth unemployment: 1) the
relationship of youth to total unemployment is typically just over 2:1 (for example, in
12 “Data: Youth Inactivity.” 13 ILO, The Youth Employment Crisis: A Call for Action, Resolution and Conclusions of the 101st Session of the International Labour Conference, Geneva, 2012 (Geneva: ILO, 2012). 14 Ibid. 8 Figure 1. Youth unemployment over total unemployment in 2012 for OECD countries with regression line. France the total rate was 9.9 percent while the youth rate was 23.8 percent and in Ireland
the equivalent figures were 15.3 percent and 33 percent) and 2) with the possible
exception of Italy, there are no outliers in this graph, suggesting that youth employment is
typically explicable by total unemployment across OECD countries. If there had been
outliers in the top left of the graph — meaning the country had low total unemployment,
but high youth unemployment — it would indicate that the two measures are not always
correlated, depending on the national context. Outliers in the bottom right would indicate
the same principle while showing countries particularly successful at keeping youth
unemployment at a low level despite high total unemployment. These countries would be
highly relevant to look at for successful youth employment strategies, but there are no
such homerun cases to examine.
A regression of the NEET rate for 20-24 year olds over total unemployment in
2012 (Figure 2) shows a slightly different picture. The correlation is not as tight, but in
many cases the NEET rates are much closer to the total unemployment rates, showing
9 Figure 2. NEET (unemployed and inactive) for 20-­‐24 year olds over total unemployment in 2012 for OECD countries with regression line. that youth are not necessarily all that worse off when the data accounts for youth who are
not employed, but are enrolled in school. For example, in Greece, a country targeted as
having an exorbitant burden of youth unemployment after the financial crisis, the NEET
rate of 24.3 percent essentially matches the total unemployment rate (24.5 percent).
NEET youth can be broken into two categories: those who are unemployed and those
who are inactive. Inactivity has many possible explanations. Some inactive youth do not
need an income possibly due to family inheritance. Others may be women who for
cultural reasons may not seek employment. Finally, inactivity accounts for people who
are completely down on their luck and have simply given up looking for a job, perhaps
due to the direness of labor market during the recession.
The many countries above the regression line in the top left quadrant of Figure 2
suggest that despite having a relatively typical rate of total unemployment, these
countries have an NEET rate for youth that raises a red flag. Data from the OECD (for
15-29 year olds) that breaks down NEET data by its component parts, however, indicates
10 that these countries have abnormal levels of inactivity rather than troublesome youth
unemployment (Table 1).
Table 1 – Selected Breakdown of NEET Rates. Source: OECD 2012 data. Country Unemployed NEETs Inactive NEETs Total NEETs
Israel
3
24
28
Korea
3
16
19
Mexico
4
19
23
Chile
5
16
22
Turkey
7
28
35
Italy
10
15
25
In certain cases, these statistics are easily explicable. For example, Israel has
conscription for both youth men (three years) and women (about two years) into the
Israel Defense Forces with only 20 percent of the youth population receiving
exemptions.15 Yet, the youth (18-21 aged men and 18-19 aged women) who serve in the
military are considered inactive for measurement purposes.16 The cultural explanation for
inactivity — that women are more likely to be homemakers in certain countries than
obtain jobs — holds true for Turkey, Mexico and Chile all of which have a sizeable gap
in NEET for men and women. Twenty percent of 15-29 year old men are NEET in
15 “IDF Background information,” http://www.mahal-­‐idf-­‐
volunteers.org/information/background/content.htm. 16 OECD, “Education Indicators in Focus: How Difficult Is It to Move from School to Work?,” http://www.oecd.org/education/skills-­‐beyond-­‐school/EDIF%202013-­‐-­‐
N°13%20(eng)-­‐-­‐FINAL.pdf. 11 Turkey even as one of every two women is NEET.17 In Mexico, 40 percent of women are
NEET, three times the percentage of men.18 In Chile, the relationship is about 2:1.19
In terms of the other outliers, Korea’s status lacks an apparent explanation. The
cultural explanation does not hold here because there is barely any gender gap in Korea’s
NEET percentages.20 While the among of inactive youth seems to be quite elevated,
future research must examine the reasons for this, especially since Korea’s total
employment hovers near zero. As for Italy, there is also a rather minimal gender gap, but
the data does demonstrate that the financial crisis was detrimental for youth in terms of
employment.21 Only six percent of youth were unemployed in 2007, identical to the rate
of total unemployment in Italy that year, which was not much higher than the 5.6 percent
OECD average.22 By 2012, however, the percentage of unemployed NEETs had risen to
10, representing one of the larger changes in this figure among OECD countries. (In
2007, the inactivity rate was 14 percent and in 2012, it was 15 percent; this difference of
only one percentage point shows that the youth continued to be actively engaged in
searching for work and were just less successful in being able to find it due to the
economy.) Since Italy does fall away from the regression line in Figure 2 meaning that it
breaks from the more common relationship between NEET and total unemployment (in
addition to slipping away from the regression of youth unemployment over total
unemployment in Figure 1), the country will be an important place to look to see what
17 Ibid. 18 Ibid. 19 Ibid. 20 Ibid. 21 Ibid. 22 “Data: Unemployment.” 12 Figure 3. Change in NEETs (20-­‐24 year olds) (unemployed and inactive) over change in total unemployment from 2007 to 2012 for OECD countries with regression line. kinds of youth-targeted policies they are employing and why they may be generally
ineffective.
Figure 3 shows that the relationship between youth unemployment and total
unemployment in Figure 1 was not a one-year anomaly. The results of the regression of
the change in NEETs (both unemployed and inactive) over the change in total
unemployment between 2007 and 2012 show that figures for unemployment still follow
general trends in total unemployment. The only major outlier here is Turkey, which has
had a drastic decrease in inactivity rates in recent years due to more women entering the
workforce. Figure 3 also shows that the negative effects of the Great Recession did not
disproportionately affect youth workers as compared to their adult counterpoints despite
the popularity of this belief. The OECD further breaks down their NEET data into those
who are unemployed NEETs and those who are inactive NEETs. Separate graphs
measuring the change in each of these individual statistics over the change in total
unemployment from 2007 to 2012 are listed in Appendices I-III, which also features a
regression of the change in the standard measure of youth unemployment over total
13 unemployment. Those graphs that handle unemployment specifically (Appendices I and
III) have no outliers, supporting the conclusions of this section. The graph that handles
inactivity (Appendix II) does have several outliers and future research should aim to
determine the cause of this, particularly why Japan, Denmark and Ireland had abnormally
high increases in inactivity during the Great Recession.
Training Programs: The Reports vs. The Reality
Reports on the predictably and consistently elevated level of youth unemployment
compared to total unemployment emphasize the difficulty of the “school-to-work”
transition as well as other factors that generally make youth more vulnerable.23 These
other considerations include the lack of experience or skills that make youth job seekers
less attractive to hiring firms than their older counterparts.24
Undetailed reports from international organizations and advocacy groups as well
as publications making policy recommendations tend to extoll the virtues of training
programs for youth struggling to make the school-to-work transition. Yet these
endorsements are often made rather blindly without copious evidence to support their
blanket statements.
Although the numbers for youth without jobs are less troubling when considering
the NEET figures rather than youth unemployment generally, part of the reason these
numbers are so low is the enrollment in education and training programs. For this reason,
advocates and policymakers who look at countries where youth unemployment is still
23 Carcillo et al, “NEET Youth in the Aftermath of the Crisis: Challenges and Policies,” OECD Social, Employment and Migration Working Papers No. 164 (2015). 24 ILO, The Youth Employment Crisis. 14 concerning (i.e. countries where the unemployed NEET rate is still higher than total
unemployment) consider these training programs to be crucial.
International organizations such as the ILO, OECD and European Union as well
as youth policy advocates such as Opportunity Nation in the United States all propose the
benefits of training and apprenticeship programs as manners to reduce youth
unemployment. The literature and current actions support a kind of international
consensus on these programs’ utility as complements for traditional ALMPs. For
example, member countries of the EU are currently rolling out their plans for a new
Youth Guarantee, which vows to make sure “all young people under 25 – whether
registered with employment services or not – get a good-quality, concrete offer within 4
months of them leaving formal education or becoming unemployed.”25 Expected to cost
21 billion euros per year within the Eurozone, the scheme represents a sizeable
commitment and belief in apprenticeships, traineeships and education, which all
constitute the kind of guaranteed “offer” the program will ensure in addition to actual job
offers.26
In the United States, the Obama administration is similarly committed to the
importance of training and, while not discussing them only as specifically youth-oriented
initiatives, mentions these programs frequently in the 2015 Economic Report of the
President.27 The report states that training opportunities have fallen since the 1990s and
that the Administration is aggressively acting to reinvigorate and expand these programs
25 “Youth Guarantee,” http://ec.europa.eu/social/main.jsp?catId=1079. 26 Ibid. 27 President Barack Obama and Council of Economic Advisors, “Economic Report of The President together with The Annual Report of the Council of Economic Advisors” (2015). 15 including paid apprenticeships, especially for young people.28 The report further states,
“By making more funds available during economic downturns to provide training for
those who face difficulties finding work in weak labor markets, this proposal could also
reduce increases in long-term unemployment during future downturns.”29 Though this
last claim goes somewhat beyond the scope of this paper, the idea of an exponential
increase in spending on training programs is troubling given the evidence this paper will
present on their limited utility. The Obama administration gives a touch of this criticism
itself and then seems to ignore it, citing a four-fold increase in worker productivity over
the last six decades, which is only 10 percent attributable to more education or training.30
Other factors like increased capital and total factor productivity were found to be more
influential.31
The ILO reached a similar, if somewhat less defined, pro-training program
conclusion at their 101st Session in Geneva in 2012, producing a report, “The Youth
Employment Crisis: A Call for Action.” In addition to endorsing demand-side economic
policies, the report advocates employment guarantee schemes and training subsidies. It
resolves that governments should be “improving the links between education, training
and the world of work through social dialogue on skills mismatch and standardization of
qualifications in response to labour market needs, enhanced technical vocational
education and training (TVET), including apprenticeships, other work-experience
schemes and work-based learning.”32 Specific recommendations regarding
28 President Obama et al, “Economic Report of The President,” 5, 145, 152. 29 Ibid. 30 President Obama et al, “Economic Report of The President,” 206. 31 Ibid. 32 ILO, The Youth Employment Crisis. 16 apprenticeships include targeted intervention for traditionally underserved populations
(i.e. women), strengthened supervision and mentorship, and more traditional learning
modules to complement the hands-on components of apprenticeships.33 The conference
does qualify its support for apprenticeships slightly in writing that oversight is needed to
ensure they do not become “a way of obtaining cheap labour or replacing existing
workers.”34
In its extensive February 2015 study, “NEET Youth in the Aftermath of the
Crisis: Challenges and Policies,” the OECD comes to comparable conclusions regarding
the role of apprenticeships and other forms of training. The authors write, “The
apprenticeship system is often regarded as exemplary because it provides the skills
needed by firms and combines on-the job training and formal education, thus offering
substantial initial work experience.”35 Even while acknowledging the limited studies that
have been conducted to measure the return on investment of apprenticeship programs, the
OECD report seems to rely very heavily on the positive outcomes of these few studies to
reach the conclusion that apprenticeships are effective without examining the countryspecific economic circumstances of these particular programs’ successes. For example,
the report shares many positive statistics about German programs without explaining how
deeply entrenched their apprenticeship program is nationally and historically and how
low total unemployment is in the country.
Under the surface, of the relatively limited literature that investigates program
evaluations from training programs targeted at youth, most studies conclude that these
33 Ibid. 34 Ibid. 35 Carcillo et al, “NEET Youth in the Aftermath of the Crisis.” 17 programs are actually far from effective and have the evidence to prove so. Given the
certainty with which many reports suggest potential benefits of training programs, it is
concerning that even the most comprehensive reviews have evaluations from no more
than 200 programs on which to their base findings. In “NEET Youth in the Aftermath of
the Crisis: Challenges and Policies,” published in February 2015 by the OECD, authors
write: “The type of work experience offered by apprenticeships is key to labor market
integration.”36 The authors go on to provide evidence of their broad success using only
nine studies for four countries even while acknowledging the limits of current studies
available.37
A broader look shows that training programs like apprenticeships are perhaps not
as “key” to finding a job as the OECD suggests in this report. The first issue is that there
is a significant dearth of comprehensive reviews giving much leeway for reports such as
this one to cherry-pick a handful of mildly promising statistics and form a positive
conclusion at the whim of these specific case studies.
This problem is partly symptomatic of the training programs themselves, which
tend to be both highly limited in the number of firms that utilize them and in the number
of youth who enroll (see Table 2.) The impression perpetuated by many reports that
training programs are so essential to youth employment is a red flag because, in reality,
the participation is very limited in countries that do have them. With fewer than five
percent of the youth population in most OECD countries participating in training
programs, it is not possible to legitimately claim that they are having a wholly positive
effect (or negative effect, for that matter) on youth unemployment rates more generally.
36 Carcillo et al, “NEET Youth in the Aftermath of the Crisis,” 61. 37 Carcillo et al, “NEET Youth in the Aftermath of the Crisis,” 61-­‐2. 18 Table 2 -­‐ Percentage of Youth (age 16-­‐29) Enrolled in Apprenticeship Programs in Select OECD Countries in 2012 (Source: OECD) Country
% Enrolled Country
% Enrolled
Japan
~1%
Italy
~3.5%
United States
~1%
Spain
~4%
Korea
~1.5%
France
~5%
United Kingdom ~1.5%
Australia ~5%
Canada
Germany ~15%
~3%
Success stories exist, but are generally either anecdotal or localized. For example,
a report from the Institute for Evaluation of Labour Market and Education Policy (IFAU)
indicates that the Job Corps program in the United States did produce earnings increases
for the population of disadvantaged who were enrolled, as did the San José, California
branch of JOBSTART.38 However, in the later case, the other 12 field offices nationwide
did not produce the same positive results.39 The report is unable to offer any explanation
for the disparity, providing no opportunity to learn from the best practices in designing
programs going forward.
The closest thing that researchers looking for successful strategies have to an
extensive national system of training programs is Germany where still only 15 percent of
youth participate in the programs. Studies examining German programs are often those
most cited by reports that praise training programs because they are some of the most
successful examples available. For example, the 2015 OECD report cites studies by
38 John Martin and David Grubb, “What Works and for Whom: A Review of OECD Countries' Experiences with Active Labour Market Policies,” Working Paper, IFAU – Institute for Labour Market Policy Evaluation 2001:14: 18-­‐19. 39 Ibid. 19 Krueger and Pischke (1995) and Winkelmann (1996), which place return on investment
for the typical apprenticeship between 15-20 percent in Germany.40 The account also
reports that 80 percent of Germans who complete apprenticeships are employed after 3-4
years and 60 percent of the apprentices remain employed at the same firm.
This high link between apprenticeships and future employment at the same
company, a trend many consider an important facet of successful training programs, does
not actually translate to the particularly convincing success of these programs in
Germany. The issue is that Germany is notable for its current success in employing both
its youth and its adults. In fact, during the financial crisis, Germany was the only country
in which both youth unemployment and total unemployment decreased. The decrease in
youth unemployment in the context of the country with the largest training program
infrastructure paints quite the picture of support for expansive training programs.
However, since total unemployment decreased simultaneously and proportionally, this
evidence is not a sufficient support of the German youth training program model.
As inconclusive, situational and seemingly random the results of many of the
training programs identified in studies may be, the results are still relevant to consider
when recommending program expansion and other related policy changes. If for no other
reason, training programs tend to be extremely costly and since they engage so few
people as is, national governments must consider whether the expenditure is worthwhile
and whether program expansion is responsible. For example, the EU Youth Guarantee is
expected to cost 21 billion euros per year and if reintroduced to Congress and passed, the
U.S. Leap Act, a plan to provide federal tax credits to businesses that develop
40 Carcillo et al, “NEET Youth in the Aftermath of the Crisis.” 20 apprenticeship programs, would use American taxpayer dollars to do so. In fiscal year
2014, the U.S. government spent $90,615 million on initiatives related to education,
training, employment and other social services.41 Based on proposals in the 2015
Economic Report of the President, the estimated expenditure in FY 2015 is $136,756
million, which represents a substantial additional commitment and includes $16 billion in
High-Growth Sector training grants proposed in the report (specifically for states with
high unemployment rates).42 There is no direct cost-benefit analysis possible here as the
report only says it hopes to “double the number of dislocated workers who can receive
the training necessary to transition to high quality jobs,” however, the figures are
troubling.43
One of the recent interventions that the literature agrees has been somewhat cost
effective and successful is the New Deal for Young People (NDYP) in the United
Kingdom, which was created in 1998.44 The program provides formal training and
education among other options for young people who have been reliant on unemployment
benefits for over five months and who have not been helped by the first stage of the
program, which is a 4-month job-search assistance program.45 The cost per participant is
$734-$1,277 with each new job created costing $6,500 and about 17,250 people are
placed yearly.46 However, despite the seemingly positive outcomes of the program, it is
still not an endorsement for training programs. Firstly, the aggregate rate of NEET in the
41 President Obama et al, “Economic Report of The President,” 410. 42 President Obama et al, “Economic Report of The President,” 153, 410. 43 President Obama et al, “Economic Report of The President,” 153. 44 Almeida, Behrman and Robalino, The Right Skills for the Job?, 159. 45 Almeida, Behrman and Robalino, The Right Skills for the Job?, 159-­‐160. 46 Almeida, Behrman and Robalino, The Right Skills for the Job?, 160. 21 UK has been increasing for a large part of the program’s existence.47 Additionally,
reports show that the program was beneficial solely for young males and also that most of
the benefits came from the job-search and wage subsidy components of the program.48
Perhaps the training program component, which tends to be costly, should be removed in
the NDYP and other similar programs, allowing a focus on the alternative ALMPs such
as job-search assistance that appear potentially more effective and worth the cost.
Spending on Active Labor Market Policies has been historical differential by
country, but in many cases significant with countries like the US and Mexico spending
0.5 percent of GDP in 2000 and Denmark spending 4.5 percent of GDP in the same
year.49 The 2001 IFAU report states, “Training programmes tend to be among the most
expensive active measures. Hence it is not surprising that training usually accounts for
the largest share of spending on active measures.”50 In the decade and a half before the
IFAU report was released, about one-quarter of average expenditure on ALMPs in OECD
countries was consistently spent on training programs.51 During the same period, an
average 13 percent of the ALMP expenditures were earmarked for youth-targeted
initiatives.52 Clearly, these are sizeable financial commitments, perhaps used better
elsewhere if the programs are not productive.
In addition to the anecdotal successes discussed above, there are certain other
conditions under which training programs have been useful to the general population. For
example, the IFAU report finds that training can be very helpful for adult women
47 “Data: Youth Inactivity.” 48 Martin and Grubb, “What Works and for Whom,” 19. 49 Martin and Grubb, “What Works and for Whom,” 5-­‐6. 50 Martin and Grubb, “What Works and for Whom,”15. 51 Ibid. 52 Martin and Grubb, “What Works and for Whom,” 18. 22 reentering the job force.53 But while there may be divergent results for adults depending
on circumstance, the results for youth are clear: training programs are not effective for
this population almost across the board. In a landmark study of 75 microeconometric
evaluations by Heckman et al in 1999, researchers came to the conclusion that the
benefits of training program in the United States and in Europe were unsupported.54
However, neither the 2015 OECD report nor the resolutions from the 2012 ILO meeting
mention this study. Larsson (2000) came to a similar conclusion as Heckman et al about
two major programs in Sweden and the IFAU report states, “The most dismal picture
emerged with respect to out-of-school youths: almost no training programme worked for
them.”55
More recent reports show similar conclusions. A 2009 CESifo Working Paper
titled “Active Labor Market Policy Evaluation: A Meta-analysis,” states “Programs for
youths are less likely to yield positive impacts than untargeted programs.”56 A 2012
report from the Independent Evaluation Group of the World Bank reiterates the lack of
studies on training programs’ effects and says that based on what is available, beneficial
effects are “questionable.”57 In an effort to determine the value of certain World Banksupported initiatives internationally, the report investigates programs such as one in
Turkey, which in 2006 had 12,453 participants.58 Twelve percent of participants dropped
53 Martin and Grubb, “What Works and for Whom,” 14-­‐15. 54 Martin and Grubb, “What Works and for Whom,” 18 and David Card, Jochen Kluve and Andrea Weber, “Active Labor Market Policy Evaluations: A Meta-­‐Analysis,” CESifo Working Paper No. 2570 (2009). 55 Martin and Grubb, “What Works and for Whom,” 15, 18. 56 Card, Kluve and Weber, “Active Labor Market Policy Evaluations.” 57 Independent Evaluation Group, The World Bank Group, “Youth Employment Programs: An Evaluation of World Bank and IFC Support,” (2013): 44. 58 Ibid. 23 out of this program and only 43 percent were placed in jobs after its completion.59
According to OECD data, the NEET rate for 20-24 year olds only decreased slightly over
the 2006-7 period from 48.8 percent to 46.4 percent.60 It is hard to know whether this
program contributed specifically to this modest decrease given Turkey’s sizeable
population and the increased participation of women in the workforce more recently.
The bleak picture painted of current and past training program efforts in these
reports does not stop authors from theorizing about the best practices future programs
should emulate. There is actually some agreement here. For example, the World Bank
report emphasizes the necessity of the following in successful skills training programs:
“(i) private sector involvement in training; (ii) classroom instruction combined with
employer attachment (internship, apprenticeship); and (iii) training combined with other
services such as job counseling.”61 (Only 17 percent of World Bank-financed programs
actually have these three characteristics.62) Similarly, Grubb (1999) emphasizes the
importance of programs’ direct ties to the labor market and the mix of teaching formats.63
More generally, many reports suggest apprenticeships can be valuable for their potential
to lead to jobs directly afterward at the same firm.
These conditions are not fully realistic, however, nor have they proven effective
in subsequent training program incarnations. The best example of a country that failed to
have improved employment outcomes while aiming to utilize some of the above
characteristics in its training programs is Italy. The Italian government has engaged in
59 Ibid. 60 “Data: Youth Inactivity.” 61 Independent Evaluation Group, “Youth Employment Programs,” 44. 62 Ibid. 63 Martin and Grubb, “What Works and for Whom,” 19. 24 many policy efforts over the last two decades aimed at making it easier for citizens to
find work, particularly youth. Italy has a notoriously strict labor code that makes it hard
for employers to fire employees, thus reducing mobility and leaving youth at more of a
disadvantage compared with older workers who are already employed. Reforms in 1997
and 2003 tried to combat this issue by encouraging less permanent contracts with the
Treu Law and White Book instituted by Minister of Labour Roberto Maroni,
respectively.64 More recently, in 2011, the Italian government overhauled the
apprenticeship system to incentivize the result on which much of the literature agrees —
apprenticeships are most useful when they lead directly to a job with the same firm.65 The
2011 reforms required firms that wanted to employ new apprentices to have hired at least
half of the apprentices they had employed within the previous three years.66 The reforms
also aimed to make apprenticeships a true stepping stone to future employment rather
than an opportunity for firms to exploit cheap labor by limiting the potential
apprenticeship period to between six months and three years.67 One final development in
2012, know as the Fornero Law, aimed to aggressively help young people find
employment, again loosening restrictions on permissible justifications for firing (as listed
in Article 18 of the Worker’s Statue) and giving workers more protections so that
temporary employment for youth would be less ideal to firms.68
64 Francesco Pastore, “Youth Unemployment in Italy at the Time of the New Great Depression,” Friedrich Ebert Stiftung (2012): 10. 65 Pastore, “Youth Unemployment in Italy at the Time of the New Great Depression,” 13-­‐14. 66 Ibid. 67 Ibid. 68 Pastore, “Youth Unemployment in Italy at the Time of the New Great Depression,” 3, 13. 25 Figure 4. Italy’s NEET rate 2000-­‐2013 (red line). OECD average for NEET rate 2000-­‐2013 (black line). The recent Italian reforms exemplified many of the recommendations of the
World Bank, Grubb (1999) and others who emphasized the success apprenticeship
programs would have if they maintained a high level of coordination with labor market
and firm-specific needs. Despite this adherence, data on youth unemployment in Italy
shows no evidence that the policies worked. Rates of youth unemployment and NEET
have fluctuated over the period of these reforms rather than decreased. The World Bank
shows an increase in youth unemployment from 20.3 percent in 2007 to 39.7 percent in
2013.69 OECD data for NEET shows an increase from 22.02 percent in 2008 to 33.74
percent in 2013 (Figure 4).70 In Figure 1, which regresses youth unemployment over total
unemployment for the year 2012, Italy is somewhat of an outlier in the top left quadrant,
indicating that the country has in recent years been particularly troubled in terms of youth
unemployment based on the standard proportionality that year between youth and total
unemployment. For Italy to be the only outlier in Figure 1, especially in the year after the
69 “Unemployment, Youth Total.” 70 “Data: Youth Inactivity.” 26 major apprenticeship reform, it does not bode well for the specific characteristics of the
reform.
The World Bank and OECD data showing that the 2011 and 2012 reforms were
not immediately effective in decreasing or even maintaining lower rates youth
unemployment rates speaks to a few things. First of all, in 2012, there were still only 3.5
percent of 16-29 year olds in the country enrolled in these programs.71 Perhaps, given the
small reach of the programs, it is not reasonable to expect significantly noticeable results
as in many of the other countries listed in Table 2. The reforms also seem to be based on
ideas of best practices that do not necessarily take national economic context into
account. Part of the reason the reforms may not effect a change in youth unemployment is
their limited reach and uneven implementation; for example, the 2012 Fornero Law is
highly criticized for not applying to small firms (under 15 people) in which the majority
of people are employed in Italy.72
There were other contextual factors not addressed by these reforms. For example,
many of the World Bank and other reports’ suggestions do not directly address the best
practices for training programs in places where inactivity rates among youth are
particularly high as in the case of Italy. Sixty percent of NEET people in Italy are
inactive.73 This can be contrasted with only 27 percent in both Greece and Spain.74 While
the NEET rate greatly increased during the crisis, OECD statistics suggest that only a
small amount f this increase was due to a rise in inactivity while most was a rise in
71 OECD data. 72 Pastore, “Youth Unemployment in Italy at the Time of the New Great Depression,” 3. 73 OECD data. 74 Ibid. 27 unemployment.75 This fact suggests again that the reforms were particularly unhelpful for
the unemployed and also that Italy had an underlying problem of youth inactivity that
remained constant during the crisis. The inactive or disengaged could have been targeted
by the policy changes in 2011 and 2012, thus reducing the NEET rate, but they were not.
Of course, Italy was also badly hit by the financial crisis and compounding factors
such as a recession are often overlooked by the training program literature. Although
Italy is an outlier in Figure 1, it lies perfectly on the regression line in Figure 3, which
looks at the change in NEETs over the change in total unemployment between 2007 and
2012. This suggests that although Italy’s youth unemployment is proportionally out of
line with its OECD neighbors, the rate changes during the crisis fell in line with the other
countries despite the fact that Italy had passed significant labor market legislation. It is
possible that training program reforms during the crisis might have been too little too late
and that the apprenticeship and other developments were simply ineffective as a way to
reverse the damage from a financial crisis. This logic holds even outside of the crux of
the crisis period; according to Istat (the Italian National Institute for Statistics), the youth
unemployment rate is still rising, reaching 43.9 percent in November 2014 (up .6 percent
from only one month before).76 Design of training program policy and other labor market
changes at the national level need to be conscious of all of these contextual elements like
the inactivity-unemployment ratio and the economic climate in order to design effective
programs.
75 Ibid. 76 “Employment and unemployment (provisional estimates),” http://www.istat.it/en/archive/144199. 28 Conclusion: The Myth of Exorbitant Youth Unemployment and Good Training Programs
This paper fundamentally questions the statistical underpinnings of claims that
countries in the OECD are facing a youth unemployment crisis. It proves that youth
unemployment and total unemployment have a consistent and predictable correlation
across virtually every OECD country at a ratio of approximately 2:1 (Figure 1). The
differential can be attributed to somewhat standard difficulties faced by youth entering
the job market for the first time with less experience than other workers that firms might
consider hiring. Furthermore, the paper demonstrates that NEET and total unemployment
move together, changing proportionally across every OECD country during the financial
crisis and aftermath of 2007-2012. This debunks assumptions by advocates and
policymakers that youth are suffering the effects of the crisis much more heavily and out
of proportion with the overall population of workers.
To further address questions about the extent of current youth unemployment, this
paper concludes that the newly developed NEET measure is superior to other accounts of
unemployment among youth as it accounts for the frequent reality that young people are
enrolled in school. Using regression analysis to determine the relationship between those
who are truly unemployed or who are inactive and the total unemployment rate shows
that the differential is much less extreme between these two measures. The remaining
difference is even more legitimately attributable to the plight of a first-time job seeker.
This graph (Figure 2) also indicates several outliers that appear particularly plagued by
youth unemployment, but are actually easily explainable by factors related to gender,
cultural norms or military conscriptions. Korea’s outlier status does not have such a
readily apparent explanation; future research should be devoted to determining the reason
29 the country could have an NEET rate over 20 percent with virtually nonexistent total
unemployment. Preliminary analysis suggests that a particularly high level of inactivity
among youth may be to blame. Finally, NEET is also a particularly useful measure for
this paper as it considers training programs a form of education and thus allows for an
analysis of the rates of participation in various training programs.
Through a textual review of reports from various international organizations such
as the OECD itself and the World Bank and a consideration of the recommendations of
youth advocates who attended the 2015 Opportunity Summit in Washington, D.C., the
paper determines that there seems to be an international consensus that training programs
and apprenticeships make for good policy. However, through an investigation of actual
countries that have tried to improve their training programs in recent years, studies that
go more in-depth, program evaluations and cost-benefit analyses, the paper finds that the
benefits of these programs are generally oversold and overstated.
The first tip off for this conclusion is that nothing can be so affirmatively
successful with such low participation rates. Training programs have sorely lacking
integration in the labor markets of OECD countries with most countries having youth
participation rates under 5 percent with the exception of Germany in which enrollment
still stands far from a majority at 15 percent. With this in mind, there are two possible
conclusions to draw from the seeming lack of success that the training programs have:
either they do not work or they are not extensive enough and require a drastic expansion
in order to see an aggregate effect.
To determine which of these hypotheses fits, it seems relevant to determine
whether by limiting expectations of success to the ability of the small, individual
30 programs that do exist to get young people hired rather than expectations of change in
aggregate rates, the programs are promising. Unfortunately, even with the limited
expectations, the programs are clearly not working as demonstrated by a majority of the
program evaluation studies that have been released. Those few that do have moderate
success do not utilize a common characteristic that somehow enables them to place more
youth in jobs (and sometimes are combined programs with other ALMPs like job-search
assistance) and thus the success is somewhat localized and on a very small scale. The
failure of the individual training programs does not make a good case for them to be
expanded with the idea in mind that larger aggregate changes would follow such a
development.
This result is relevant to several current policy reforms that are or are soon to be
in the works. For example, at the 2015 Opportunity Summit, U.S. Senator Cory Booker
(D-New Jersey) announced that he would reintroduce to Leap Act to Congress with
Senator Tim Scott (R-South Carolina), providing for federal tax credits for businesses
that develop apprenticeships programs. The latest Economic Report of The President
provides similar support and funding proposals regarding training programs. Not only do
these measure seem unlikely to result in the employment of youth based on the results of
this paper, but funding this with taxpayer dollars seems counterproductive and a bad
value, especially if there are no restrictions on whether apprentices are taught portable
skills for the labor market or are hired after the program.
On an even larger scale, the results of this paper are troubling given the EU’s
recent commitment to the Youth Guarantee of which training and apprenticeship options
constitute a major component. If the programs in European countries are lacking success
31 in getting youth employed as is, this does not foretell much success when they are
expanded. The Youth Guarantee is somewhat unique in that it is a guarantee, meaning
that even if a given firm does not hire their apprentice after the program, that individual is
still guaranteed another position somewhere or further education. However, this also
creates a troubling incentive to foist youth off as other people’s problems. The Youth
Guarantee needs to ensure that the training to employment link is very strong the first
time around. As the program is rolled out, researchers should examine whether this first
example of a large scale training commitment produces any results inconsistent with the
findings of this paper and also whether those who make use of the Youth Guarantee find
stable, long-term employment.
The suggestions for improvement made by some of the reports that synthesize the
results of program evaluations are good in theory, but are often very challenging to put
into practice. Examples of their successful implementation are also lacking, even in
countries that have recently had vast turnarounds in policy like Italy. Studies must be
completed that consider other complicating factors like economic turmoil as training
programs proved particularly ineffective during the Great Recession. The general reports
that only brush the surface of training programs’ utility do a disservice to youth in OECD
countries because more complete accounts show that, in the majority of cases, they are
not helping young people get hired. Organizations like the OECD, ILO and advocacy
groups must reconsider their commitment to training programs and work instead to
promote those ALMPs that have data-supported positive outcomes for youth.
32 V. Appendix I
Change in unemployed NEETs (20-­‐24 year olds) over change in total unemployment from 2007 to 2012 for OECD countries with regression line. 33 Appendix II
Change in inactive NEETs (20-­‐24 year olds) over change in total unemployment from 2007 to 2012 for OECD countries with regression line. 34 Appendix III
Change in standard youth unemployment over change in total unemployment from 2007 to 2012 for OECD countries with regression line. 35 VI. References
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38