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European Commissioner responsible for Employment, Social Affairs and Inclusion
What future for Europe’s young people?
Lecture at Greenwich University/London, 28 November 2013
Ladies and gentlemen,
It is a pleasure for me to be back in Greenwich, where I used to live when I worked in London some years ago.
I am grateful to Professor Onaran who invited me to participate in this "Big Picture" lecture series and I would also like to thank your Pro-Vice Chancellor, Mr Sibson, for welcoming me here.
It is no secret that the economic crisis of the past few years has hit young jobseekers especially hard. The figures are stark.
The NEET crisis
What are the most recent figures? In September 2013, there were 26.8 million unemployed people in the EU’s 28 Member States.
Out of these, 5.6 million were unemployed young people, aged between 15 and 24.
That amounts to an EU youth unemployment rate of 23.5% — more than one in five young Europeans on the labour market.
Here in the United Kingdom the youth unemployment rate was nearly 21% in July 2013. That comes to about 936 thousand people.
What is more, unemployment among young people has increased in all Member States, with the exception of Germany, as you can see in the big chart.
The small chart shows you the parallel development of the general unemployment rate and the unemployment rate for people under 25.
The youth unemployment rate has been roughly double the general unemployment rate for a long time.
However, what we see in recent years is not only that youth unemployment and general unemployment are reaching unprecedented levels, but the ratio between them is also rising in many regions.
Young people have tended to be the last in but first out of employment when companies face difficulties, and there has simply been a dearth of new work opportunities for them.
Let me be clear that I have spoken so far about the youth unemployment rate, i.e. my denominator has been those young people who are working or looking for a job. As I mentioned, 23.5% of these young jobseekers in the EU cannot find work, on average.
Of course, if we include in the calculation those young people who are still studying or are completely inactive, the percentage of the unemployed is lower. This is captured by the so-called youth employment ratio.
In 2012, the total population of the EU28 aged between 15 and 24 was 57.5 million people, of whom 5.6 million were unemployed, which gives a youth unemployment ratio of 9.7 %.
In the UK, youth unemployment affected 21% of the young active population active on the labour market, and over 12% of the total young population.
But the problem is of course not just youth unemployment, but also discouragement and inactivity, i.e. dropout from the labour market and giving up on trying to find work.
This is why policy-makers across Europe tend to look at the so-called NEET rate, capturing all those neither in employment, nor in education or training.
The NEET rate has been increasing almost everywhere in Europe in the recent years.
Across the EU, 7.5 million young people in the 15-to-24 age bracket are neither in employment, nor in education or training, and the same applies to another 6.5 million of those aged 25 to 29.
That means we have 14 million NEETs under the age of 30 in the Union, which is about the same as the combined population of Austria and Denmark.
A related problem is the persistent difficulty of filling vacancies, which points to a labour-market mismatch and shows that many young people do not have the right skills for the jobs out there.
The job vacancy rate for the EU is about 1.5%, which means roughly 2.5 million vacant posts.
Our economy is clearly not generating enough work opportunities for all the unemployed people. But we also have a problem in the sense that the job vacancy rate has been quite stable in the past few years, even though unemployment has continued to rise.
For economists in the room: the Beveridge curve for the EU as a whole as well as in most individual countries has been shifting to the right since 2010. The mismatch in terms of skills and geographical availability of jobseekers and vacancies in Europe has grown.
Overall, the situation is therefore very serious. Clearly, what young people need is focused, effective assistance to ease the impact of the crisis on their lives.
If we don't help this generation to get a foothold on the labour market now, their employability, productivity and life-time prospects will be damaged for years and decades to come.
EU response: the Youth Guarantee
The European Commission has been highlighting the problem of youth unemployment and inactivity for many years, but let me focus here only on the most ambitious reform we have developed and recently agreed with all Member States, namely the Youth Guarantee.
The Recommendation on establishing a Youth Guarantee was adopted by the Council of the EU in April this year.
It calls on the Member States to ensure that all young people under the age of 25 years receive a good-quality offer of employment, an apprenticeship or a traineeship or the chance to continue their education within four months of becoming unemployed or leaving formal education.
In other words, the recommendation seeks to ensure that every country has a comprehensive scheme in place that can provide support to all those who need it – and especially to those who need it most. A scheme that helps to alleviate the harsh impact of the economic crisis on young people.
It is well documented that unemployment at the very start of their careers can leave a permanent scar on young people’s psychology but also their economic potential over the entire lifetime.
Prolonged unemployment or labour market inactivity after leaving school carries a higher risk of future unemployment, exclusion, poverty and health problems — all with potentially far-reaching effects.
The European Foundation for the Improvement of Living and Working Conditions published a study last year in which they estimated that only for the year 2011, the economic loss due to the disengagement of young people from the labour market in Europe amounted to €153 billion, corresponding to 1.2% of European GDP.
Part of this cost involves social protection expenditure, but the bulk of the economic cost is foregone economic production: value that could have been created if these people had the chance to work.
Consider this waste of young human capital in the context of our longer-term demographic challenge and the fact that Europe’s workforce is set to be shrinking and ageing in the next two decades:
To maintain solid GDP growth, we would need as many people in the productive age as possible to be employed, and to increase productivity. But current levels of youth unemployment and inactivity mean that we are losing this battle at the very outset.
The Youth Guarantee therefore represents a structural reform that tries to systematically improve transitions from school to work and on that basis strengthen competitiveness, growth and employment.
Putting a Youth Guarantee in place can involve some pretty radical changes in the way public institutions and business work together.
What does it take to make the Youth Guarantee a reality?
Implementation of the Youth Guarantee requires the involvement of all levels of government.
But it also calls for close cooperation with stakeholders outside government — in other words, public and private employment services, business, trade unions, schools and youth organisations.
Providing every young person with a good quality offer of a placement within four months from leaving school cannot happen without systematic and well-organised cooperation between these players.
Often this does not even need to cost money, it’s just about getting better organised.
But it may be well justified for governments to finance training courses, subsidise net new hiring or traineeship or apprenticeship costs, or provide money for start-up grants for young people.
Depending on the country’s challenges, the Youth Guarantee can also involve modernisation of vocational education and training systems to help in tackling labour market mismatches. In other words, strengthening the links between schools, business and unions and ensuring that young people get equipped with skills actually demanded on the labour market.
What is crucial in any case is that job centres apply a personalised approach, providing support and offering options in line with people’s individual needs. They need to be able to help also people who face multiple disadvantage in getting into the labour market.
I will not go into further detail on the Youth Guarantee concept here because you can all look up the Council Recommendation.
But let me emphasise and explain the importance of the four month limit, which defines the ambition of the scheme.
We repeatedly debated this threshold in the Council of the EU last winter. Views differed considerably:
Some Ministers asked why we should not strive to help young people within four weeks rather than four months!
Others have argued that most young people help themselves within 6 months, and even greater percentage tends to find some opportunity on the labour market within 9 months. According to this last point of view, all that a government really needs to do is to help those who fail to find work or training after a prolonged period of time.
In the end, however, Ministers agreed with the Commission’s view that for people under 25 who have just left school, more than four months of unemployment or inactivity already represents a problem and that the risk of their discouragement or employment below their qualifications starts to grow after such period.
Or to put it differently, if young people do not find any work or training within four months, there is a case for labour market institutions stepping in and helping with the person’s placement.
Such support at a very tricky moment in a person’s life represents an investment that will pay off in the subsequent years: if we help young people to do what they are good at and to further develop their skills, their employability and potential productivity will grow.
How much does the Youth Guarantee cost and where to get the money from?
Of course, the Youth Guarantee, like every investment, comes at a cost.
The International Labour Organisation has estimated the total cost of establishing Youth Guarantee schemes in the euro area at 21 billion euros — or 17.5 billion pounds — which is 0.22% of euro-area GDP. They based this estimate on the Swedish example where the total cost per participant was roughly 6,600 euros, but in many countries it could be of course done less expensively.
Still, the cost of doing nothing would be far greater, both in terms of today’s foregone output and in terms of skills lost. I referred earlier to the EUROFOUND calculation that the annual economic waste resulting from the fact that we have 14 million NEETs is approximately 1.2% of GDP.
Now, as regards the question of where the funding can come from, I have some good news.
At least €6 billion has been ring-fenced within the EU’s long-term budget in order to support youth employment, in particular through the implementation of the Youth Guarantee.
€3 billion of this funding was agreed among governments earlier this year as an urgent response to the growing problem of youth unemployment and inactivity.
These €3 billion will need to be used to fund activities directly benefiting young people neither in employment, nor in education or training. At least 90% of this sum will be targeted at regions where the youth unemployment rate exceeded 25% in 2012. And all of these €3 billion will need to be used in 2014-15.
Let’s see what that 25% criterion means in practice.
As this slide shows, there are great disparities in youth unemployment rates across EU Member States.
The north-south divide is very visible, with all of Spain and all of Greece, all of southern Italy and all of southern Portugal a dark blue, which corresponds to a youth unemployment rate of 40% or higher.
The rest of Italy and Spain are light blue, corresponding to a rate of 25% and over.
By contrast, northern Europe is in a much better situation.
It is therefore only logical that young people in the worst-affected areas consider taking advantage of freedom of movement for workers to see what employment possibilities exist where the situation is better and the grass — or the map — is greener.
But you can see also that also France and the UK have several regions where the youth unemployment rate exceeds 25%.
Here in the United Kingdom, the regions concerned are Inner London, Merseyside, South Western Scotland, Tees Valley and Durham, and West Midlands.
From the € 3 billion I mentioned, the UK is set to receive about 170 million pounds for 2014-15, to be used predominantly in these regions.
Moreover, besides this relatively new funding agreed just this spring, there is the European Social Fund which has existed since 1958 and from which every Member State benefits.
The UK will be receiving something between 3.5 and 4 billion pounds from the European Social Fund in the coming seven years. It will be obliged to allocate at least 170 million to match the extra funding for youth in the worst-affected regions, because that is the principle of the Youth Employment Initiative: a certain amount of new money, to be matched by the same amount from the long-established European Social Fund.
But nothing prevents the UK or any other country from allocating an even greater part of their European Social Fund envelope on tackling youth unemployment and inactivity or to modernise their vocational training systems. It is all a matter of choosing your priorities.
We are now at the stage when Member States are discussing with the Commission the main outlines of their funding programmes for 2014-20.
In this process, we strongly encourage Member States to plan their investments in such a way that they can achieve what the Youth Guarantee recommendation is aiming at, i.e. that every person under 25 gets a labour market opportunity within four months.
But as you can see, the EU contribution, even if it involves hundreds of millions of pounds, will probably not be enough to address the youth unemployment problem in all of the UK. An additional investment from the national budget is therefore worth considering.
Allow me now to continue with the zoom-in on the UK and analyse its youth employment challenges in somewhat greater detail.
Comparing the Youth Guarantee and the UK Youth Contract
We saw that the youth unemployment rate in the UK is a little bit lower than the EU average.
However, the rate of those who are neither in employment, nor in education or training reaches 14% in the UK, as compared to 13.1% in the EU as a whole. This indicates quite clearly that part of the young generation suffers from a de facto exclusion from the labour market.
It is also quite noteworthy that the UK’s NEET rate has grown substantially since the financial crisis hit. In 2006, the NEET rate among 15-24 year olds was 8.5%, while in 2012 it reached 14%.
If we look at data for long-term unemployment among young people, we can see that one third of the UK’s jobless 18-24-year-olds (or 250,000 people) have been out of work for more than 12 months, and 15 per cent (or 115,000) for more than 24 months, which is the highest level since 1994.
The UK appears to have a special problem of a lack of skills among a part of its young population.
In a recent Staff Working Paper, the European Commission put it this way:
Despite some progress in recent years, a significant proportion of young people still leave secondary education without the skills and qualifications they need to compete in the labour market. As a result of this persistent record of underachievement, the UK has a large number of functionally illiterate and innumerate adults, usually with no qualifications.
The problem is also addressed quite directly in one of the Country-Specific Recommendations which the UK received from the EU in July 2013:
3. Building on the Youth Contract, step up measures to address youth unemployment, for example through a Youth Guarantee. Increase the quality and duration of apprenticeships, simplify the system of qualifications and strengthen the engagement of employers, particularly in the provision of advanced and intermediate technical skills. Reduce the number of young people aged 18-24 who have very poor basic skills, including through effectively implementing the Traineeships programme.
This is a recommendation proposed by the Commission and subsequently discussed by national experts and Ministers and endorsed by the EU Heads of State or Government.
The point here is that it is precisely through the introduction of the Youth Guarantee that the UK could reduce its relatively large number of young people who are neither in employment, nor in education or training.
If, as figures show, the UK education and training system produces a certain percentage of people with skills and qualifications so low that they struggle to find not only a place in the labour market but even further training opportunities, then something needs to be improved.
The UK is by no means the only country with this kind of a problem, and the solution may also be similar: improve the way schools, companies, job centres and other bodies work together, in order to provide today’s NEETs and potential future NEETs with work-based skills.
UK employers could very much help in this respect by offering apprenticeships tailored to the needs of the UK economy. Combining classroom education with company-based training has worked very well in German-speaking and Nordic countries, and the idea could certainly be adapted to the UK.
Strengthening the vocational training system and introducing a greater number of apprenticeships is a reform that very much fits into the Youth Guarantee concept.
But there is more that could be done: The UK could improve the implementation of its Work Programme, which has been one of the Government’s key policies in support of young unemployed people, but which is currently far from meeting its targets.
1.3 million people have participated in the Work Programme since 2011, but only 13% have found a job within one year, and 22.5% within two years.
To be sure, it is useful that the programme facilitates some work experience, but it seems that more could be done in terms of training and skills development under the programme, so that it really provides a bridge to employment.
The UK Youth Contract is another measure which represents a welcome step towards greater support for youth employment.
The idea of the UK Youth Contract is to support young people aged 16 to 24 who are NEET or unemployed, especially those who have been out of work for at least six months. The Youth Contract offers apprenticeships and other measures, such temporary wage subsidies (up to 2,275 pounds).
However, the scale of the Youth Contract is relatively small (160 000 wage incentives are foreseen until April 2015), the focus is on those unemployed for over 6 months.
Moreover, implementation of the Youth Contract seems to be lagging so far as the take-up of wage subsidies is low and there are signs that apprenticeships under the Youth Contract are being used more for existing workers than for NEETs.
All in all, the existing UK schemes do not currently meet the aims of the Youth Guarantee Recommendation.
They do not aspire to provide a good-quality offer to every young person under 25, they operate with longer timeframes than four months, and actual implementation is below the national targets so far. More could also be done on the quality and duration of the trainings and apprenticeships supported.
In short, there is room for more ambition on youth employment policies in the UK, and it would be worth considering for the Government whether it should not try to put into practice the policy benchmark on which it agreed together with all other Member States last spring – i.e., the Youth Guarantee.
All other Member States are committed to the scope and timeframe of the Youth Guarantee, while in the UK such commitment is not really visible.
It should not be very difficult to recognize, however, that every month of unemployment or inactivity entails additional cost to society and the individual.
It also appears quite clear that support to each and every NEETs within four months is likely to produce better results than support to just some NEETs in a six-month timeframe. It is an investment in the country’s economic future.
The Work Programme and the Youth Contract are measures which the UK Government could build upon, but they would need to be strengthened in terms of both ambition and actual implementation.
I can only reiterate that substantial amounts of EU funding are available to the UK to help make the Youth Guarantee a reality. Advice is also available, from the Commission as well as from other Member States as part of established peer review processes.
What is the Commission doing to help Member States deliver the Youth Guarantee, beyond the funding?
Member States with regions that are eligible under the €6 billion Youth Employment Initiative are expected to submit their Youth Guarantee Implementation Plans by December this year, and the other States are invited to do this in spring next year.
Based on current signals, it seems that the UK will not prepare and submit a Youth Guarantee Implementation Plan and rather stick to the existing schemes. But we of course remain hopeful that the Government might reconsider this approach.
Last month the Commission held a working seminar to provide Member States with some practical support on the design and implementation of the Youth Guarantee.
The Commission can also facilitate Member State twinning to spread expertise on the development of Youth Guarantee schemes. We are also involved in the voluntary peer review process among Member States on draft Youth Guarantee Implementation Plans.
Moreover, in July we launched an initiative called the European Alliance for Apprenticeships, aiming to spread dual training models across Europe and help ensure greater availability of good quality apprenticeship places in the context of the Youth Guarantee.
The Alliance encourages knowledge transfer between governments, companies and other stakeholders across Europe. By October this year 25 organisations had pledged to take practical action within the next few months to improve the quality and increase the offer of apprenticeships.
Finally, the Commission will also put forward a proposal for a Quality Framework for Traineeships next week.
Here in the United Kingdom, many refer to “internships” rather than “traineeships” when it comes to work experience on the open labour market, after the completion of an educational programme.
But whatever the terminology, the idea of the Quality Framework stems from concern that in today’s labour market, many traineeships or internships have low learning content and tend to be treated by some employers simply as a source of cheap labour, essentially replacing entry-level jobs.
The Quality Framework will provide guidelines on how to improve the learning content and fair working conditions of traineeships, so that they really play a role of good-quality training and a stepping stone towards regular employment.
Ladies and Gentlemen,
You may have recently noticed two rather unprecedented meetings of EU Heads of State or Government, entirely devoted to youth employment. The first took place in Berlin in July, and the second one in Paris two weeks ago.
These meetings brought together Presidents, Prime Ministers, Employment Ministers, social partners and heads of Public Employment Services, and they bear witness to a strong commitment in most Member States to combat unemployment among young people as one of the key challenges Europe is facing.
Failure is not an option, in the sense that we must succeed in offering today’s labour market entrants a decent future, or we run the risk of squandering the economic potential of a large part of today’s young generation, which would undermine Europe’s growth for decades ahead.
I hope that I have succeeded in explaining the Youth Guarantee concept and the challenge involved in turning it into reality.
I also hope we have some reason to be optimistic that governments will live up to the recommendation they have agreed upon, because they will realise that going out of their established ways is really justified in this case, and it serves the interest of their country.
Thank you very much for your attention.