A two-tier job market

With the world economy sputtering forward at a snail’s pace and Europe mired in its sovereign debt-crisis, the issue of youth unemployment has acquired a new prominence on the front pages. This is not a novelty, however, and youth unemployment has been festering in southern Europe for around a decade. As the Economist points out, Mediterranean countries (in particular Italy, Greece and Spain) share a similar plight: that of a two-tier job market characterised by an older generation of insiders with permanent contracts and a younger cohort of outsiders who are either unemployed or fumbling along on short-term contracts.

This is largely due to an excessively rigid job market in which it is too costly to fire workers and payroll taxes are overly cumbersome. The upshot of this system is that firms are loth to hire full-time workers and only offer short-term contracts which offer no protection to the worker, as the New York Times reports. Temporary contracts had been introduced to render the labour market more flexible, yet they are now the bane of southern Europe’s youth. The example of Francesca Esposito, who despite her excellent credentials had to work as an unpaid trainee lawyer for Italy’s social security administration, is but the tip of the iceberg.

Couple a job market in a straitjacket with an economic crisis and sluggish growth across much of the Western world, and you end up with entrenched youth unemployment. The Economist makes the point that the young are often the first to suffer when the economy hits a standstill because they are less skilled and easier to fire. However, this was usually redressed in the subsequent upturn as the young had better prospects of re-entering the job market. Not so this time around. In the words of the Economist, the "rigging of the labour market in favour of incumbents and against the young makes what new jobs there are inaccessible”.

This is why southern Europeans often live at home until their thirties, a phenomenon which is too easily attributed to men being “mammoni”. It is not necessarily a choice for the more than 7m Italians aged between 18 and 35 to live at home. On the contrary, when faced with endless temporary contracts which pay little and provide no security, young people feel they cannot take on the obligation of a rental contract, let alone a mortgage. This is a vicious circle for the stay-at-homes were more likely to be unemployed than those who had moved out.

Faced with such a bleak and inaccessible job market, scores of young people choose to emigrate. Italy is in the paradoxical position of being the only net exporter of graduates among rich European countries. The brain drain phenomenon is more commonly associated with developing countries which have not yet developed a satisfactory education system, or a skilled job market. In fact Italy is not exporting blue-collar workers, but a well-educated elite. Sadly, I count myself as one of the many young Italians who opted to study abroad for better job prospects afterwards.

There is no panacea to youth unemployment and what works in one country cannot be used as a blueprint for job creation. It has been plastered on every newspaper that one of the main priorities should be fostering growth. If the economy continues to plod along weakly as it has done so far, then new jobs will not be forthcoming. Italy in particular has had a decade of lethargic growth and the political class has done precious little to alleviate the problem (it is not a coincidence that politicians can count themselves as belonging to the “insiders”).  As bond markets have put politicians under increasing pressure, these have rushed to hash out draconian austerity measures that will strangle what little growth there is. This is not to say that the balance sheets ought to be left to gather dust in a corner, but there is no hope for a country to balance its budget if it does not grow.

Yet even with a re-kindled growth, the young will not be able to benefit from it if structural reforms are not implemented across much of southern Europe. These include an overhaul of the pension systems, deregulation of the labour markets and eliminating red tape so that businesses will be more willing to invest in the region. The latest austerity budget passed by Italy showed that its politicians would be more adept at haggling over prices in a fruit market than being put in charge of solving the myriad of problems that afflict it.

Entrenched youth unemployment marks the deviation from a trend in the developed world which has been taken for granted for decades, namely that the younger generation was almost guaranteed a better quality of life than their parents through hard work. Not only does the sense of betrayal felt by many of today’s young engender a deep sense of malaise and resentment, but this “lost generation” is brewing and bound to reach boiling point at some stage. It is a veritable hollowing out of society encouraged by the two-tier labour market. As the older middle class approaches retirement age, there is no new generation to fill the gap; it has been left behind on the slow speed train.