{"id":22067,"date":"2012-12-11T18:02:11","date_gmt":"2012-12-11T08:02:11","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=22067"},"modified":"2012-12-11T18:02:11","modified_gmt":"2012-12-11T08:02:11","slug":"youth-guarantee-has-to-be-a-youth-job-guarantee","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=22067","title":{"rendered":"Youth Guarantee has to be a Youth Job Guarantee"},"content":{"rendered":"

\t\t\t\tLast week, Eurostat released the latest – Retail Sales<\/a> – data for the EU. It formalised what has been obvious for some time – private spending in the European economy is going backwards. But didn’t leading economists, including Nobel Prize winners, tell us a few years ago that if governments imposed austerity, the private sector would lose their worries about future tax hikes and start spending? Didn’t the current British Government say the same thing as a justification for the ficsal austerity that now looks like pushing the UK into a triple-dip recession (almost unheard of)? The answer is that these economists and politicians tried to convince us that there was such a thing as a fiscal contraction expansion. Fancy words like Ricardian Equivalence were dragged from the sordid annals of mainstream macroeconomics to give this notion some “authority” (because they knew hardly anyone understood what it was anyway). The wash up is they were wrong. And millions more are unemployed and moving towards or into poverty as a consequence. There is a wholesale failure of government at present in most advanced nations. A current proposal in Europe is to introduce a Youth Guarantee. However, for it to be effective it has to include a Job Guarantee component as its centrepiece. More supply-side activation is part of the problem and cannot be part of the solution.
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\nIn September 2012, retail turnover fell by 2.9 per cent in Greece, 1.6 per cent in Austria, 4.7 per cent in Spain, 4.4 per cent in Portugal, 4.1 per cent in Slovenia,. In October 2012, things turned even worse. <\/p>\n

In Denmark, -2.8 per cent, Estonia -1.7 per cent, Germany -2.8 per cent, Spain -1.2 per cent, Latvia -1.4 per cent, Austria -0.2 per cent, Poland -0.6 per cent, Portugal -4.5 per cent, Romania -2.1 per cent, Slovenia -1.7 per cent, Finland -3.0 per cent, Sweden -1.2 per cent, United Kingdom -0.8 per cent.<\/p>\n

Overall, the EU27 and the Eurozone has seen three months of (accelerating) declines in retail sales. The Eurozone is down 3.6 per cent on the year to October 2012 and the EU27 is down 2.4 per cent.<\/p>\n

While the peripheral nations are behaving as they have been for some time (Spain -11.5 per cent over the year; Greece -12.1 per cent (to September); and Portugal -6.7 per cent), the more robust economies are down over the 12 months to October 2012 (Germany -3.8 per cent; Austria -1.9 per cent; and Finland -1.5 per cent). Other nations such as France (-0.7 per cent) are barely moving.<\/p>\n

It is hard to draw any positive nuances from the data.<\/p>\n

Retail turnover in the Eurozone and the EU27 is now well below the trough that occured in October 2009 at the height of the GFC. In fact, retail trade for the Eurozone is below the 2005 base year value of 100 – currently at 98.1 index points.<\/p>\n

The following graph is taken from the Eurostat bulletin (released December 2005) and shows real total retail turnover (seasonally-adjusted) for the Eurozone and the EU27. It is a stark picture of policy failure.<\/p>\n

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A day earlier (December 4, 2012), Eurostat released the – At risk of poverty<\/a> – data, which showed that in 2011, 119.6 million people (24.2 per cent of the EU27 population) were at risk of poverty. This proportion is rising in the EU27.<\/p>\n

Further, 9 per cent of the population were estimated to be “severely materially deprived”. Poster-child nation Latvia had 30.9 per cent of its population in this category. Austerity has seen Latvia’s overall At risk proportion rise from 33.8 per cent (2008) to 40.1 per cent of the total population in 2011.<\/p>\n

According to the European Commission’s – Europe 2020 strategy<\/a>:<\/p>\n

\nThe reduction of the number of persons at risk of poverty or social exclusion in the EU is one of the key targets of the Europe 2020 strategy.\n<\/p><\/blockquote>\n

I suppose the targets were arrived at after some very well catered for lunches with plenty of wine and food and travel allowances paid to bureaucrats who had to travel to Brussels for the talkfests. While that was going on another room in the EC buildings in Brussels was plotting austerity.<\/p>\n

Anyway, there were no surprises when the third of the big Eurostat data releases for the week came out on Thursday (December 6, 2012) – Second National Accounts estimates for the third quarter<\/a>.<\/p>\n

That data showed since the fourth-quarter 2011, the Eurozone has been in recession again: -0.4 per cent December 2011; 0.0 per cent March-quarter 2012; -0.2 per cent June-quarter 2012; and -0.1 per cent September-quarter 2012. On an annualised basis, real GDP has been negative since the March-quarter 2012.<\/p>\n

On Friday (December 7, 2012), the Deutsche Bundesbank published a special press release – New Bundesbank projection: temporary economic slowdown<\/a> – which said:<\/p>\n

\nThe cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff. The main drags are not only the adjustment recessions in some euro-area countries but also the slowing of the global economy … However, given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed.\n<\/p><\/blockquote>\n

The rot is spreading to the core.<\/p>\n

While Eurostat showed Germany grew by a modest 0.2 per cent in the September quarter, the trajectory was downward. The Bundesbank is now forecasting a real GDP growth rate of 0.4 per cent in calendar year 2013.<\/p>\n

And, I haven’t forgotten that on November 30, 2012, Eurostat released the latest – Labour Force Estimates, October<\/a> – which showed:<\/p>\n

\nThe euro area1 (EA17) seasonally-adjusted unemployment rate was 11.7% in October 2012, up from 11.6% in September. The EU27 unemployment rate was 10.7% in October 2012, up from 10.6% in September. In both zones, rates have risen markedly compared with October 2011, when they were 10.4% and 9.9% respectively …<\/p>\n

In October 2012, the youth unemployment rate was 23.4% in the EU27 and 23.9% in the euro area, compared with 21.9% and 21.2% respectively in October 2011.\n<\/p><\/blockquote>\n

The official unemployment rate in Greece is now 25.4 per cent in August and rising (youth 57 per cent in August and will be higher now). In Spain 26.2 and rising (youth 55.9 per cent and rising); Portugal 16.3 per cent and rising (youth 39.1 per cent and rising).<\/p>\n

There can be no sense that we can conclude the current policy framework is moving the European economy in the right direction.<\/p>\n

The EC Commissioner for Employment, Social Affairs and Inclusion responded to these disastrous unemployment statistics for youth in a press release (December 5, 2012) – Youth employment: Commission proposes package of measures<\/a>.<\/p>\n

The EC announced their intention to introduce a Youth Guarantee scheme. In the press release from the relevant EC Commissioner L\u00e1szl\u00f3 Andor we read:<\/p>\n

\nHigh youth unemployment has dramatic consequences for our economies, our societies and above all for young people. This is why we have to invest in Europe’s young people now … This Package would help Member States to ensure young people’s successful transition into work. The costs of not doing so would be catastrophic.\n<\/p><\/blockquote>\n

The costs “would be catastrophic”, which indicates to me – as a native English speaker – that this is a situation of the highest emergency and requires a response that would be commensurate with such an impending catastrophe.<\/p>\n

Eurofound<\/a> (European Foundation for the Improvement of Living and Working Conditions), was established in 1975 as “a European Union body … to contribute to the planning and design of better living and working conditions in Europe” – published a report (October 22, 2012) – Young people not in employment, education or training: Characteristics, costs and policy responses in Europe<\/a> – which, in part, tried to estimate the costs of not integrating the NEETs (youth that are not in employment, education or training).<\/p>\n

The Report found aimed to estimate “the monetary cost of the NEET group” not because it wanted to “commodify young people”, that is, “put a price tag on a young person’s life”, but rather to broaden “understanding of the benefits accruing from re-engaging young people in employment and education” and stimulate “governments and social partners to prevent the disengagement of young people from the labour market and education”.<\/p>\n

Over the course of my career – which has been characterised by a constant call for full employment – I have found policy makers, business interests and the wider population – to be ignorant of how much persistently high unemployment actually costs society in daily lost income generation – not to mention the broader personal and social costs.<\/p>\n

I will leave it to the interested reader to more fully investigate the way Eurofound came up with estimates of these costs.<\/p>\n

In summary, the Eurofound Report provided estimates of “(direct) public finance costs and (indirect) resource costs”. The former relate to welfare support (“all transfers and benefits from public benefits schemes received by a young person in the NEET group and which are in excess of what a non- NEET counterpart would receive”), while the latter refers to losses “to the economy due to the lack of labour market participation of NEETs”.<\/p>\n

The Report concluded that:<\/p>\n

\nDespite being conservative, the estimated loss due to the labour market disengagement of young people is substantial. In 2008, the 26 Member States lost almost \u20ac120 billion, corresponding to almost 1% of European GDP. When the recent economic crisis and the increase in the NEET population between 2008 and 2011 is taken into account, it is likely that this loss has been even greater … It was estimated to be \u20ac153 billion, corresponding to more than 1.2% of GDP in Europe. While this cost varies a great deal between Member States, a considerable deterioration of the situation was observed in Bulgaria, Cyprus, Greece, Hungary, Ireland, Italy, Latvia and Poland. In all these countries, the loss in 2011 due to the disengagement of young people from the labour market was equal to 2% or more of each country’s GDP.\n<\/p><\/blockquote>\n

For example, for Greece the estimated losses are \u20ac7,065,609,793 or 3.28 per cent of GDP in 2011 (1.74 per cent of GDP in 2008).<\/p>\n

The Report assumes that there would not be sufficient “job vacancies … [to] … cater for all NEETs … [and so] … Europe will not be able to save the entire cost of \u20ac153 billion” but that substantial savings are still possible if Europe was “to reintegrate 10% of NEETs into the labour market”.<\/p>\n

The conservatism of the organisation and the environment that it is operating in is very evident. Why couldn’t Europe create the job vacancies necessary? No reason is given other than the implied lack of private sector demand.<\/p>\n

Dream a little bit. Why shouldn’t this become a public sector responsibility? Then the so-called “fiscal costs” would be transferred from welfare support to wage income and employment. <\/p>\n

But despite telling us that the catastrophic youth unemployment is creating a “sense of urgency” that “is amplified by the fact that the consequences of a lost generation are not merely economic but are also societal, with the risk of young people opting out of democratic participation in society”, there is very little “dreaming” contained in the Eurofound approach.<\/p>\n

The point is that there are now massive costs being incurred by the Europeans on a daily basis. These are what economists call “deadweight” losses, which means that they are permanent. They are also intergenerational – in the sense, that not only is the current losses of income huge, but the future productivity of the workforce is being undermined.<\/p>\n

The high adult unemployment incidence means that many children are now growing up in jobless households. The research evidence is clear. This cohort inherits the disadvantages that beset their parents and have poorer outcomes in their own adult lives – higher job instability, higher unemployment, lower wages, poor family outcomes etc.<\/p>\n

But the youth cohort that is also enduring very high rates of unemployment and rising underemployment (if they are lucky enough to be working at all) are now cementing that disadvantage. They are being denied the opportunities to acquire essential workforce experience and skill development. They are being denied a range of other social skills that productive workers require.<\/p>\n

The result will be that the huge costs that are being incurred now<\/strong> will be amplified in the coming decades. It is policy insanity not to place this problem at the top of priorities.<\/p>\n

On a conceptual level, the term “fiscal cost” is unique to monetary systems that are defined by governments using a foreign currency – as in the Eurozone. For a fully sovereign nation – such as the United Kingdom – the budget outlays on, say an employment creation program for youth – are just numbers on a bit of paper.<\/p>\n

The only relevant “cost” that has to be considered in delivering such a program are the extra real<\/strong> resources that are consumed as a result of the initiative – including, if there are competing demands for those resources – the opportunity cost (what they might have otherwise been used for).<\/p>\n

The opportunity costs are low when unemployment is high. It is obvious that the “private market” has no use for the idle resources when unemployment is high. So the real costs are the extra food that the workers might consume, the extra capital that is required to supplement the employment creation and the like.<\/p>\n

Most economists fail to understand this point and focus on dollars and cents in the budget allocation, which is an irrelevant measure.<\/p>\n

However, for nations in the Eurozone, the situation is somewhat different because they surrendered their currency sovereignty and have to seek the Euros necessary to create such employment from taxes and bond issues. It would be far more sensible for the European Central Bank to ensure there are sufficient funds to allow large-scale employment programs to be introduced without the need to access the private bond markets.<\/p>\n

In a sense, the ECB is playing that role via its various secondary bond market purchasing programs. But it is doing so at a massive cost to the particular nations involved – by insisting that austerity is a pre-condition for support. That stance makes zero sense. It is destructive and guaranteed to fail.<\/p>\n

The point is that these nations – by dint of the fact that they have elected to use a foreign currency – face additional issues when thinking about introducing employment programs. The answer is simple – they should restore their currency sovereignty. But in lieu of that sensible option, any program has to be justified on a cost and benefit nature.<\/p>\n

So the exercise in showing how large these costs are in monetary terms is an important way to demonstrate why the Eurozone governments should seek funds to eliminate those costs.<\/p>\n

Please read my blog – The costs of unemployment – again<\/a> – for more discussion on the massive wastage that persistent unemployment guarantees.<\/p>\n

As a response to the “catastrophic” youth unemployment the EC has announced a “Youth Employment Package” which:<\/p>\n

\n… includes a proposed Recommendation to Member States on introducing the Youth Guarantee to ensure that all young people up to age 25 receive a quality offer of a job, continued education, an apprenticeship or a traineeship within four months of leaving formal education or becoming unemployed.\n<\/p><\/blockquote>\n

The EC provided this page – Youth employment: Commission proposes package of measures – frequently asked questions<\/a> – to provide further detail about the proposal.<\/p>\n

Note it is a proposal at the moment not a policy and so will have to wind its way through the torturous EU processes that ensure that “solutions” are always enacted years after they are required and are usually the wrong approach anyway after all the compromises are included.<\/p>\n

But in terms of what is publicly-available, the idea of a Youth Guarantee sounds appealing. I love it when governments seek to guarantee things.<\/p>\n

The EC provided a list of the measures “that can be supported by the ESF” (European Social Fund). In the official document, there were a series of dot points, which described the examples of activities that would operate under each “measure”. I have summarised the intent of the dot points in the descriptor after each measure (that is, the non-quoted annotations). I have tried to remain positive.<\/p>\n

The list of “measures” (and my annotations) is as follows:<\/p>\n