UNEMPLOYMENT IN RECESSION: Nobel prize-winning economist explains why active labour market policies are essential to help our jobless youth
Youth unemployment is higher than adult unemployment even in normal economic times. But in recessions, especially in countries with rigid labour markets, young people typically stay unemployed for too long. In these circumstances, urgent policy action is needed to avoid long-term unemployment, which destroys talent and creates social problems.
Delivering the Royal Economic Society (RES) annual public lecture on Thursday 22 November 2012, Professor Chris Pissarides outlined key elements of an active labour market policy for youth. This could include extending education places, through universities and colleges offering more applied and shorter courses; providing specially designed training; subsidising self-employment or recruitment of unemployed youths by companies; and teaching young people how to look for and learn about jobs.
The Nobel laureate and London School of Economics professor looked at the contrasting experiences of youth and adult unemployment in the OECD countries during the latest recession. Germany, for example, is the most successful of the major countries in its ratio of youth to adult unemployment: it has a very elaborate subsidised apprentice system for youths. Italy and Greece are the worst: both countries have rigid labour markets with a lot of job protection for adults and low levels of job turnover.
Building on the ''search and matching'' approach to unemployment that he pioneered, Professor Pissarides explained why youth unemployment is almost always higher than adult unemployment – and what that means for policy:
''A good labour market is one in which young people are given the chance to go “job shopping” until they discover what they are good at. Just as they are not expected to marry their first boyfriend or girlfriend, they should not be expected to take their first job and stick with it forever.
''Job shopping explains why youth unemployment is more than adult unemployment in normal times. The best kind of market that provides this experience is a flexible market with a lot of job turnover. In this market, employers are able to take advantage of new job opportunities and create many jobs for youths to try out.
''But in rigid labour markets or in recessions, young workers stay unemployed for too long. That is when we need active labour market policies.''
''Unemployment in Recession'' by Chris Pissarides, the 2012 Royal Economic Society (RES) Public Lecture, was delivered at the Royal Institution, London at 5pm on Thursday 22 November and at the University of York at 5pm on Wednesday 5 December.nChris Pissarides is School Professor of Economics at the London School of Economics. He was co-recipient of the 2010 Nobel Prize for Economic Sciences – ''for analysis of markets with search frictions''.
The Royal Economic Society was founded in 1890. Now in its second century, the RES is one of the oldest economic associations in the world. Currently, it has over 3,000 individual members, of whom 60% live outside the UK.
The lecture was preceded by a presentation to the 2012 Young Economist of the Year. The RES essay competition is judged by current RES President Richard Blundell, Charlie Bean of the Bank of England (and next RES President, from April 2013) and Stephanie Flanders of the BBC. They considered a final shortlist of 18 entries from over 750 submitted.
The essay by this year''s winner, Calum You, is titled ''Lamentations of a Chancellor: Is there a better way out of the debt crisis than austerity?''