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More recently, Blanchflower & Freeman (1996) have noted that the almost universal fall in the relative wages of young workers observable in OECD countries during the 1990s, despite being accompanied by a sharp reduction in the relative size of the youth cohort did not lead to any increase in youth employment rates which also fell over the period. Finally, Blanchflower (1996), in his analysis of International Social Survey Programme (ISSP) data, notes a weak relationship (R2 = .15) between youth/adult relative wages and the corresponding youth/adult unemployment rates for thirteen industrialised countries.
Figure 4 compares movements in the youth/adult wage ratio with movements in youth unemployment rates. Examination of the figure is undoubtedly a rather superficial way of looking at the issue. Having said that, however, the figure does not seem to reflect any close relationship between the relative wages of youth and their unemployment rates. Indeed, the impression is that, more often than not, unemployment and relative wage rates appear to be moving in opposite directions to each other.
8.0 Youth Unemployment: Causes and Effects
A number of possibilities suggest themselves to explain patterns of high and persistent unemployment amongst the young: aggregate demand; youth wages; the size of the youth cohort and a lack of skills. Clearly, in finding solutions to the youth unemployment problem, it is crucial to determine the relative importance of these factors. Many studies have shown the importance of aggregate demand. As argued above, youth unemployment rates are approximately twice as high as adult unemployment rates. It is also the case that young people are not only more likely to quit their jobs voluntarily but are more likely to be fired as well (last in, first out). However, the opportunity cost to firms of firing young workers appears to be lower than firing older workers. Young workers are also less likely to be subject to employment protection legislation. It is often held that the wages of young workers are too high because of the existence of minimum wage legislation, which raises the wage of the young making them uncompetitive, especially compared to married women who, around the world, have entered the labour force in large numbers over the last two decades. There is a good deal of evidence that youth wages relative to adult wages have declined considerably in recent times in many countries. Furthermore, there is growing literature that suggests that the employment reducing effects of the minimum wage have been greatly exaggerated, especially in the United States where its level is very low. The evidence does not seem to suggest that youths are being priced out of jobs in any major way.
A further explanation for high and persistent youth unemployment is the size of the youth cohort. The higher the number of young people, the more jobs that will be required to accommodate them. This explanation does not fit the data well, as was discussed earlier, since the size of the youth cohort has been in decline in most countries.
Finally, it is argued that in this new technological age the young do not possess the skills that firms need. There is less demand than in the past for unskilled jobs, particularly because of new technology, and this substantially affects the young.
No matter what the cause of youth unemployment is, it does seem to have serious consequences especially if the unemployment spells are long or if an individual experiences numerous spells of it. The duration of unemployment spells tends to be shorter for the young than for older workers. There is, however, some evidence across countries that although youth unemployment is of shorter duration than that of adults, the difference is not substantial. The longer an unemployment spell, the more difficult it is for that person to find work because of the loss of skills, morale, psychological damage etc. There are three major reasons why unemployment while young, especially for frequent or long periods, can be particularly harmful:
a. Early unemployment in a person's career may permanently impair his or her future productive capacity.
b. Barriers to employment can block young people in the passage from adolescence to adulthood, which involves setting up a household and forming a family. There is some connection between youth joblessness and serious social problems such as drug abuse, petty crime and single parent families.
c. High levels of youth unemployment may, at an aggregate level, lead to alienation from society and from democratic political processes, which may give rise to social unrest. Unemployment makes people unhappy (Blanchflower and Oswald, 1999a, Winkelmann and Winkelmann, 1999; Oswald,1997b).
In the next three sections, evidence that exists on the causes and consequences of youth unemployment is examined for the OECD, Transition Economies and finally the developing countries of Latin America, Asia and Africa. As much more is known about the workings of the youth labour market in the OECD, the first section on the OECD lays out the ground for other regions of the world. In the following sections, an attempt is made to compare and contrast the situation in the developing countries with that found in the OECD. Interestingly, there seem to be important similarities.
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