Europe's New Lost Generation

In the past several weeks, European universities have graduated their final-year students. Across the continent, hundreds of thousands of young people have left the cradle of school and started the search for work. But many of them won't find it. This year's graduating class is running smack into the worst employment market in decades -- a situation that threatens long-term social and economic trauma.

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World Bank President Robert Zoellick recently told Spanish newspaper El País, "What began as a great financial crisis and became a great economic crisis is now becoming a great crisis of unemployment, and if we don't take measures there is a risk of a great human and social crisis, with major political implications."

Although unemployment is high and rising across all demographic groups, Europe's young workers have been especially hard hit. Throughout this decade, Europe has had higher rates of youth unemployment -- about 16 or 17 percent -- than the OECD average. But until recently, the rate was mitigated by a boom in short-term temporary contract work, which does not always require employers to offer expensive benefits. These jobs went, disproportionately, to young people. By some economists' estimation, they accounted for most of Europe's job growth in the past decade.

But these jobs created a generation of young people tenuously employed, with no benefits, severance pay, or guarantees. In France, the group social scientists call "Génération Précaire" earned less, in real terms, than their parents did in the years after World War II. In Britain, the term is the "IPOD" generation: insecure, pressured, overtaxed, and debt-ridden. By 2007, approximately 6 million young people worked temporary jobs. These workers have been the first to go in the recession; the contracts expire, and the work is gone.

And it isn't just teenagers or dropouts looking for low-skill work who are having trouble finding jobs. People with college and graduate degrees are also struggling, as employers stop hiring new workers altogether. Unemployment among job seekers under 25 in France has risen more than 40 percent in the past year, while total unemployment rose by about 26 percent. A third of Britain's unemployed are under 25. Youth unemployment is nudging 40 percent in Spain.

The Baltic states, whose bubble burst so dramatically last fall, have seen the greatest increases. In June 2008, between 8.9 and 11.9 percent of young people in Latvia, Lithuania, and Estonia were out of work. As of the last round of reported data, from March and April, those rates stand between 25 and 35.1 percent -- about a threefold increase in less than a year.

The European countries with the worst labor markets now -- emerging Eastern European economies, like Russia and Latvia -- are also those with a proportionately high number of labor-market entrants. Across Europe, a "baby boomlet" or "echo boom" of baby-boomer children means that the ranks of 18-to-25-year-olds have swelled in recent years, heightening the number of young job-seekers.

Post-Soviet European countries suffer from a compounding demographic trend as well. Before the breakup of the Soviet bloc, communist governments had provided social safety nets and encouraged large families in an effort to keep birthrates high. States such as Romania and Hungary gave parents paid maternity leaves and guaranteed them their jobs back afterward. This caused an upward blip in birthrates, which peaked in the mid-1980s before falling again along with the Berlin Wall.

Thus, a large group of new job-seekers has coincided with the worst recession since World War II. Thousands and thousands of these young people face extraordinarily challenging labor-market conditions. And the numbers don't even reflect the full picture. Due to the lag in statistics compilation, the current unemployment numbers do not account for the glut of young people entering the workforce after completing school in the past month or two. Hundreds of thousands of graduates will inevitably increase competition for entry-level gigs and push up unemployment numbers still further.

Beyond the obvious hardship of unemployment, this phenomenon has some worrisome social implications.

According to economist David Ellwood, these young unemployed people suffer from a "permanent scar" rather than a "temporary blemish." Studies show that a period of unemployment in one's youth tends to hurt that individual's work prospects down the road, preventing him or her from gaining a foothold in the market and, possibly, auguring lower incomes and a greater incidence of unemployment.

"A spell of unemployment when you're young has continuing and harmful effects," explains leading labor economist and former British central banker David Blanchflower. "So for an economy, that's bad. It does what we call hysteresis." (The term implies that the system "remembers" the unemployment.)

The effects aren't simply financial. One prominent British think-tanker recently warned, "If this situation persists, the risk may be of a new generation lacking the experience, qualifications, and self-belief to provide for themselves and their families."

Moreover, youth unemployment, much more so than for older workers, carries dangerous social effects: social exclusion, depression, poorer health, social disruption, and higher incidences of crime, incarceration, and suicide. With every month a teenager is unemployed, for instance, his or her likelihood of being convicted of a crime increases.

European governments are clearly worried. French President Nicolas Sarkozy recently signed a draconian law requiring three years in jail or a 45,000 euro fine for members of "gangs" -- broadly defined as groups of young people. "The worsening of youth unemployment ... creates further feelings of frustration and exclusion," he explained. "We have noticed in recent months the emergence of new forms of violence, which are profoundly traumatizing."

Europe's definitely taken note of the problem. But countries, as well as institutions such as the EU and the OECD, are running out of time to step in with programs tailored to employ young people and increase options and social support for the unemployed. And many economists and politicians worry that they've done too little, too late.

"It's hard to say whether a whole generation is 'doomed,'" says Yale University political scientist David Cameron. "The cyclical component will probably start receding a bit in late 2010 or 2011. But we'll have higher unemployment for a long time to come. Europe needs a growth rate of 2 to 3 percent a year, year after year, to bring the rate down substantially. I don't think anyone sees that happening anytime soon, if ever."

"The great benefit is that in a few years, when the Earth turns, there will be thousands fewer [young job-seekers]," says Blanchflower, the former British central banker. "But now, we're just trying to get these economies moving. And unemployment, especially among young people, is a ticking time bomb."

Most European programs meant to promote youth employment are still in their early stages and could take months or even years to implement. It was only a month ago, for example, that the European Commission recommended that the 27 EU member states create 5 million apprenticeships to help young workers "ride out the storm" and to train malleable young people for growing job sectors, such as green energy.

Then in June, British Prime Minister Gordon Brown said that, as part of a billion-pound unemployment plan, under-25s who have been out of work for a year will be guaranteed a job, work training, or an internship by the government. (If they turn down the generous offer, they'll have their state benefits slashed.) Nordic governments, such as Sweden's, are considering similar plans.

But that is cold comfort for Europe's young. For now, they are simply out of work and out of luck.