Europe's New Lost Generation

Young Europeans are facing the worst job market in years -- and that has some scary implications now and down the road.

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.

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.

Flickr user Franck Prevel


G-8? G-whatever.

Why the G-8 should step aside for the G-2 and G-20 -- as soon as possible.

Ballgames have always been a popular metaphor for managing global affairs. So, let's consider how we might describe the next decade's G-something international relations in terms of sport.

Recent trends suggest we might be headed for a Wimbledon epic: the existing tennis champion and the young contender dominate the tournament for a generation. As the United States and China -- the G-2 -- battle it out for the prize again and again, the semifinal losers, Europe and Japan, will have to sit and watch from the sidelines along with those not yet big enough to join the heavy hitters. When some more-familial sporting activity is needed, then G-20 can take a turn at playing social handball.

This scenario leaves the G-8, now meeting at its summit in L'Aquila, Italy, about as relevant, and chaotic, as an amateur doubles tournament. With NATO taking care of defense issues, the G-8 countries -- Britain, Canada, France, Germany, Italy, Japan, Russia, and the United States -- form a more and more obsolete grouping. (Perhaps this explains the large number of additional invitations to the summit: to create an agenda and a list of successes.)

What's really going on?

First, the financial crisis has rendered the G-8 economies less important. Real power-broking inevitably moves with economic muscle, just as sponsorships and advertising contracts follow the tennis champs. So as Europe and Japan continue to slide into a deeper and prolonged economic trough, their power is inevitably eroding. U.S. hegemony is increasingly challenged as well.

Second, among G-8 countries, there is no common vision when it comes to economic policy priorities and growth targets. Over the last year, efforts to coordinate a strong reaction to the financial crisis have floundered at a time when they were most essential. Meetings of other organizations -- such as the G-20, the European Union, and the International Monetary Fund -- proved far more effective and decisive.

It is increasingly hard to see how the G-8 can survive as a vital forum. The heads of state assembled cannot possibly agree upon a coordinated oil-market strategy, for instance, without inviting oil suppliers to join. France's efforts to use the summit to address oil-market speculation are interesting, but trying to create any energy agreements without OPEC and other major players seems misguided. Nor is it clear what specific role the G-8 -- as opposed to the G-20 -- has to play is in relation to global food and climate change. Many politicians have indicated that they plan to use the G-8 to discuss climate change, but again, the real action is happening elsewhere: any Kyoto II-type agreement will take place this December in Copenhagen.

But there is still one pressing issue that G-8 leaders should take up in L'Aquila, one that is their problem to solve: the status of the banks. Many analysts think that leverage has not been sufficiently reduced and that there are still substantial toxic assets and bad debts on banks' books. The continued malfunctioning of the interbank market indicates that trust has not returned, while the tightness of credit markets and high spreads are holding back economic recovery. Virtually all of the major, globally interconnected banks reside in G-8 countries. Thus, resolving continuing threats and placing these banks on sure footing should be the key G-8 issue.

Although the G-8 members may not agree on how to manage the crisis in terms of macroeconomics, they do share a common cause in steadying their fragile banking systems. Future turbulence in banking seems more likely than not. Some reports have indicated the worst is not over in the U.S. mortgage market. Major European banks are still struggling, given the repercussions of the slump in Eastern Europe and homegrown threats in the construction sector (emanating from countries such as Spain and Ireland). Heads of state at the summit should share information on the state of their banks and discuss whether to continue existing programs for resolving the banking crisis or create new funds and tools for the financial sector.

If this critical issue is not on the table and attention is diverted instead to issues that appear more G-20 than G-8, then this may signal two things: European policy paralysis, in part because of the forthcoming German elections, and that the G-8 sees no further function of its own that it can usefully perform.

When the crisis really is over, the G-20 has matured, and the real action to watch is on center court at the G-2, there might truly be no function left for the G-8. But before it closes down, its last phase should include oversight of any last vestiges of the crisis in the Western banking system and planning the exit strategy from the exceptional measures taken during this crisis -- preferably a carefully coordinated effort at the appropriate time. After this, it will be time for an elegant exit for the G-8 itself -- Pete Sampras, who left the game on top, might serve well as the role model.

Flickr user Downing Street