Half the increase in youth unemployment in eurozone is because of the decline in economic growth of the region, and that some labour market reforms are needed in addition to economic recovery to solve the problem, an IMF survey showed on Tuesday.
In the most vulnerable euro area economies — Cyprus, Greece, Ireland, Portugal, and Spain — the lack of growth accounts for about 70% of the rise in youth unemployment, the Fund said.
"The financial crisis has exacted a severe toll on society in the euro area. Nowhere is this more apparent than in the headline-generating figures for youth unemployment, which peaked at over 50 per cent in some countries in September 2014," the survey said.
IMF said only 4 out of 10 workers between the ages of 15 and 24 in the most vulnerable eurozone countries are employed even today.
"And if the euro zone's recovery slows, these numbers could start to climb again," the survey report said.
Also, the share of youth in total population is growing. It has reached some 40% at end-June.
What is therefore alarming is that such a large section of the population has been unemployed for longer than a year, joining the ranks of what are defined as the long-term unemployed, IMF said.
Youth joblessness is problematic in the eurozone more because it has an ageing population and suffers from considerable economic slack.
"And the longer unemployment lasts, the greater the erosion of skills and employability, and the more corrosive the effects on social cohesion and institutions," IMF said.
"Without a vibrant young workforce, economies cannot afford to fund their social safety nets. They become vulnerable to slowing innovation and competitiveness and reduced growth potential, especially if their most talented youth choose to study and work abroad," the report said.
The survey also point out that the financial crisis is not the only reason for youth unemployment. Out of Ireland, Greece, Spain, and Portugal, the group that experienced a surge in unemployment during the crisis, all except Ireland had this problem well before the crisis.
In Italy and France too, the high youth unemployment rates are, for the most part, a pre-crisis legacy, IMF said.
Growth and reforms
The report finds that young workers are about three times more sensitive to changes in economic activity than adult workers, owing to their more fragile employment conditions.
"The remedy lies in robust output growth. cards And strong policies are needed for such growth in the eurozone," IMF said.
Growth alone will not solve the problem, especially where high youth unemployment predates the crisis, the Fund said, and added that some reforms related to hiring and skill development can also help reduce the impact of the problem.
Making it less costly for firms to hire workers can increase the demand for labour, thus reducing unemployment.
Also, an employment structure with temporary contract workers have low job protection while others are on highly protected permanent contracts add to youth unemployment because young workers tend to fall in the former category, IMF said.
Vocational training and well designed cost-effective active labour market policies can also moderate high youth unemployment, the Fund said.
"A complex problem requires a complex solution. The answer to high youth unemployment lies in jumpstarting economic growth and implementing labour market reforms," the report said.