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4 years later – the European Youth Guarantee is an under-funded failure

Summary:
I read a social media quip today from someone who said they had “been banned from their library for moving the books on trickle down economics into the mythology section”. That is pure class. The mover not the banner. But the sentiment is relevant to today’s blog on the latest evidence available on the European Commission’s much-touted Youth Guarantee, that was launched in December 2012 and became operational in April 2013. I say ‘operational’ although given the performance of the initiative that might be somewhat of an overstatement. The latest evidence comes from the European Court of Auditors, which is charged with assessing European Commission policy initiatives. The Report – Youth unemployment – have EU policies made a difference? – which was released on April 4, 2017, is not very

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I read a social media quip today from someone who said they had “been banned from their library for moving the books on trickle down economics into the mythology section”. That is pure class. The mover not the banner. But the sentiment is relevant to today’s blog on the latest evidence available on the European Commission’s much-touted Youth Guarantee, that was launched in December 2012 and became operational in April 2013. I say ‘operational’ although given the performance of the initiative that might be somewhat of an overstatement. The latest evidence comes from the European Court of Auditors, which is charged with assessing European Commission policy initiatives. The Report – Youth unemployment – have EU policies made a difference? – which was released on April 4, 2017, is not very complementary at all about the Youth Employment Initiative. In fact, one is not being unfair to conclude after reading it that the whole initiative has been an over-hyped (by the Commission) and grossly underfunded failure – as it was destined to be from the start. It is hard to put any other spin on it. None of the Member States involved have achieved their stated objectives to integrate the NEET cohort “into the labour market in a sustainable way”. The ECA found that the policy intervention has made only a “very limited” contribution and was not sufficiently funded from the start. Bad news but then it is hardly surprising. When the scheme was announced it was clear that its emphasis, design and funding commitments would lead to this type of outcome. One didn’t need to be a rocket scientist to be able to see that.

I have been tracking the Youth Guarantee since its inception. Previous blogs include (in chronological order – recent to initial):

1. Latest news on European Youth Guarantee hardly inspiring,

2. European Youth Guarantee audit exposes its (austerity) flaws,

3. Youth Guarantee has to be a Youth Job Guarantee.

I was critical of it from the start because it was hamstrung by austerity (lack of funds) and a supply-side emphasis from the start. It was hard to see an actual ‘job’ being created in all the verbiage coming out of the European Commission.

At the time, the policy was launched the European Commission ran its annual employment conference – Jobs for Europe: The Employment Policy Conference – September 6-7, 2012 in Brussels. I was one of the invited speakers on the topic “Pathways to full employment: job guarantee, social economy, welfare to work”.

I wrote about it HERE. I had various conversations at that event with officials from the Directorate-General for Employment, Social Affairs and Inclusion at the European Commission.

This video documents my presentation.

The Commission announced the Youth Guarantee soon after that. On December 5, 2012, the Commission released the statement – Youth employment: Commission proposes package of measures.

The press release from the then EC Commissioner for Employment, László Andor said:

High youth unemployment has dramatic consequences for our economies, our societies and above all for young people. This is why we have to invest in Europe’s young people now … This Package would help Member States to ensure young people’s successful transition into work. The costs of not doing so would be catastrophic.

As I indicated at the time – “catastrophic” costs indicated that the youth problem was a situation of the highest emergency and requires a response that would be commensurate with such an impending catastrophe.

The response was the ‘Youth Employment Package’, which:

… includes a proposed Recommendation to Member States on introducing the Youth Guarantee to ensure that all young people up to age 25 receive a quality offer of a job, continued education, an apprenticeship or a traineeship within four months of leaving formal education or becoming unemployed.

The list of measures that would be available under this ‘package’ were as follows – with my annotations after the hyphen:

  • “Outreach strategies and focal points” – promotion of policy initiatives, training, information
  • “Provide individual action planning” – training
  • “Offer early school leavers and low-skilled young people routes to re-enter education and training or second-chance education programmes, address skills mismatches and improve digital skills” – training.
  • “Encourage schools and employment services to promote and provide continued guidance on entrepreneurship and self-employment for young people” – training, entrepreneurship orientation.
  • “Use targeted and well-designed wage and recruitment subsidies to encourage employers to provide young people with an apprenticeship or a job placement, and particularly for those furthest from the labour market” – wage subsidies.
  • “Promote employment/labour mobility by making young people aware of job offers, traineeships and apprenticeships and available support in different areas and provide adequate support for those who have moved” – training and information.
  • “Ensure greater availability of start-up support services” – training, information and self-employment support
  • “Enhance mechanisms for supporting young people who drop out from activation schemes and no longer access benefits” – information and mentoring
  • “Monitor and evaluate all actions and programmes contributing towards a Youth Guarantee, so that more evidence-based policies and interventions can be developed on the basis of what works, where and why” – evaluation
  • “Promote mutual learning activities at national, regional and local level between all parties fighting youth unemployment in order to improve design and delivery of future Youth Guarantee schemes” – talk fests.
  • “Strengthen the capacities of all stakeholders, including the relevant employment services, involved in designing, implementing and evaluating Youth Guarantee schemes, in order to eliminate any internal and external obstacles related to policy and to the way these schemes are developed” – training and talk fest

At the time I concluded that the proposed Youth Guarantee continued the bias towards supply-side measures, which had dominated labour market policy around the world since the release of the OECD Jobs Study in 1994.

The so-called activation strategies blamed mass unemployment on both the unemployed themselves (they were lazy, unskilled etc) and government regulations (job protections, minimum wages etc).

To force more job seeking effort from the indolent, unskilled workers the activation agenda called for widespread deregulation and reductions in income support schemes.

The OECD demanded that governments cut benefits, toughen activity tests, eliminate trade union influence, abandon minimum wages and reduce any subsidies that prolong the search propensity by workers.

We covered this topic in great detail in our 2008 book – Full Employment Abandoned.

But even before the crisis, unemployment remained well above the full employment levels in most nations; real GDP growth was muted relative to the past; real wages growth has been suppressed relative to productivity growth – leading to a massive redistribution of real income to profits; and private gross capital formation has been lower than in the past.

Most economies failed to provide enough employment relative to the preferences of the labour force and persistent demand-deficient unemployment was accompanied by rising underemployment in many countries.

Assessment: the deregulation agenda was a failure.

The proposed “Youth Guarantee” was really just more of the same failed supply-side agenda:

1. More training – which is ineffective if it is outside the paid-work environment.

2. More information to be provided about jobs – yet it is hard to provide information about jobs that are not there!

3. Proposals to address poor signalling – that is, make one’s CV look better for jobs that are not there!

4. Wage subsidies to address slow job growth barriers – of all the measures proposed this is the only one that seems to focus on the demand-side of the labour market.

That is, directly address the shortage of jobs. Wage subsidies have a long record of failure and operate on the flawed assumption that mass unemployment is the result of excessive wages.

There is no consistent evidence that supports the idea that private firms will provide millions of jobs to the European youth as a result of wage subsidies (100 per cent or otherwise). If firms cannot sell the extra output they will not hire extra workers. They may hire youth and sack adults and pocket the cost differential if productivity considerations allowed.

It was clear then (2012) and remains so now (2017) that the overwhelming problem with the Youth Guarantee proposal was that it avoided the main issue – a lack of jobs. It was all about full employability rather than full employment.

What was (and is) needed in Europe was (is) a large-scale job creation program for those who are not in formal education or formal apprenticeship programs. Within that job creation program, various training ladders can be included where appropriate and where the participant desires lie.

But the essential starting point in resolving the catastrophic youth unemployment crisis in Europe was not more “supply-side” activation. The problem has always been overwhelmingly a demand-side one – a lack of jobs. That is where the bulk of the policy intervention should have been focused.

That remains the case today.

Which brings me to the latest report from the European Court of Auditors (ECA) on the Youth Guarantee – Youth unemployment – have EU policies made a difference? – which was released on April 4, 2017.

I examined the last European Court of Auditors report on the Youth Guarantee in March 2015 in this blog – European Youth Guarantee audit exposes its (austerity) flaws.

Not much has changed.

In their press release (April 4, 2017) – EU Youth Guarantee falls short of initial expectations – the ECA wrote that:

The auditors visited Ireland, Spain, France, Croatia, Italy, Portugal and Slovakia. These Member States had made some progress in implementing the Youth Guarantee, and some results had been achieved. However, none had ensured that all those not in employment, education or training had the opportunity to take up an offer within four months.

The ECA noted that “Policymakers should ensure that programmes designed to help young people do not raise expectations which cannot be fulfilled.”

Which is polite Euro-speak for saying that the European Commission continually lies about the nature of its policy initiatives – beats them up as solutions when, in fact, they are designed to fail from the start – especially when they are caught up in the fiscal austerity mania that has all but destroyed the viability of the Eurozone.

Digging into the Audit detail illustrates exactly why the initial design and approach to the Youth Guarantee and the Youth Employment Initiative set the schemes up to fail.

The ECA sought “to evaluate the contribution provided by the Youth Employment Initiative” (including the Youth Guarantee) by examining progress and outcomes between April 2013 (the official launch) and May 2016.

Nothing since May 2016 will have altered the conclusions in any significant way.

The ECA found that:

1. “the current situation – more than three years after the adoption of the Council Recommendation – falls short of the initial expectations raised at the launch of the Youth Guarantee”.

2. “None of the Member States visited has yet ensured that all NEETs had the opportunity to take up an offer within four months, helping them to integrate into the labour market in a sustainable way”.

3. “it is not possible to address the whole NEET population with the resources available from the EU budget”

4. “the contribution of the Youth Employment Initiative to the achievement of the Youth Guarantee objectives in the five Member States visited was very limited at the time of the audit.”

Sounds like a grossly underfunded failure – as it was destined to be from the start.

The Youth Guarantee targeted the so-called NEET cohort – young people (15-24) who were “not in employment, education or training”.

This group is split into two:

In addition to the group of young people who are unemployed (i.e. available to start work and actively seeking employment), there is another large group of young people who are less motivated to be proactive and are, therefore, further detached from the labour market. These are inactive young people who are neither in education nor training and are referred to as inactive NEETs.

The NEET rate in the EU28 was 10.9 per cent in 2007 (split between 6 per cent inactive and 4.9 per cent officially unemployed).

The peak rate was 13.1 per cent in 2012 (6.9 per cent unemployed, 6.2 per cent inactive). By 2015, the ECA show that the NEET rate has barely fallen – at 12 per cent (5.9 per cent unemployed and 6.1 per cent inactive).

The following graph shows the “substantial differences in the NEET rates of the various Member States at the end of 2015” and the varying composition of NEETs.

More than 20 per ecnt of Italian people between 15 and 24 years of age are in this nowhere status (NEET).

4 years later – the European Youth Guarantee is an under-funded failure

The ECA found that:

1. “the NEET population decreased in all Member States visited, except for France”.

2. “this reduction in the NEET population was not due to an increase in the number of young people employed. While youth unemployment rates have decreased as a whole in the seven Member States visited, the number of young people in employment actually decreased”.

3. “young people tend to stay longer in education and defer their entry into the labour market during periods of low economic growth”.

Conclusion

Essentially, the ECA concluded that the European Commission had over-hyped the initiative and that it should “ensure that Member States justify how their EU-funded youth employment measures will adequately address their needs” after managing “manage expectations by setting realistic and achievable objectives and targets”.

But the overriding point is that the funding and design of the program has to change dramatically for it to have an impact.

A Youth Guarantee should insert the word “Job” between the Youth and the Guarantee and fund large-scale job creation within the Member States with supportive training and general skill development available within the context of paid work.

Then the next ECA audit would be favourable and the NEET problem would be substantially reduced.

The European Commission were told that at the time. But like most Commission initiatives – deaf ears rule.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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