This article was originally published in Elm's predecessor media, LLinE. Introduction Youth unemployment has increased dramatically all over Europe since the financial crisis of 2008 although at different levels and speed in the individual countries. Rising youth unemployment in particular creates a strong feeling of urgency among all political leaders. Experience shows that young people

This article ws originally published in Elm’s predecessor media, LLinE.

Introduction

Youth unemployment has increased dramatically all over Europe since the financial crisis of 2008 although at different levels and speed in the individual countries. Rising youth unemployment in particular creates a strong feeling of urgency among all political leaders. Experience shows that young people who do not get attached to the labour market at an early age risk being permanently excluded. Such exclusion could have severe consequences not only at the personal level but also for the long term financial sustainability of the welfare state.

Nordic political leaders have also put the increased youth unemployment at the top of their agendas. All Nordic countries have strengthened and initiated costly national initiatives in order to address the challenge. Nordic Council of Ministers (see info box below) has also channeled substantial project funds into mapping and analyzing the scope and character of youth unemployment and highlighting best practices in the Nordic countries. Furthermore, causes and remedies regarding youth unemployment have been discussed at many Nordic Council of Ministers meetings since 2008. This year, the Swedish Presidency of the Nordic Council of Ministers will focus on working life for young people as one of their main themes and is planning a Job Summit in May in Stockholm to create a high level arena for the Nordic Prime Ministers, Employment Ministers and others to discuss with relevant stakeholders how to tackle the challenge (Sektorprogram, 2013).

In spite of all these efforts, youth unemployment remains high in the Nordic countries and still creates great concern among most stakeholders. This has raised a debate whether the efforts of the Nordic countries suffice to address the challenge. This article will look into the levels of youth unemployment in the Nordic countries, good policies and practices of the Nordic government initiatives against youth unemployment, the dilemmas and challenges faced when trying to tackle it and point to some possible ways forward.

The levels of youth unemployment in the Nordic countries

The levels of unemployment are measured in several ways. Basically, two different methods are used: Registered unemployment and labour force surveys (LFS) – in both cases as a percentage of the labour force.

The registered unemployment is measured in two ways: Those registered as unemployed, who claim unemployment benefits from an employment insurance fund or are recipients of social assistance, and who are ready for work (“net registered unemployment”). And these “net registered unemployed” in addition to unemployed participating in labour market activation programs, who are also considered ready for work (“gross registered unemployment”).

The LFS are based on interviews with a statistically significant sample of the population in each country. In order to qualify as unemployed in the LFS, at the time of the interview a person has to be out of work, be available for work within the next two weeks and have been actively looking for work in the past four weeks.

The picture is further complicated since the Nordic countries do not use the same definition of registered unemployment: Sweden, Finland and Iceland include full time students who are also looking for work while Denmark and Norway do not. Furthermore, Iceland does not include 15-year-olds among their unemployed youth while the other four Nordic countries do. Even within countries the definition of unemployment is adjusted over time to be in line with EU legislation or ILO guidelines.

LFS are most suited for international comparisons, since they are based on the guidelines of ILO (International Labour Organization). Even so, these guidelines are not interpreted exactly the same way in all countries. However, Eurostat’s statistics on unemployment are based on national LFS and are the best basis for comparison among EU and EEA member states that is available.

The table below shows Eurostat’s figures regarding the development of youth unemployment from 2008 to 2011 (2012) in the five Nordic countries and compared to the EU average:

Table 1

The table shows that 2010 represents a kind of peak in the Nordic countries since 2008 even though levels remain high in 2011 and 2012. Denmark and Iceland have experienced the most dramatic increases, while Norway is the least affected. Sweden and Finland already in 2008 faced rather high levels of youth unemployment which also increased after the financial crises, however, not as much as in Denmark and Iceland.

In the public debate some specific national features have been raised as possible explanations behind these marked differences among the Nordic countries: The exceptional collapse of the Icelandic economy in 2008-2009, Norway’s abundant financial reserves based on its high oil and gas revenues, Denmark’s relatively low social assistance to unemployed youth below the age of 25, the relative high levels of job protection in Sweden and Finland as opposed to Denmark in particular where a very flexible labour market creates many job openings (“flexicurity”), a more academic vocational training system in Sweden and Finland as compared to the apprenticeship-based vocational training system in Denmark and others.

Urgency of taking initiatives against youth unemployment

The Nordic countries face an overwhelming demographic challenge (ageing population) threatening the financial sustainability of the welfare state in the long run. In principle, there are three main ways to tackle this challenge: Increase taxes, lower public spending and service levels, or increase the labour force. Since the two first options would entail a number of serious other challenges, governments have put their efforts into the latter option as the panacea to neutralize the sustainability challenges.

In this quest, the rise in youth unemployment since 2008 has clearly not been helpful. On the contrary, the risk of large numbers of young people being permanently excluded from the labour market would obviously aggravate the sustainability challenges, since this would mean increased public spending and diminished tax revenues in the long run. Apart from this, governments are of course also concerned about the negative consequences at the personal level for every excluded citizen and how this might affect society over time.

Good policies and practices

Two studies funded by the Nordic Council of Ministers (TemaNord, 2010; Nord, 2012) have mapped out the measures and initiatives against youth unemployment of each of the five Nordic countries. Some general trends are identified within the following categories:

Among the overall political measures all Nordic governments have taken monetary and fiscal steps to strengthen and stabilize their economies in order to increase economic growth and create more jobs. Several of the Nordic governments have also taken steps to increase incentives to work, e.g. through income tax exemptions for working people, and to increase incentives to hire young unemployed, e.g. through employers’ fee exemptions or salary subsidies. Most Nordic governments have also strengthened efforts to better coordinate public services and offers within the employment, education and social sectors with the aim to provide a more coherent support in particular for young unemployed persons on the periphery.

The employment policy measures take place within the framework of the general active labour market policy (ALMP). Two important principles are common within the ALMP measures directed towards unemployed youths in the Nordic countries: Those with an education should be employed as quickly as possible and those without an education should – if they are able – start an education as soon as possible. When job openings are few much effort has been put into ensuring that young unemployed people maintain contact with the labour market (for instance through practice periods), or develop their competences in order to prepare them well for the labour market once the economy starts picking up again (for instance through labour market training). Several of the Nordic governments describe some of their measures as “guarantees” clearly indicating that they will ensure that a young unemployed will be activated somehow, typically after three months of unemployment.

The social and health policy measures have focused on test and development projects to catch, motivate and stimulate young people on the periphery to deal with everyday life and gradually open up towards work or education.

The education policy measures have focused on strengthening existing and developing new measures to promote good secondary level education and prevent dropping out which is also considered a major challenge by the Nordic governments. Another focus area has been to strengthen the employability of young people through closer links between education and work.

When looking at the education policy measures in more detail the following good examples could be highlighted:

In Denmark all unemployed youths below the age of 30 who contact the Public Employment Service (PES) and who do not have a secondary education will be tested as to their reading, writing and math skills if they need it. If the test shows a need for improvement of these skills in order to be able to take up an education at secondary level, the PES will offer a reading, writing or math course. Specific measures have also been put in place in order to activate youth between 15-17 and 18-19 years of age who are neither in education nor work.

In Iceland, youths who are unemployed for more than three months will join an intensive guidance and motivation program tailored to the individual needs and abilities with the aim to get closer to work or education. Educational activities are offered in close cooperation with secondary level education institutions and tailored to the individual level. The education offered includes theoretical and practical courses as well as vocational training. The students receive unemployment benefits while studying.

In Finland all unemployed youths below the age of 25 who have not completed a formal vocational training or who need practical training are offered an individual plan to be followed at one of the 220 youth workshops with the aim to help them complete their vocational education and get closer to work.

In Norway unemployed persons with reduced work ability and no or limited working experience are offered a two year full time program aimed at moving them closer to the labour market. The program offers an individual action plan and includes measures to increase motivation and skills, qualifications, practical job training and assistance in job search.

In Sweden all unemployed youths who have been out of work for three months are offered specific measures to get closer to work. During the first three months the PES will map out the individual situation, provide guidance to education or training and offer a coach for job search. In addition, subsidies for employers or for rehabilitation are offered for up to 15 months. The students receive support at the level of unemployment benefits while in the program.

More detailed descriptions of the many different measures and initiatives of the five Nordic governments towards youth unemployment can be found in the two Nordic Council of Ministers studies mentioned above.

Dilemmas and challenges faced by the Nordic governments

The public support and service levels provided towards unemployed youths in the Nordic countries is quite generous compared to most other countries. Still, with the exception of Norway, youth unemployment in the Nordic countries remains at a high level and there seems to be no quick fix since the Nordic governments face a number of dilemmas and challenges of which a few are highlighted in the following.

One dilemma and major challenge is of course the worldwide economic crisis which is beyond the control of any government. This crisis has substantially reduced international and domestic demand for goods and services and hence many jobs have disappeared and new job opening have become much fewer.

In response, the Nordic governments consider ways of stimulating domestic demand. One traditional Keynesian approach is to increase public investments and spending in times of crisis. This approach is, however, much politically debated. Supporters say that in times of crisis it is necessary for the public sector to momentarily increase investments and spending to create new job opportunities quickly and they argue that this would even kick-start the economy in general through dynamic effects. Opponents say that the public budgets are already squeezed and they point to the restricted framework for public deficits provided by the EU. Opponents also argue that economies with large fiscal deficits face the threat of increasing interest rates resulting from reactions of the international financial markets which would also be detrimental to growth.

The Nordic governments also consider ways to improve conditions for the private sector as an approach to increase domestic demand. One much discussed option is the lowering of enterprise taxes and employers’ fees. Supporters of this option claim that lower costs are needed for the private sector to increase its competitiveness in the world market and that this approach would be the only way to create real growth and lasting new jobs. Opponents have argued against lowering such taxes and fees for tax revenue, environmental, public health, political or moral reasons.

In the political debate it has also been a heated topic whether some structural features of the Nordic welfare systems could be part of the explanation behind the still high levels of unemployment.

Critics have raised the point that the relatively high unemployment benefits and social assistance tend to undermine the economic incentives to take on a low paid job. They have highlighted that in certain cases an unemployed would get more out of remaining among the ranks of the unemployed than from working full time and that this is one important explanation behind the continuing large numbers of citizens at working age living of social assistance. A recent study shows that 22% of the working age population in Denmark live off social assistance while in Sweden it is 15% (Arbejdsmarkedsrapport 2012, DA). Figures for Norway, Finland and Iceland are not provided in this study.

Others react to this point of view claiming that as long as not enough jobs are available, increased economic incentives to work would make no difference as to the level of unemployment. Hence, in their view cuts in unemployment benefits and social assistance would only make the unemployed poorer and even more excluded.

Another dilemma of the Nordic governments is the difficulties they face in securing that almost all youth get at least a secondary education in order to strengthen their long term employability at the labour market. There is no doubt that the Nordic governments see education as key in this endeavor and ambitious goals have been set as to how large a percentage of a generation should pass a secondary education. In spite of this strong priority in combination with free access to secondary and higher level educations and a very generous level of government support for all students above the age of 18 years, too many students still drop out, especially from vocational training. A major explanation seems to be that quite many young people leave primary school without the necessary basic skills in reading, writing and math. Hence, as students at secondary level many of them find it difficult to fulfill the demands; they lose interest and confidence and finally drop out. Experience shows that in times of crisis those without an education are most likely to lose their jobs first. Hence, such young people risk ending up being neither in education, employment or training (the so called “NEETs”). They have the highest risk of being permanently excluded and the Nordic governments regard them amongst the most urgent and most challenging groups to ensure a foothold at the labour market.

Finally, another publicly debated issue concerning the workings of the PES could be highlighted as part of the dilemmas faced by the Nordic governments. Some critics claim that in spite of all the public funds being used for the ALMP, the local PES offices do not respond sufficiently to the needs of the local labour markets but are too focused on the activation offers at their disposal. Others hold the view that the local PES offices are too overburdened with regulations and control measures from central government authorities that they do not have enough time to ensure the best possible match between supply and demand at the labour market.

Conclusion

Whereas the Nordic governments spend huge public resources in bringing down youth unemployment, the Nordic cooperation has provided useful arenas for the exchange of experience and best practice towards this common challenge. In this way, the Nordic Council of Ministers has contributed to inspiring the Nordic governments on ways to improve and strengthen their national measures and initiatives.

The two Nordic Council of Ministers publications mentioned above also provides some advice on how to address the challenges of youth unemployment of which the following could be highlighted:

In order to reduce dropout rates at secondary level efforts might be stepped up to improve the children’s basic skills already at kindergarten and primary school level and prepare them better for secondary education and the labour market. At secondary level, education systems might be tailored more to the individual needs and skills of each student offering more practical training as part of the curriculum. Also at secondary level, young students with a risk of dropping out might benefit from early support and follow-up through close collaboration between the student, the education institution, relevant public authorities and the student’s family.

After a dropout or after a secondary level education young unemployed might benefit from early tailored ALMP programs, including economic incentives to participate, developed in collaboration between relevant authorities in order to provide a coherent assistance program. If these activities do not lead to employment, the programs might integrate and combine activities such as practical training and labour market education. Young unemployed on the periphery in particular could benefit from a coherent, tailored and lasting guidance where also his/her family are actively involved and takes responsibility for his/her integration into the labour market. In these cases specific focus on the difficult transitions between different levels of education and from education to the labour market are called for.

Apart from these advices, the dilemmas and challenges presented above raise some questions regarding further possible ways forward of which a few are highlighted below:

Firstly, there is general agreement that to achieve a lasting reduction of unemployment it is necessary to increase economic growth and job creation. As indicated above, the dilemma is how to achieve it: Increased temporary public investments and spending or structural improvements of the conditions of the private sector? Maybe a way forward would be to emphasize both instruments more and let them go hand in hand to mutually reinforce each other? Some inspiration might even be found in a report just about to be published by the Nordic Council of Ministers. Based on interviews and surveys of thousands of Nordic growth companies in the Nordic countries, the report provides a number of evidence based recommendations concerning policies which could strengthen the framework conditions of Nordic growth companies with the aim to stimulate their competitiveness, growth and job creation. (Nordic Council of Ministers, forthcoming)

Secondly, incentive mechanisms are widely used and recognized as efficient instruments in moving people in certain directions. Maybe more focus on incentives is necessary also to really bring down youth unemployment?

In order to increase the incentives for young unemployed to look for work, maybe the levels of unemployment benefits/social assistance could be reduced while at the same time specific income tax exemptions could be granted temporarily to young people at work? Another way might be that the level of unemployment benefit/social assistance for young unemployed is made depending on how serious and active they are in searching for some kind of meaningful activity – job, education, training etc.?

In order to increase the incentives for education institutions to support their students as much as possible to complete their exams and ensure that they do not drop out, government funding to education institutions might to an extended degree be based on the number of students passing their final exams? Another instrument might be to use the government support for students to guide students more in the direction of common goals, e.g. choose the studies most in demand at the labour market, make students finish their exams and studies on time and others?

In order to increase the incentives for the employers to employ young unemployed, maybe employers’ costs could be reduced even more while in return the employers should ensure decent training and support for the youths at the workplace for a certain period of time? In the case of young unemployed on the periphery extraordinary reduced costs might be granted in return for extraordinary flexibility and patience on the part of the employer during the work trial period? Another method used in several Nordic countries is that public authorities aim to ensure that private contractors make room for a certain number of young unemployed people at the work place while working for the public authority. Maybe this method could be become a more general condition for a private contract with a public authority in the Nordic countries?

As to the PES, maybe a closer collaboration between local employers and the local PES offices could be required to ensure that all individual plans and activation measures for each unemployed youth are demand driven?  Another method might be that the local PES offices are guided more by objectives and bonuses rather than regulations and control in order to achieve more freedom in choosing how to reach the objectives?

Finally, it should be mentioned that the common Nordic labour market, which can celebrate its 60 years anniversary in May 2014, also contributes to bringing down youth unemployment. This uniquely integrated common labour market, where Nordic citizens can travel and work without any time limits, has for many years provided much more new job opportunities for many young unemployed Nordic citizens. Young Finns have for decades used the Swedish labour market to get their first work experience. During the economic boom years up to the 2008 crisis thousands of unemployed young Swedes came to Copenhagen and Oslo to work. And today maybe tens of thousands of young unemployed Swedes and Danes work in Norway where the demand remains high. This integration is assisted by a Nordic youth exchange program called Nordjobb financed partly by Nordic Council of Ministers. For more than 30 years this program has helped 700-800 young Nordic citizens finding summer jobs in another Nordic country every year. During the last couple of years a pilot program within Nordjobb has focused on assisting young unemployed Swedes on the periphery to achieve their first attachment to the labour market in Oslo.

References

Sektorprogram: Arbetsliv – Et inkluderande arbetsliv med fokus på unga”, Sveriges ordförendeskap i Nordiska Ministerrådet 2013, APN 2012:776.

Nordiske länders insatser mot ungdomsarbetlöshet – kartläggning og analys”, TemaNord2010:570.

”Unge på kanten – om inkludering av utsatte ungdommer”, Nord2012:005.

Economic growth sectors: Strengthening the opportunities for the Nordic countries to take advantage of the new economic growth industries” (expected to be published in March 2013).

The Nordic Council of Ministers

The Nordic Council (f.1952) is an inter-parliamentary cooperation body, comprised of representatives from the parliaments of all member countries: Denmark, Finland, Iceland, Norway, Sweden. The Council does not have formal powers but each country can include common recommendations as part of national legislation. The Nordic Council of Ministers (f. 1971) is responsible for cooperation between governments in varied fields such as research, environment, welfare and culture. Each country’s Minister for nordic cooperation sits at the Council.

The Finnish (l.), Icelandic, Norwegian, Swedish and Danish flags flying.

Source: Wikipedia