Youth Unemployment in Spain: Causes and Solutions

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Working Papers
Number 11/31

Youth unemployment in Spain: causes and solutions
Economic Analysis Madrid, 27 September 2011

11/31 Working Papers
Madrid, 27 September 2011

Youth unemployment in Spain: causes and solutions*
Juan Ramón García. September 2011

Abstract
Youth unemployment in Spain is a persistent phenomenon that has worsened during the current crisis. And at the levels now being registered (46.1% in 2Q11), the measures to fight it can be delayed no longer. The evidence presented in this document indicates that there are serious shortcomings in Spain's education system and labour market, which explain the country's relatively high level of youth unemployment. The former include early school leaving and the imbalance between job supply and demand at the different education levels attained, which complicates youngsters' access to the labour market and has a negative impact on their professional career. While the most significant among the latter are the segmentation of the labour market and the ineffectiveness of active labour market policies. Therefore, extenuating youth unemployment requires coordinated action between education and the labour market trough measures as the ones suggested in this document. Keywords: Youth unemployment, early school leaving, overqualification, temporariness, active labour market policies.. JEL: C25, I21, J24, J64,

* I would like to thank Miguel Cardoso, Rafael Doménech, Ignacio González-Panizo, Nicolás Trillo, Jorge Rodríguez, Félix Lores and Camilo Ulloa, for their helpful comments.

Page 2

Working Papers
Madrid, 27 September 2011

1. Introduction
Youth unemployment is one of the main malfunctions in the Spanish labour market, impacting directly on the current and future economic situation of those unemployed youngsters and their environment and indirectly on the wider economy. While highlighted by the current crisis, it has been a problem in Spain for several decades. The unemployment rate among the active population under 25 years old has doubled that of the over-25s for the last four decades. In 2010, youth unemployment rate reached 41.6%, 2.3 times more that among the active population of over-25s (see Chart 1). And youth unemployment is not only high historically speaking, but also in a comparative perspective. Unemployment among Spain's under-25s has been 1.5 times that in the EU15 and 3.1 times that in Germany for the last 20 years. Having said this, the relationship in Spain between youth unemployment and unemployment among over-25s is similar to the EU15 average (see Chart 2), which suggests that the job insertion difficulties of youngsters compared to those of over-25s is similar in Spain to those in the rest of Europe, even though the causes are different, as we will see later. The work conditions of the population, in general, and of youngsters, in particular, depend on the effectiveness of the education system. In an environment in which there is surplus job supply and increasingly demanding training requirements by companies, the likelihood of a youngster obtaining a stable and adecuately remunerated job depend, among other things, on the quantity and quality of education received. However, the relationship between the education system and the job market is bidirectional. For example, when the probability of getting a job drops, or when the job vacancies for a student wishing to work fall short of his/her expectations, the opportunity cost of continuing to study falls, and this tends to have a negative impact on the percentage of youngsters entering the job market, thereby limiting the rise in the unemployment rate. For this reason, we need to look for the causes of youth unemployment in Spain in the deficiencies not only of the education system but also of the labour market. Of the former, the most important are early school leaving and the polarisation of education. While the most significant among the latter are the segmentation of the...
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