What Keeps Young Europeans Out of Jobs? Stupid Rules.

The Federal Reserve Bank of St. Louis
highlights two of its staffers, Economist David Wiczer and
Research Associate James Eubanks, for an article they wrote for
Regional
Economist linking many European countries’ sky-high, and
continuing, youth unemployment rates to rigid employment rules.
Basically, several Mediterranean nations that make it expensive and
difficult to hire and fire saw a surge in unemployment for people
under 25 during the recession—a surge that really hasn’t gone away,
and in some cases, is getting worse.

Some high points from the article:

• Italy’s youth unemployment rate went from 20 percent in 2008 to
  42 percent at the end of 2013.
• Spain’s youth unemployment rate went from 21 percent to 55
  percent over the same period.
• Greece’s youth unemployment rate went from 22 percent to nearly
  60 percent during that time.
• Portugal’s youth unemployment rate went from about 20 percent
  to a bit less than 40 percent, and has trended upward since
  2000.

By contrast, write Eubank and Wiczer, “the youth unemployment
rate rose from 11.5 percent in early 2008 to a high of 19 percent
in late 2009 and then began a steady decline. Canada had a similar experience, with a peak
of 15.8 percent in late 2009.”

What accounts for the huge difference in youth unemployment
rates and the continuing joblessness?

The World Bank provides one way to quantify the rigidity of a
labor market through its “rigidity of employment index,” with
higher scores indicating a more rigid market. In 2008, the average for the developed
countries in the OECD was 26. Portugal, Italy, Greece and Spain
were all considerably more rigid, with index values of 43, 38, 47
and 49, respectively.

For context, on the World Bank index,
Canada has a value of 4 (the U.S. entry on that chart is blank, but
it appears to come in even
lower), while Venezuela chalks up a 73. It just may be that
countries that make it easier to hire employees when needed and
dismiss them when not enjoy—shocker!—healthier employment rates
because businesses don’t feel like they’re assuming huge risk and
expense by taking on employees.

Wiczer and Eubanks conclude:

Bad labor markets have repeatedly been shown to have
long-lasting effects on youth in many different countries. The postponed plans and stalled careers of
millions of young workers are a national concern and should spur
reflection on the institutions, policies and labor market
structures that contribute to such different experiences across
countries.

The World Bank looks in detail at employment regulations

here.