Lies, damned lies and youth unemployment statistics

It has been a very popular narrative in the run-up to the referendum to suggest that the euro zone economy is failing a generation of job-seekers. However, it would appear that this 'conventional wisdom' doesn't stand up to a close inspection of the facts.

Time and again, you hear politicians and pundits highlight the high youth unemployment rates in countries like France, Spain and Italy. Invariably, it is quickly followed by some scaremongering about possible social unrest and the potential for the terminal decline of the European project.

 

Let's look at the data

 

However, on this topic, it is useful to shine some light on the data. Youth unemployment rates are uniquely misleading economic statistics because of the different education models in different countries. The unemployment rate is the number of people seeking work divided by the number of people in the labour force. Students are completely ignored.

For example, imagine Country A in which 80 of every 100 young people are in full-time education. Of the remaining 20 people, 10 are in employment and 10 are looking for work. The youth unemployment rate in country A is 10/20 (i.e. 50%).

 

Now imagine Country B in which 40 of every 100 young people are in full-time education. Of the remaining 60 people, 40 are in employment and 20 are looking for work. The youth unemployment rate in country B is 20/60 (i.e. 33%).

 

It should be fairly clear that country B has a bigger problem. Sociologists would point out that there are more NEETs (young people "not in employment, education or training") in country B; economists would talk of more underutilised resources. However, youth unemployment statistics give precisely the opposite picture.

 

Not as different as they first appear

 

Now let’s look at the data. The chart below shows youth (i.e. <25) unemployment rates for the US, UK and the four largest euro zone members. It also shows a more sensible measure of the same thing: the youth unemployment ratio. That is defined as the number of people seeking work divided by the total population.

Suddenly a different picture emerges. It is simply not the case that 40-50% of Spaniards and Italians are idly twiddling their thumbs; the true number is in the region of 15-20%. As a proportion of the population, there are more British young people are out of work than in France.

 

The narrative of sky high youth unemployment in Europe is certainly tempting. Unfortunately, it doesn’t stand up to a close inspection with the facts.

 
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