Youth Unemployment in Advanced Europe: Okun’s Law and Beyond

Angana Banerji, Huidan Lin and Sergejs Saksonovs

No 2015/005, IMF Working Papers from International Monetary Fund

Abstract: The crisis has intensified what was previously a chronic unemployment problem in Europe; youth unemployment is now at unprecedented highs in some European countries. This paper assesses the main drivers of youth unemployment in Europe. It finds that much of the increase in youth unemployment rates during the crisis can be explained by output dynamics and the greater sensitivity of youth unemployment to economic activity than adult unemployment. Labor market institutions also play a significant role in explaining the persistently high levels of youth unemployment, especially the tax wedge, minimum wages relative to the median wage, spending on active labor market policies, the opportunity cost of working (measured by the unemployment benefits), vocational training, and labor market duality. This suggests that policies to address youth unemployment should be comprehensive and country-specific, focused on reviving growth and advancing labor market reforms.

Keywords: WP; business cycle; product market; Youth employment; youth unemployment; Okun’s law; labor market factors; labor market feature; labor market factor; labor market outcome; labor market duality; replacement ratio; youth employment condition; product market feature; labor market variable; documents labor market dynamics; paper documents labor market dynamics; replacement rate; Labor markets; Unemployment rate; Unemployment; Employment; Output gap; Global; Europe (search for similar items in EconPapers)
Pages: 38
Date: 2015-01-21
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Citations: View citations in EconPapers (15)

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