The current financial and economic crisis has quickly spread from the housing and credit markets in the United States resulting in the worst global recession since World War II. As a consequence of the downturn, millions of workers have been laid off, while for those lucky enough to hold on to their jobs, many have experienced cuts in hours worked, wages and others benefits as enterprises seek to reduce labour costs in order to remain afloat.
Although there is some evidence that the global economy has reached a trough, history shows that synchronized and global crises, like the current one, result in recessions that are more severe and longer in duration (IMF 2009). The ongoing destruction of jobs and increased duration of joblessness will ensure that unemployment rates across the world will continue to rise and stay stubbornly high for some time to come, well after the economy has begun to recover.
This is naturally a generalization of the impact of the present crisis on the labour market, which has varied across (and within) countries depending on the structure of the economy, institutions in place and how policymakers have responded. In particular, this downturn has had different implications for various segments of the population as defined by such characteristics as gender and age. These traits render individuals more vulnerable to a recession because of barriers they face in the labour market, in addition to having a job in a sector that is more affected by changes in macroeconomic conditions.
Youth around the world are especially vulnerable to marginalization in the labour market because they lack skills, work experience, job search abilities and the financial resources to find employment (United Nations 2003, ILO 2006). As a consequence, young people are more likely to be unemployed or employed on more precarious contracts. This is the case even during good economic times. In the midst of a severe recession, youth find it increasingly difficult to both acquire a job as a new entrant in the labour market, particularly as a consequence of hiring freezes, and remain employed since they are more likely to be laid off than workers with more seniority. Overall, youth unemployment rates are far more sensitive to the business cycle than witnessed for the adult population (OECD 2008).
This is precisely what is being witnessed during the current crisis. Indeed, since the end of 2007, an additional 2.1 million young men and 1 million young women have become unemployed in a large sample of countries considered in this paper consisting of most European countries, Australia, Canada and the United States, which together represent almost 60 per cent of the global economy. Over this period, the unemployment rate in the European Union member countries increased by 6.1 and 3.5 percentage points for young men and women, respectively, while it rose by a lower margin for prime-age men (2.1 percentage points). In the United States, unemployment rates have surged by a greater amount, especially for young men.
Governments are rightly concerned about these rising levels of youth unemployment because of not only the direct economic costs, but also due to the social impact of joblessness as manifested by increased crime, mental health problems, violence, drug taking and social exclusion. Moreover, spells of unemployment, particularly long-term durations, can lead to scarring effects in terms of a higher likelihood of being unemployed later in life and a wage penalty (Bell and Blanchflower 2009).
To investigate this phenomenon further, this paper analyses the impact of both previous and current financial crises and the subsequent economic contractions on the unemployment rates of young men and women. Though other labour market outcomes are important such as changes in real wages and hours worked, the lack of disaggregated data prevents a detailed comparison of these dimensions for specific demographic groups.2 The focus of the paper is on the impact of crises in OECD countries due to the lack of relevant disaggregated data for developing economies, especially low-income countries.
The remainder of this paper is structured as follows: section 2 reviews the trends in unemployment rates of young men and women before and after major financial crises in Spain, Norway, Finland, Sweden, and Japan, which have been named the “Big 5 Crises” by Reinhart and Rogoff (2008b). Following a financial meltdown, these countries all experienced a major decline or slowdown in economic output over a longer period than witnessed in other recessions.
In addition, the crises in Mexico and Turkey in the 1990s are also analysed to provide insights into the experiences of other regions. To link the discussion to the present global downturn, section 3 reviews developments in the unemployment rates for young men and women since the start of the crisis in a majority of European countries along with Australia, Canada and the United States. In section 4, a discussion on the drivers of these unemployment trends is presented before turning to concluding remarks in section 5.
