Growing Together: Ensuring Young People Benefit from New Growth in Europe

The latest economic trends in the region indicate that Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia, and Slovenia - the EU11 - are making strong economic headway and, with the exception of Croatia, have exited the recession brought on by the onset of the sovereign debt crisis in Europe. According to the latest EU11 Regular Economic Report, economic growth in the region is expected to nearly double in 2014 - from 1.4% in 2013 to 2.6% in 2014 - and will likely continue to strengthen into 2015.

Despite this positive trend, however, vulnerable population across the region remains exposed to ongoing economic hardships - impacting individuals and families in the region and creating long-term economic challenges across the region. Tackling high levels of youth unemployment and inactivity remains a key challenge for policymakers - the average unemployment rate for youth in the EU11 is over 26% - with rates as high as 33.7% in Slovakia and 49.7% in Croatia. More than 5.5 million people between the ages of 15 and 24 are out of work around Europe, with more than 1 million of them from EU11 countries.

 “Youth unemployment is a particularly difficult hurdle for these economies to overcome as populations are aging rapidly and often declining,” says Theo Thomas, Lead Economist at the World Bank and co-author of the latest report. “Policymakers in these countries need to perform a difficult balancing act – designing policies to increase labor participation rates among young people without excluding other vulnerable populations, such as the older workers.”

As countries work toward solidifying growth and successfully exiting the downturn that has defined the region in the recent years, policymakers are also tasked with ensuring that growth is inclusive. Programs, policies, and interventions that are introduced need to be beneficial to all segments of society - especially the bottom 40%. This is particularly true for the young, who continue to face high unemployment rates and other barriers preventing them from integrating into the labor market – leading to potentially damaging outcomes for both individuals - who risk lifelong lower earnings, the ”scarring” effect - and  economies where the labor supply is shrinking  and the fiscal costs of pensions and health care look set to rise over the longer term.

Above all, however, it will be lasting and inclusive growth in the region that will have the biggest impact on reducing youth unemployment in the region. While the latest EU11 RER hints to the fact that growth may finally be taking hold in the region, this report also highlights the many challenges still remain.

Although no single policy or program can adequately address these challenges, a combination of interventions can be employed to mitigate some of the most serious impacts of sustained youth unemployment. The report looks as a variety of different elements that need to be considered when designing economic policies in these countries - including removing disincentives and barriers created by certain policies and regulations, strengthening education systems to develop cognitive, behavioral and technical skills, and improving the synergies between education and training programs with the private sector to better equip beneficiaries with targeted skills more suitable for labor demands. 

Further compounding these challenges are shifting demographics across the region that are leading to a rapidly aging population that will place increased pressure on pension and healthcare systems in all of these countries. A decline in population throughout the region also means that these systems will have to be reinforced by a shrinking number of contributors, making the reduction in youth unemployment an even more pressing policy priority, both in terms of preventing a dramatic drop in the labor supply and ensuring adequate contributions to social programs and taxes.