15 Apr 2016
In March last year, thousands of people walked the streets of Madrid to protest against the government’s austerity policies, political corruption and persistent unemployment. The March for Dignity walked under the slogan of ‘work, bread and a roof’, the basic necessities for any person looking to live a dignified life.
The protests were largely peaceful (though there were clashes with police) and were dominated by young people who remain rightfully angry. Data from Spain shows that the country’s current unemployment rate is 20.9 percent. But, for young people, the rate is 46 percent.
While now not quite as vocal as at the beginning of the economic crisis, Europe’s youth remain rightly frustrated with their employment prospects. Even more worrying is the fact that young people don’t yet make up a significant proportion of the European workforce. If this is not addressed soon, the future of Europe’s businesses is under threat.
The current generation of young people is quite resistant to being labelled, but that hasn’t stopped commentators from trying. ‘Generation Y’ seemed like the obvious choice, following on from Generation X, but the term feels meaningless. ‘Digital native’ gets thrown around to imply that people born between 1980 and 2000 instinctively know how to use computers. ‘Millennial’ might be the one that sticks, but it carries a lot of negative connotations. Whatever the term used, it’s inevitable that this group will become the next generation of leaders in business. However, their dwindling numbers make development of their skills even more important if companies are to continue after the current crop of executives retires.
The continent is in the middle of a demographic crisis. According to data reported by the Pew Research Centre, people aged 18-33 made up just 24 percent of the adult population in the EU’s 28 member states in 2013
The continent is in the middle of a demographic crisis. According to data reported by the Pew Research Centre, people aged 18-33 made up just 24 percent of the adult population in the EU’s 28 member states in 2013. For comparison, the same age group in 2014 made up 27 percent of the adult population of the US. Last year, millennials became the largest generation in the US, overtaking baby-boomers. This is very much not the case in Europe.
The Pew Research Centre surveyed the public in seven European countries in 2014 and found that millennials were well and truly outnumbered, ranging from 28 percent of the Polish population to just 19 percent of the Italian population. In every country surveyed, and in the EU as a whole, people 50 and older accounted for a far higher proportion of the overall population – 47 percent. Across Europe birth rates are gradually decreasing, particularly in the countries worst hit by the global financial crisis. In Spain, the fertility rate is 1.27 children born for every woman of childbearing age.
Alejandro Macarrón is a business consultant and one of the founders of Demographic Renaissance, a group created to raise awareness of this growing issue. Speaking to The Guardian, Macarrón said that problems are already developing: “If current numbers hold, every new generation of Spaniards will be 40 percent smaller than the previous one.” Across Europe as a whole, the total fertility rate decreased from 1.62 in 2010 to 1.55 in 2013. A rate of two is required to keep a population steady. As the population in Europe looks set to decline as a whole, the next generation of workers will be relied upon to generate support for the retired. Not only that, they’ll be running their businesses. However, with the current level of unemployment among millennials, they may not develop the skills they need.
The unemployment rate across the EU’s 28 member states is, according to Eurostat, currently sitting at nine percent. Youth unemployment is as much as double that. Kari Hadjivassiliou is a principal research fellow at the Institute for Employment Studies, a research and consultancy organisation specialising in employment. With over 25 years of experience in international comparative research, in 2013 she was invited to give evidence to the House of Lords EU Committee on EU actions to tackle youth unemployment. She said that there are two real barriers to young people finding employment: cyclical factors and structural factors.
Cyclical factors, i.e. the general ups and downs of the global economy, hit young people first and hardest. “Because young people, by definition, are more vulnerable in the labour market (for example they are more likely to be employed on a temporary contract), usually when companies retrench they are the first to go.” However, Europe’s structural problems are far more varied and complicated, Hadjivassiliou explained.
These structural factors have been more difficult to deal with. “So, one factor is the labour market segmentation. That has always been with us, but after the crisis it became more pronounced. There has definitely been an increase in the number of young people in temporary employment and in low-pay jobs, and there has been an explosion of unpaid internships. The idea usually with internships is they can be used as a stepping-stone to permanent employment, but sadly in a number of countries they end up in a succession of placements leading nowhere. Another key structural factor is [the fact that] education and training systems, especially in certain member states, are quite inefficient and ineffective in terms of matching what the labour market and employers need in the training and education provisions they offer.” Hadjivassiliou also added that another structural barrier, especially for more disadvantaged young people, is the varying quality of public employment services across Europe.
Still, youth unemployment isn’t a brand new problem and the European Commission has been working for years to try and address it. One area of focus is the social and economic cost of NEETs. NEET stands for ‘Not in Employment, Education or Training’, basically someone whose career or education has come to an aggressive halt. Currently, 7.1 million people in Europe between the ages of 15 and 24 are considered NEETs – 12.4 percent of the youth population. This is up from 10.9 percent in 2008.
No matter what angle you look at a NEET from, the net result is negative for society, the economy, and, most importantly, for the individuals themselves. A 2012 report by the European Foundation for the Improvement of Living and Working Conditions (Eurofound) on the impact of NEETs found that they are, perhaps unsurprisingly, a strain on the economy due to the benefits they receive and the lack of tax income they would be paying if employed. Eurofound estimated the cost to the EU at €153bn per year, or 1.21 percent of GDP. While the report found that young people in general are uninterested in politics, NEETs are even less so. They are politically and socially less engaged and show lower levels of trust when compared to non-NEETs.
“Basically, at one end of the spectrum is the Netherlands. The average is 12.4 [percent], but the Netherlands has 5.5, Denmark 5.8. And at the other end, Italy has 22.1, so you can see the range of NEETs. The other thing is, we tend to think of NEETs as low qualified, and usually they are. However, in a number of countries, notably southern European countries, including Greece, Italy and Spain, a large proportion of NEETs are graduates. In the past, getting a degree was a shield that could protect you. Well, not anymore, or not to the same extent it used to be.”
The longstanding impact has led the European Commission to adopt the Youth Guarantee, a programme to intervene and help a young person find work or further education within four months of inactivity. It’s currently being implemented across member states and has a proven track record of working. A 2011 Eurofound evaluation of Finland’s Youth Guarantee scheme, a pioneer in the field, found that 83.5 percent of young jobseekers received a full offer within three months of registering as unemployed. Establishing Youth Guarantee schemes across the EU has an estimated cost of €21bn per year, far lower than the overall economic cost of NEETs.
When it comes to getting young people into the workforce, sooner is better. The long lasting impact of being out of work for an extended period of time, referred to as ‘scarring’, can permanently stunt future prospects. Hadjivassiliou noted that she is not familiar with any study of scarring in mainland Europe, but research in the UK is well documented.
“Basically a young person’s protracted detachment from the labour market results in poor employment prospects and outcomes and, crucially, a recurring period of unemployment, so it’s not just one short spell. There is also a link to a greater likelihood of precarious employment, wage penalties in terms of lifetime earnings, skills obsolescence, poor health outcomes and worsening wellbeing.”
The impact of being out of work for a year can last a lifetime. In a blog post for the London School of Economics and Political Science, Professor Ronald McQuaid wrote about the long-term effects of scarring. Impacts ranged from people in recruitment positions interpreting long stretches of being out of work as evidence of low productivity, to individuals suffering damaged confidence. Basically, an extended period of being out of work is not conducive to becoming a business leader later in life.
The attitudes of millennials make them excellent employees if you can keep them, especially in Europe. In the 2011 PwC report Millennials at Work: Reshaping the Workplace, 71 percent of respondents said they were keen to work abroad at some point in their career. For companies looking to expand throughout Europe, this is great news. Although the sooner the better, as people become less likely to take up overseas opportunities once they establish some family ties. The report also highlights that the companies most successful at attracting millennials, like Google and Apple, are also the most innovative and attract the best talent. Millennials know best what their peers want from an employer as well as a business, and tend to favour working at companies they admire. Hiring the right young person will benefit a company in the long run.
Still, businesses could do a lot to improve the prospects of millennials who are currently employed. Deloitte recently conducted a 2016 global survey of millennials, documenting their attitudes towards work and revealing several surprising results. 66 percent of respondents indicated they intend to leave their current place of employment in the next five years. Five percent see themselves staying longer than 10 years, and 11 percent see themselves never leaving. While the knee-jerk reaction might be to label this evidence of a lack of capacity for commitment on the part of millennials, the figure may have more to do with how they are treated. 63 percent of respondents said their leadership skills were not being fully developed by their employers. In the 2013 edition of the survey, 49 percent of respondents thought their organisations were doing all they could to develop their leadership skills, and last year Deloitte reported that only 28 percent felt that their current organisations were making full use of their skills. 71 percent of those likely to leave in the next two years were unhappy with how their leadership skills were being developed, 17 points higher than those who intend to stay beyond 2020. More loyal employees tend to feel they are offered more support and are encouraged to take leadership roles.
The report also identified a ‘leadership gap’ in the areas that millennials identify as high priorities for themselves, which are low priorities for their employers. These included ‘being the best possible place to work’, ‘improving the skills of our workforce’, ‘providing services/goods that make a positive difference to people’s lives’ and ‘generating and supporting jobs’.
The biggest takeaway from the survey is that in order to retain millennials, employers need to focus on developing their skills. The most proven way of doing so is through assigning a mentor. Of respondents who did have a mentor, 94 percent said they were given good advice. Those intending to stay more than five years were twice as likely to have a mentor than not. Those who were intending to leave their employer within two years reported far lower levels of mentorship. Interestingly, this is a space in which developed economies could improve. While mentors were reported relatively highly in emerging economies at 67 percent, only 52 percent reported having a mentor in mature economies. Countries with particularly low levels of mentorship included Germany, the Netherlands and France.
Another option might be to make it easier for millennials to become their own bosses. The European Commission’s report Employment and Social Developments in Europe 2015 made several recommendations that could improve entrepreneurship in European member states through measures including improving entrepreneurial education, giving a second chance to honest business failures, and making starting a business easier. Entrepreneurship also forms a key part of the Youth Guarantee. While Hadjivassiliou said that entrepreneurship is good, she also noted that it can’t be the only answer.
“The problem is there is a lot of work that needs to be done to even start changing attitudes. To give you a number, Eurobarometer did a survey among young people in 2014 for the European Parliament, and more than half of the young people surveyed had no wish to start their own business. Just one in five would like to start a business, but considered it too difficult. But my personal take on this is we will have to do a lot more work on breaking down barriers and attitudes before we see entrepreneurship as a viable option.”
At its core, this may be an issue of aggregate demand. “I don’t think Europe talks about the need for aggregate demand. There are a lot of interventions into the supply side, and there are also wage incentives and employer subsidies to stimulate some demand, but I’m concerned that the European economy is not generating enough jobs, especially high quality jobs, to employ all these highly skilled young people.”
Europe’s future faces a mix of demographic challenges. As the population crests, young people will have to work harder and smarter in order to drive the economy. However, with many facing a delayed entry to the workforce, they may not get the opportunities they need to become the leaders and innovators of the future. This will have to change, and soon.