Alejandro Chafuen, president and chief executive officer of the Atlas Economic Research Foundation and board member of the Acton Institute, recently wrote a piece for Forbes.com discussing youth unemployment in the United States. According to the latest report, U.S. youth unemployment is at 16.2 percent which is more than double the adult unemployment rate. The unemployment rate for youth in Europe is currently at 24 percent. Chafuen asks, “Can we learn from the European experience?”
Using data compiled by the economic freedom indices of the Fraser Institute in Canada, and the Heritage Foundation, in the United States, we recently looked at how economic freedom, labor regulations, social spending, and regulatory climate, correlated with youth unemployment. Against our preconceptions, at least as shown with our simple static analysis, there were no convincing results. I will spare the reader the statistical jargon and graphs and focus on apparent contradictions.
Denmark, first in economic freedom in Europe in the Heritage index, has a youth unemployment of over 14%, much more than Austria (8%) and Germany (7.5%), ranking lower in economic freedom. Sweden, which has a similar score to that of Germany and Austria, has a youth unemployment of over 20%.
Using the Fraser Institute data, which shows very little divergence in EU labor regulations by country, we still see some that have similar scores, but that have huge differences in youth unemployment: Spain, which has over 50% and Norway with 9%. The measurements for labor freedom in the Heritage index show much more divergence among European countries. Two of the worst in terms of labor freedoms (Germany and Norway), have two of the lowest levels of youth unemployment, almost a third of the EU average. Spain is ranked better than Germany and Norway, yet its rate of youth unemployment is as mentioned, 50%.
What about the welfare state? It is hard to find adequate data that would capture the structure, not just the amounts spent. As an approximate measure we used the global social spending in European countries. Some of the countries with the highest social spending, like Austria, had some of the lowest rates of youth unemployment. Germany’s social spending is also above the EU average. Countries with the same level of social spending in relation to the size of their economies, like Poland and Norway, have huge differences in youth unemployment, near 8% in Norway, and over 25% in Poland.
During these last two decades family indicators and youth employment have been deteriorating, but it is hard to find adequate cause and effect explanations. Some measurements, like marriage rates, show that countries like Italy, Spain, and Portugal have lower rates than the European average. Those who are postponing marriage, might find it easier to move back home.
Chafuen concludes with this:
So far only 5 European countries (Austria, Denmark, Germany, the Netherlands and Norway) have lower youth unemployment than does the U.S. Samuel Gregg, of the Acton Institute, who recently wrote Becoming Europe, warns that the U.S. is drifting towards the same policies that generally lead to higher rates of joblessnes among the young. The U.S. economy still scores better than most European countries in economic freedoms, but the trends are frightening. Without a reversal, the U.S. will look more like Europe. The youth will see their opportunities to earn a living dwindle, and work opportunities delayed. Parents may want to ready spare bedrooms for the return of their offspring.