Opinion: Next up? A youth unemployment crisis that should not be inevitable

The coronavirus crisis has spared the youth from the horrific fatality rates of their grandparents. COVID-19 victims in their 20s face perhaps a 0.2-per-cent chance of dying, less in some countries. But it’s a fantasy to say young people have had a good crisis, because they’re suffering from another disease – rampant unemployment.

The pandemic has been especially cruel to youth on the jobs front and comes as the second terrible blow in little more than a decade. The 2008 financial crisis and the deep recessions that followed doubled their jobless rates in many European countries, sending them to 50 per cent in Greece and Spain, and not much less in Italy.

europe Youth unemployment rates

Seasonally adjusted, per cent

26%

Eurozone

‘05

‘07

‘09

‘11

‘13

‘15

‘17

‘19

‘20

youth=under 25

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: eurostat

europe Youth unemployment rates

Seasonally adjusted, per cent

26%

Eurozone

‘05

‘07

‘09

‘11

‘13

‘15

‘17

‘19

‘20

youth=under 25

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: eurostat

europe Youth unemployment rates

Seasonally adjusted, per cent

26%

Eurozone

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

‘15

‘16

‘17

‘18

‘19

‘20

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: eurostat

youth=under 25

Their jobless rates tumbled in recent years, even if they never reached their pre-crisis lows. The pandemic reversed the trend overnight, and the numbers are becoming gruesome. Youth unemployment in the eurozone rose to 15.8 per cent in April from 15.1 per cent in March, according to Eurostat. The May figures will almost certainly be worse, since the lockdowns and border restrictions didn’t begin to ease until this month.

The rise in official unemployment doesn’t tell the whole story, because so many young people have slipped into the “inactive” category, meaning they have no job, are not looking for one, and are not in training or in school. Even before the pandemic hit in force, 27.8 per cent of Italians in the 20-to-34 age group had essentially given up. The figure is probably higher today, since most companies are in survival mode. Firing, not hiring, is their priority.

Globally, the picture is just as grim. The UN’s International Labour Organization says more than one in six people in the 18-to-29 age range have stopped working since the pandemic hit. Those who kept their jobs saw their work hours fall by almost a quarter.

The outlook is not encouraging. The World Bank expects the global economy to shrink by 5.2 per cent in 2020, worse than in any year since 1946. It appears we’re entering a new era of mass youth unemployment. Despair could into turn rage – unless jobs return. The Arab Spring, which began in Tunisia in 2010, wasn’t simply a rebellion against dictatorships; it was in good part triggered by a jobs and wealth-disparity crisis that enraged the young and the poor.

But how to create jobs in a deep recession with no end in sight for the pandemic?

All bets are off if a second COVID-19 wave hits, of course. But assuming the pandemic has peaked in much of the world, as it has in Europe and North America, governments will have to stop relying on central banks to do the heavy economic lifting and roll out policies that would make job creation easier.

Allowing companies to go bankrupt would be a good place to start, even though the idea is counterintuitive. Capitalism doesn’t work without bankruptcies. Today, governments are busy bailing out companies whose business models left them with no financial cushion. Some of these companies were dying in slow motion even before the pandemic hit. Tech companies and little else were keeping the market indexes in bull territory.

Bailing them out is supposed to save jobs, but the opposite may happen, since a lot of them will fail even if the pandemic subsides. Take Alitalia. Founded in 1946, its only full-year profit came in 1998. Yet the Italian government keeps pumping billions of euros into it to keep it barely airborne. Why not let it go bust and use the money for job-creation efforts elsewhere? Or let it go bust so local entrepreneurs could build a new low-cost airline – one that could create jobs?

Some of the world’s greatest companies, among them Uber and Airbnb, were launched during deep crises. Downturns spark creativity. New companies try harder when market conditions are tough. Allowing businesses to fail would act as a cleansing agent, ridding the market of zombie companies. More efficient bankruptcy laws would help. In many countries, bankruptcy is a slow and painful process where any lingering value is nabbed by insolvency lawyers.

Here’s another idea to help job creation: tax company distributions such as dividends and share buybacks. Buybacks are especially vile, even immoral. In the past decade, S&P 500 companies have spent US$4.3-trillion on buybacks, equivalent to more than twice the GDP of Canada.

Every dollar spent on buybacks was one less dollar spent on research and development, innovation, wage increases and employee training. The buybacks – a form of legal stock manipulation – lifted share prices (and executive compensation), making the companies look healthier than they actually were. If buybacks were curtailed or eliminated, and the money pumped into the companies instead, jobs would be created, especially for young people, who don’t demand high salaries.

The damage inflicted on the global economy by the pandemic is already mind-boggling. It could take many years before growth and government finances return to pre-crisis conditions. To compound the pandemic health catastrophe with a youth-employment catastrophe would be especially damaging and reckless. But it could happen.

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