Youth (Un)employment

If you go to school and tried to get a job this summer, you may be feeling a little dejected at the moment. Like hundreds of thousands of other youths (grouped as 15-24 years old), you would be suffering from the phenomenon of youth unemployment which has been multiplied by the recession that we are still digging out of. According to Statistics Canada, the youth unemployment rate was 15.2% in April of this year, almost double the 8.1% of the adult population. Indeed: while the rate for those 25+ has remained relatively stable over the last year, the youth rate has climbed by 0.6% since last April.

Unfortunately, this is not a recent phenomenon. Historically, the rate has been significantly higher for young people than for older workers. The following graph shows the rate for youth compared with the rates for men and women over 24 years old.

As the green line shows, not only are young job seekers at a much higher risk of unemployment, but they also experience much sharper changes in its incidence. Recessions, as we shall discuss, have a disproportionately high impact on youth.

What are the reasons, then, that youth unemployment is so bad? Well, it helps to first define unemployment: a person is unemployed if he or she is looking for work but does not currently have a job. This allows for four basic categories:

- Frictional Unemployment occurs when people change jobs or are temporarily laid off
- Seasonal Unemployment refers to people who can't find work during certain times of the year, such as fishermen or ski hill operators
- Structural Unemployment refers to people whose skills simply don't match the jobs that are available in the market, or who can't travel to places where they would
- Cyclical Unemployment is based around the fluctuations in the economy; when there is expansion it decreases, and when there is recession it increases

As you might guess, youth unemployment is a function of all of these. Frictional unemployment is high among youth because the jobs that they take tend to be be low-paying, low-skill, and/or temporary. A natural consequence of this is a great deal of transitioning between basic jobs as well as between work and school. This in turn inflates the overall rate.

Unfortunately, it seems that we suffer from Seasonal unemployment as well. This is likely because, as millions of high school and university students get off school for the summer, the market gets very crowded. It stands to reason that we benefit somewhat from special temporary jobs as well as outdoor labour that become available in the summer, but if statistics from the last two years are any indication, that effect just isn't enough to compensate for the glut in supply.

As for Structural unemployment, that seems to be a problem more for new university graduates and those without post-secondary education. In the first case, many have degrees that employers have no use for. A striking example of this that I have read about is that of school teachers: even as grade school enrollment drops due to falling birth rates, teaching programs continue to take on high levels of students. The result is that many thousands graduate without any reasonable prospect of finding a job since schools are doing very little hiring. As for those without any post-secondary, they lack the skills needed for many full-time jobs - often going for long periods of time without them - and make up a disproportionately large section of total youth unemployment.

Finally, as mentioned earlier, we are very susceptible to Cyclical unemployment. When a recession happens, young and inexperienced workers are usually the first to lose their jobs since most workplaces are based to some degree on seniority. Additionally, while most Canadians are employed in relatively stable positions in stable sectors, young people tend to be employed in front-line service jobs, which are subject to much greater fluctuation in demand and can be added or taken away much more easily.

Now, with just these four categories we get an approximation of what we know as the unemployment rate. Personally, I would love to leave the subject here and say that we're in a pretty unpleasant situation, but that at least everyone who has a job is all right. Sadly, that is quite obviously not the case. Not only is a young person at a higher risk of losing a job, but even those with stable employment are often underemployed. This means that they do not get the quantity of work that they desire. Since a large number of young people are employed part-time, that can very easily be the case.

Even more worrisome, the jobs that youth hold are becoming stratified, which reflects trends in the adult labour market. New opportunities are now increasingly of two broad sorts: high-paying professional or technical jobs for educated workers, and low-paying, low-skill jobs for everyone else. Often young workers get caught in unpleasant working situations like the latter, but are much less likely than their more experienced counterparts to want to instigate change in the workplace, preferring instead to move somewhere else where they will encounter similar conditions.

While they may seem unrelated, the concepts of unemployment, underemployment, and poor working conditions are very significant problems that link into and feed off of each other. As education and skill become more essential in the modern labour force, youth who lack these get trapped in the typical pattern of part-time, low-skill jobs. Since these usually do not offer significant training or advancement, nor any guarantee of job security, frequent unemployment is common. One consequence of this is that young people are at a high risk of deteriorating work skills and self-esteem. These, combined with the 'tracking' effect of 'dead-end' jobs, can lead to destructive patterns of chronic joblessness, low productivity, and in the long term, poverty and emotional issues.

Are there any potential solutions to these problems, then? The answer is a qualified yes. Because of the complex nature of youth employment, different approaches must be considered and any policy introduced must be comprehensive and attempt to address multiple issues.

One idea that has been steadily gaining traction is that of apprenticeship or internship. Such a system is widely used in Europe, where it makes transitioning to meaningful work easier and improves the worker's skill set and productivity. Here in Canada we make some use of cooperative education (or work-study) programs, but it is by no means ubiquitous. Instead, we tend to rely more on piecemeal services to help students and graduates find work, which may or may not be temporary. An advantage of the work-study approach is that it helps to bridge the skills gap between the available jobs and young people who are to fill them. Many companies such as RIM (maker of the Blackberry) hire large numbers of Co-op students to take advantage of such a concentrated pool of potential employees, and will ask some to stay on after their term expires. It allows them to gain fresh perspectives and flexible labour in a relatively inexpensive manner, while still providing valuable training, which is why this system is popular with many large corporations.

A common approach, especially in more left-leaning countries, is the creation of public sector jobs specifically for youth, or incentives for private employers to hire them. This has the desirable impact of raising demand for young workers, thus generating more employment opportunities and better working conditions. While this has sometimes been criticized for simply being a 'make-work' project and not providing useful skills, it is still far better for our economy than chronic youth unemployment.

Another idea to combat the trap of low-skill work is a training tax credit. Countries such as France and Japan offer this credit to employers, who can deduct the expense of training from their tax bills. The main advantage of this approach is that it improves the incentive to give good skill development to employees, which is generally lacking in low-level jobs where there is high turnover. The problem, of course, is how one defines 'training' expenses. There is really no guarantee that money spent on training will have the desired effect on employees' productivity and skill sets. Still, it's an incentive that probably shouldn't be left off of the table.

Although large in scope, a more long-term solution focuses on ensuring continuous and comprehensive education strategies. By improving and diversifying our educational system and encouraging young people to stay in school (preferably until the completion of some post-secondary program), we prevent the worst of the youth employment scenarios and have a labour force that is far more qualified to face the working world. Of course, making education relevant and accessible takes effort, but it pays huge dividends in the long run.

Finally, a piecemeal approach to information is currently applied. Although governments provide some assistance for youth to develop skills and find good jobs, we are largely on our own. In what is a large, labyrinthine, and often intimidating market, I do not see how this could be a good thing. A more centralized training and job search mechanism would probably operate more efficiently by removing the numerous overlaps that exist while patching the holes that none of the individual systems seem to be able to fix.

Any strategy that we use to solve these issues needs to work to bridge that widening gap between where young people and their skills are, and where long-term career opportunities are to be found. Information, training, education, and experience are all important steps to alleviating the worst of youth employment problems. Indeed: any initiative should include most if not all of these if it wishes to have a significant impact. Although some local and provincial governments are taking steps (such as a high school graduation requirement of work and/or volunteer experience among other things) it may be that it is time for a national approach. Some federal politicians have spoken a bit about national education and training strategies, but it remains to be seen how such a proposal would fare against some of the more fiercely anti-federalist provinces, since education is a provincial jurisdiction.

Hopefully, though, we can put aside the petty squabbling and start to focus on long-term solutions. If young people are as important as everyone says they are, then that shouldn't be a problem.


Sources:

Drost and Hird, An Introduction to the Canadian Labour Market - 2nd ed.
http://www.ceocouncil.ca/publications/pdf/test_4bded24a37fe60442a52827488bce86f/JUN_85_ENG_Youth_Unemployment_In_Canada_The_Problem_And_Some_Possible_Responses.pdf
http://www.un.org/esa/socdev/unyin/documents/ch02.pdf
Statistics Canada

Why HST?

Okay, I'm going to start my tenure as a blogger by addressing one of the most controversial tax issues facing Canada at the moment: the Harmonized Sales Tax, or HST. Here in BC it is particularly reviled, with around 80% of the public wishing it were replaced with smallpox or the bubonic plague. Even Ontario, which isn't particularly known for political activism, has demonstrated a rather unpleasant reaction.

What is the HST, anyway? Basically, about half of the provinces right now have their own sales tax, which is collected separately from the federal GST. For reasons which I shall get into later, three Atlantic provinces and now Ontario and British Columbia have entered into agreements with the federal government to have their provincial sales taxes (e.g. 7% in BC) merged with the GST (5%) to create a single sales tax (e.g. will be 12% in BC). This would mean that businesses only have to fill out one set of sales tax forms instead of two, which would be send off to the Canada Revenue Agency, which splits the funds and gives the provinces their appropriate share of the total amount collected.

So why all the hate? Well, for starters (and I apologize to those from Ontario, but I will mostly be using BC as a reference for expedience) Premier Gordon Campbell made an explicit election promise not to implement one. I find it rather odd that he wouldn't just come out and speak to its benefits, but then again, 'tax' may well be the new 'hidden agenda'; it's a hot potato that no politician would be caught dead with. The subsequent reversal on this promise within a very short time frame caused considerable anger. My understanding is that Ontario did not go about it in such a sneaky way, and yet they are still largely against it (about 70%, last I checked). So what else is causing the anger?

Aside from the aforementioned danger of using the word 'tax', the fact remains that people have focused in on what are considered some of the HST's uglier elements. Because the GST applies to a much broader range of goods, and because the provincial governments only have so many exemptions they can use, many things that were taxed under the GST but not PST (such as restaurant meals) will now be taxed by both. This means that prices on a few goods will go up by about 7% in BC and 8% in Ontario.

Additionally, the structure of the tax (again, more on this later) essentially means that statutory incidence - who technically pays it - shifts from businesses to consumers. Many are concerned that, while they pay more in tax on goods, businesses will be paying less and not pass on the savings. Later on I will discuss why this is not necessarily true.

Finally, it is often asserted that the tax will not be revenue neutral and instead be a net gain for government. I am going to dismiss part of that off the bat, as both BC and Ontario are going to be losing money with all of the credits and (in BC's case) income tax cuts they are using to offset it. Yes, you read correctly: the hated sales tax, promoted by greedy politicians who just can't get their hands out of your pocket, will be a net revenue loss. Whether or not it stays that way remains to be seen, but even if not I'm pretty sure we could find some schools or hospitals that could use the extra funds.

EDIT:


I must apologize, and correspondingly edit this post. I spoke with someone who has an intimate knowledge of finance and the manufacturing process, and she clarified just how the different taxes work. PST is currently not charged on any step of the manufacturing process, while GST is charged but later reimbursed. The main difference with how they function for businesses is that PST is levied on supplies and other things that are not resold or used in the manufacturing process, while GST is not. Since the HST is modeled on the GST, businesses would no longer be charged sales tax on anything that they purchase, thus saving them money. Theoretically, prices should fall as they did in the Atlantic provinces when the HST was introduced.

Getting to know me

You know, when my Macroeconomics professor suggested last year that students should start blogs to solidify their understanding of the subject, he got mostly laughs. Even I was skeptical at first, and I paid little attention to the idea at the time.

Some time later, here I am writing my first post. I snatched up the blog itself not long after that sage advice was given, but I never knew what to write. Out of all the material that finds its way into my brain, none of it seemed relevant or easy to elaborate on. So I promptly forgot about the idea again.

These days, I find myself constantly sharing ideas with people who, although interested, care very little about them. I post countless news and related articles (not all economics, of course) to my friends, who, based on the number of responses I get, likely care as much about my thoughts as those of a Jehovah's Witness. Which is too bad, because unlike God or his many mythical counterparts, economics has much to do with our everyday lives.

Of course, it turns out I was wrong about one thing; people actually do care about what I write. I spoke to several of my friends about the lack of responses and they actually cited specific articles that has intrigued them but they had never bothered to tell me about. Barring any demonstrated interest from my current audience, I decided a more prudent approach for me would be to have a space dedicated exclusively to the organized insanity that is macroeconomics, where people could read my stuff willingly and not hate me for posting things that interrupt their Farmville. Upon arriving at that thought, I also remembered I had a blog in storage. Needless to say, I put two and two together and my first post was born.

With that history to the side, I want to welcome everyone to this space. I have biases on this subject (as we all do) that will show themselves over time, and I would love to have some debate, or even a simple comment to show that my words are not vanishing into empty space. I would also love suggestions for something to research or post about, as, although I defy stereotypes by being marginally clever with my words on occasion, it is mathematically impossible for an economist to display any semblance of creativity. And I'm lazy.

With that, I cut the metaphorical ribbon and bid you all become rabid, addicted readers. Or just readers, if that suits you better.