ANALYSIS OF THEORETICAL AND PRACTICAL ASPECTS OF YOUTH LONG-TERM UNEMPLOYMENT IN LATVIA

ECONOMICS ANALYSIS OF THEORETICAL AND PRACTICAL ASPECTS OF YOUTH LONG-TERM Latvia University of Agriculture grinevica.liva@yahoo.com Abstract Unemployment and labour market adjustments have featured prominently among the problems of transitional economies. However, the position of young people and their transition from school to work in these new market economies has been virtually ignored. This paper deals with long-term youth unemployment problems and their integration into the labour market as viewed by different authors. The authors consider that the youth long-term unemployment is a global problem. Also, there are analysed statistical data on youth long-term unemployment, and a forecast of the youth unemployment rate for the 1 st quarter of 2014 is made. The weakening of the global recovery in the years 2012 and 2013 has aggravated the youth employment crisis when there were no free jobs with adequate requirements for people without education and professional skills. The current situation promotes the trend that was already evident before the economic crisis. Most of young people are now turning to available part-time jobs or choose to study only. The author considers that the youths who have access to different resources will find more stable jobs or make their own businesses after unemployment than those lacking such different kinds of support. In building the education and employment decisions in the transition from school to work, there is a strong evidence of the importance of youths making good initial career decisions and an enduring effect of academic achievement on labour market and education outcomes. Key words: youth long-term unemployment rate, labour market, integration in the labour market. Introduction In this paper, the author draws attention to longterm youth unemployment examination, as it is believed that it is today s major problem for future development, which will affect both national and global economic growth, and intensification of the globalisation process. Also substantial is the new generation s successful integration into the labour market, creation of innovative ideas and the realisation of the business, which will provide the new generation s future prospects internationally. The negative aspect contributing to the world s economic globalisation is the outflow of youth s intellectual capital to abroad, which actually takes away Latvia s young professionals and decreases the evolution of innovative products and services. Nowadays it is known that the realisation of innovative products and services is one of the preconditions for successful development of business at international level, which provides the greatest part of the company s income. The global youth unemployment problem is one of the main tasks for the European Parliament to deal with. There is a need to deal with this problem at the European level because there have been a lot of unemployed young people in Spain, Greece, Italy and the Baltic States, too, for already 5 years. And the crisis is not the main obstacle because it began 5 years ago and politicians are considering that the crisis has already ended. The main problem is globalisation, not the economic crisis, which made that kind of problem at the European and world s level. More information on scientific research on youth long-term unemployment and this problem can be found globally. In Latvia, economists and politicians think that there are no serious problems with youth unemployment and unemployment at all. They are writing in reports that there is a high possibility to find a normal and well paid job without problems, but they are not seeing the truth. In Latvia, especially in the countryside, problems with youth unemployment are serious, there is no possibility to work and develop entrepreneurship because of low demand. To develop entrepreneurship, young people have to find a new way how to deal with demand problems, for example, they need to export their production or to produce a very special service with an innovative idea. The aim of the research is to evaluate and compare experience and approaches regarding the youth long-term unemployment problem in Latvia. The following tasks are set to achieve the aim: 1) To evaluate the theoretical aspects of the longterm unemployment of youth from different authors; 2) To analyse the youth long-term unemployment trends and dynamics in Latvia. Materials and Methods Research methodology: the methods of analysis, synthesis and logical construction, statistical data analysis, as well as scientific discussion were applied to reach the aim. Theoretical framework of the research: the research is based on other scientific research in the 258 RESEARCH FOR RURAL DEVELOPMENT 2014, VOLUME 2

ANALYSIS OF THEORETICAL AND economic field, statistical information provided by the European Statistical Office and the Central Statistical Bureau of Latvia. The data obtained in the research were statistically processed by the MS Excel program. The time series analysis was performed for less than 25 year-old unemployed youths for the period from the 3 rd quarter of 2011 to the 1 st quarter of 2014. Results and Discussion Trends of long-term youth unemployment. Youth unemployment has been a central focus of transitions research since the 1980s, with a significant number of studies focusing on crossnational differences in unemployment levels, as well as on the impact of active labour market policies designed to facilitate employment access (Blanchflower et al., 2000). Long-term youth unemployment is a major problem. As a difficult economic climate persists, young people are increasingly facing longer spells out of the labour market. Whilst we would expect both long-term and total youth unemployment to reduce once the economy returns to growth and the supply of jobs is increased, many of those entering the labour market over the past few years and until recovery begins face heightened challenges. There is a danger that even those who in ordinary circumstances would be expected to make successful transitions into employment will become distanced from the labour market. Moreover, there is a danger that cyclical unemployment becomes a structural problem (Shortterm crisis, 2012). A rise in youth unemployment during a recession is to be expected. Youth unemployment is typically higher than adult unemployment regardless of economic conditions, as young people face higher rates of labour market turnover and spend time moving between jobs before settling on a stable career path. In a recession this gap is amplified because young people are more likely to lose their jobs, and new (young) entrants to the labour market face tougher competition for jobs. The author considers that the youth long-term unemployment problem depends not only on youth and their professional skills but on the economic situation of the region where they live and work. According to Arumlampalam, evidence suggests that young people suffer a wage penalty (the difference between the actual wage earned and that earned by comparable people who have not experienced unemployment) on their return to work (Short-term crisis, 2012). Authors, Gregg and Tominey, have calculated the wage penalty to be as much as 13-21 per cent by age 42, but noted that this penalty could be minimised to 9-11 per cent if repeat spells of unemployment were avoided (Short-term crisis, 2012). According to the International Labour Organisation (2012), there is an extensive body of literature which demonstrates the central importance of qualifications on labour market outcomes. Young people with an education level below tertiary are more likely to be passed over by employers in favour of their more highly educated peers (Global Employment Trends, 2012). Geography can also play a part in the decisions young people make. The areas in which young people live can be damaging to their prospects of finding a job, especially if they are residing in neighbourhoods with many other unemployed people The consequences of this pertain to the lack of information about jobs as a result of social networks (Green et al., 2007). According to Audas, Berde, Doliton (2005), there is a growing literature examining many aspects of economic reform and its effect on unemployment and the labour markets of European countries. Despite this, very little attention has been paid to the individuals who will be most affected by these reforms: young people. In all European countries young people are acquiring more education and staying in full-time education longer. As a result, the length of the school-to-work transition is increasing in duration - imposing greater financial support burdens on the state and parents as well as inducing higher levels of indebtedness in young people. Studies that have been directed towards young people in transition economies have concentrated on access to secondary education and academic achievement. Other studies have examined the changing returns to education during the transition from planned to market economies. For instance, Newell and Reilly (1999) found evidence of increasing returns to education as economies became more market orientated. However, little is known about how young people move from secondary education to tertiary education or employment (Audas et al., 2005). The author agrees with this assumption because nowadays there is a large part of students without work experience and that is the main reason why they have problems to find a job after their graduation. On the one hand, it is positive because they spend all their time on studies, but on the other hand, when they graduate from a university or college, they will not have a comparative advantage in the labour market. Active discussions of long-term unemployment trends and issues in Latvia are made by economists and researchers such as Krasnopjorovs, Rasnaca and Hazans. RESEARCH FOR RURAL DEVELOPMENT 2014, VOLUME 2 259

ANALYSIS OF THEORETICAL AND The author Hazans considers that a decrease of economic activity led to a rapid increase of labour force emigration. According to the calculations made by labour market experts, the net outflow of the Latvian population was as follows: 68 000 in 2004 2008 and 48 000-70 000 in 2009 2010. The highest figure might be treated as a more realistic estimation (Hazans, 2011). Estimations show that the share of young population (aged 18-24) among other groups of migrants has increased by 9.0 p.p. during 2009 2010, comparing with the period of 2004 2008 (Hazans, 2011). It has increased dramatically in years of economic recession (up to 37.2% in 2010) and remains high in 2011 (at 31.0%). However, economists have pointed out that unemployment among young people is not higher than among other age groups (Krasnopjorovs, 2012). The high unemployment rate of young people is the result of calculation features, i.e., unemployment is calculated as a share of job-seekers in economically active population, and more than half of the Latvian population aged 15 24 is not economically active (due to studying etc.). According to Krasnopjorovs calculations, if the share of economically active young population in Latvia is of the same size as in the Netherlands, Germany and Austria, the unemployment rate of them will not exceed 10% (Krasnopjorovs, 2012). Skills mismatch on youth labour markets has become a persistent and growing trend. Over-education and over-skilling coexist with undereducation and under-skilling, and increasingly with skills obsolescence brought about by long-term unemployment. Such a mismatch makes solutions to the youth employment crisis more difficult to find and more time consuming to implement. Moreover, to the extent that young people in employment are actually overqualified for the job they are doing, society is losing their valuable skills and forfeiting stronger productivity growth that would have been achieved had these young people been employed at their appropriate level of qualification (Global Employment Trends, 2013). The author agrees that one of the main problems for youth long-term unemployment is the mismatch between youth skills and requirements of employers. The authors Lee, Sissons, Balaram, Jones and Cominetti (2012) presented data about the occupations sought by young job seekers. They find that: Long-term youth unemployment has been rising both before and as a result of the recession; Young men are more likely to be unemployed than young women. This is even more the case amongst the long-term young unemployed; The long-term unemployed are significantly more likely to have low or no qualifications; A large proportion of both short and long-term young unemployed people express a preference for full-time working; Most unemployed young people seek jobs in sales and customer service, and elementary occupations (Short-term crisis, 2012). The requirements caused by today s economic and technological development promote the importance of skilled labour and provide a strong impetus to the intensification of social development. In this context, the youth unemployment is an undesirable phenomenon, which decreases the effectiveness of young people in the labour market by increasing social costs and limiting the development of society. The youth labour market position depends on a number of social, economic and demographic factors that lead to the conclusion that youth unemployment as a social and economic phenomenon is a particularly negative outcome of interaction between these factors. According to the Lisbon Strategy for Growth and Jobs and the European Youth Pact, promoting labour market access and quality of employment has been a key priority. The impact of the financial and economic crisis on labour markets adds urgency to addressing youth employment for both the short- and long-term. The free movement of labour, especially relevant for young people at the start of their careers, is a cornerstone of the Single Market (Communication from the, 2009). In standard Unemployment Search Theory, unemployment that is a consequence of an inappropriate match between the employer and employee will have a positive effect on subsequent wages. Durations of unemployment are used for job search and thus improve the likelihood of a good employer-employee match in subsequent jobs. However, Pissarides (1994) extends these models to include on-the-job search and here, with dispersion in firm productivity, low quality firms recruit the unemployed but lose them to better paying higher productivity firms. Displacement from a good job means a high probability of return to a lower quality one and hence a cost-of-job loss. Part of these costs will be permanent if the worker remains in the low wage sector to retain firm specific human capital which would be lost on a switch to a better paying firm (Short-term crisis, 2012). The author thinks that the main problem of youth long-term unemployment is incommensurable requirements of employers for young people. It will be clear if employers give the opportunity for young people to acquire the necessary skills for the vacancy and to prove themselves. The current youth long-term unemployment situation. According to the International Labour 260 RESEARCH FOR RURAL DEVELOPMENT 2014, VOLUME 2

ANALYSIS OF THEORETICAL AND Organization (2013), the weakening of the global recovery in 2012 and 2013 has further aggravated the youth jobs crisis and the queues for available jobs have become longer and longer for some unfortunate young job seekers. So long, in fact, that many youth are giving up on the job search and choose to study only. The prolonged jobs crisis also forces the current generation of youth to be less selective about the type of job they are prepared to accept, - a tendency that was already evident before the crisis. Increasing numbers of youth are now turning to available part-time jobs or find themselves stuck in temporary employment. Secure jobs, which were once the norm for previous generations at least in the advanced economies have become less easily accessible for today s youth (Global Employment Trends, 2013). The rise in the number of 16-24 year olds unemployed for 12 months or more predates the recent economic downturn. Between 2005 and 2007 youth long-term unemployment rose from 59,000 to around 114,000. However, the recession has exacerbated the problem since the 2008 recession hit, long-term youth unemployment has more than doubled, rising to 264,000. Indeed, the rate of longterm youth unemployment has risen faster than overall youth unemployment during the recession (Short-term crisis, 2012). The global youth unemployment rate, estimated at 12.6% in 2013, is close to its crisis peak. As many as 73 million young people are estimated to be unemployed in 2013. At the same time, informal employment among young people remains pervasive and transitions to decent work are slow and difficult. The economic and social costs of unemployment, longterm unemployment, discouragement and widespread low-quality jobs for young people continue to rise and undermine economies growth potential (Global Employment Trends, 2013). According to the diagram, the author could see that unemployment increased equally among the Baltic States until 2009 and started to decrease in 2011. A higher youth long-term unemployment figure was in Latvia in 2009, when youth long-term unemployment reached more than 70 thousand (in the beginning of 2012 in Latvia lived approximately 2.2 million inhabitants). But in Lithuania youth longterm unemployment reached the highest rate in 2010 when it was 82 thousand (in the beginning of 2013 in Lithuania lived 2.98 million inhabitants) (Figure 1). Unemployment while young can lead to longterm reductions in wages, increased chances of subsequent periods of unemployment, and poorer health outcomes. High levels of youth long-term unemployment also have wider social and economic costs (Short-term crisis, 2012). The author agrees to the above statement and also considers that so high youth long-term unemployment is representing a serious economic and social challenge. In Latvia, education has a greater impact on a person s chances to be employed rather than the age group (Figure 2). In 2010, unemployment among youth who were not in education and training was 25.7%, while among youth who were more than 12 months without work 18.9%. It seems that most of the youths who are long-term unemployed are not in education and training. Also in 2010 the youth longterm unemployment was high 18.4%, and youth who were not in education 23.3%. These indicators are too high and they declined insufficiently, which mainly refers to the fact that Figure 1. Youth long-term unemployment dynamics in the Baltic States for the 15-29 year olds from 2004 to 2012 (thousand). Source: author s construction based on Eurostat data, 2013. RESEARCH FOR RURAL DEVELOPMENT 2014, VOLUME 2 261

ANALYSIS OF THEORETICAL AND Figure 2. Dynamics of the youth long-term unemployment rate (12 months or longer) by gender and age, and youth not in education and training from 2006 to 2012 in Latvia (%). Source: author s construction based on the data of Central Statistical Bureau of Latvia, 2013. the government has not paid enough attention to this problem. According to author Zabko (2012), the high rate of young people not in employment, not in education and training (NEET) becomes a crucial issue. The NEET rate among other European countries indicates that Latvian policy makers are particularly interested in programmes that facilitate the transition of poorly performing students and low-skilled young people into the labour market. The NEET rate increased less than the unemployment rate of young people, and it might be assumed that some dismissed young people have been engaged in the active labour market policy measures. The author believes that this is a positive aspect because inactive young people are being involved in various activities that will contribute to youth s future prospects to find a job (Zabko, 2012). Based on the time series analysis, the author calculated a forecast of the youth unemployment rate for the 1 st quarter of 2014, which was 24.45 thousand. Figure 3 shows that a higher youth unemployment rate was in the 3 rd and 4 th quarters of 2011. According to the author s calculations, the average mean absolute deviation (MAD) is 2.994 if N=3. Figure 3. Forecast of the youth unemployment rate (less than 25 year olds) from 3 rd quarter 2011 to 1 st quarter 2014 in Latvia (thousands). Source: author s calculations based on Eurostat data, 2013. 262 RESEARCH FOR RURAL DEVELOPMENT 2014, VOLUME 2

ANALYSIS OF THEORETICAL AND Based on the analysis and statistical data, the author considers that there is a positive trend, as the youth unemployment has decreased since the 1 st quarter of 2013, and the forecast shows that there will be a positive impact on the future. The author thinks that it is explicable by youth employment projects that are financed by the European Union and implemented by the State Employment Agency of Latvia. According to Barslund and Gros, the European Social Fund will provide funding (starting from early 2014) for youth access to employment, education or high-quality traineeships within four months (the Youth Guarantee). The details of implementation, which will naturally vary from country to country, are unclear (Barslund et al., 2013). Conclusions The author considers that the global youth long-term unemployment problem is one of the main tasks to be tackled at the European level because the youth s future depends on the financial volume of employment support programmes, the price of higher education, the number of free statefinanced study places, the financial volume of selfemployment support programmes, employers flexibility/their ability to adjust, and changes in the legislation for the prevention of long-term unemployment. The transition periods of young people from education to employment have become significantly longer and complex than a few years ago. It is hard to find an adequate job which corresponds to their qualifications. In the labour market for young people, it is more likely to find some low-skilled job with less pay than work that is appropriate to their education. Globalisation and the effect of the current economic situation put further pressure on the labour market opportunities for the young people. Promoting the labour market access and the quality of employment needs to be the key priority of Latvia s government. Nowadays technologies offer new opportunities for learning and participating in different events. The encouraging of entrepreneurship and the innovation of government will make more interest of young people in self-employment, participation in business support programmes, business financial side and will provide a return link. To solve the long-term youth unemployment problem, economic and employment growth is a core need. Government policies must focus on growth in the labour market. References 1. Arumlampalam W. (2001) Is unemployment really scarring? Effects of unemployment experiences on wages, The Economic Journal, Vol. 111, No. 475, pp. 585 606. 2. Audas R., Berde E., Doliton P. (2005) Youth Unemployment and labour market transitions in Hungary, UK: London, Routledge, Education Economics, No. 13, Vol. 1, pp. 1 25. 3. Barslund M., Gros D. (2013) Unemployment is the scourge, not youth unemployment per se. The misguided preoccupation with youth. Brussels: Centre for European Policy Studies. No. 294. pp. 1 10. 4. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions (2013) Youth employment Initiative. European Commission. Strasbourg. pp. 1 4. 5. Goša Z. (2003) Statistika (Statistics). Latvijas Universitāte, SIA Izglītības soļi, 245 292. lpp. (in Latvian). 6. Green A.E., White R.J. (2007) Attachment to place: Social networks, mobility and prospects of young people, Warwick University, Joseph Rowntree Foundation, pp. 1 107. 7. Gregg P., Tominey E. (2005) The Wage Scar from Youth Unemployment, Labour Economics, UK: Bristol, Department of Economics, pp. 487 509. 8. Global Employment Trends for Youth 2012 (2012) International Labour Organisation, Geneva: ILO. Available at: http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/ wcms_180976.pdf, 13 February 2014. 9. Global Employment Trends for Youth 2013. A Generation at risk (2012) International Labour Organisation, Geneva: ILO. Available at: http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/ publication/wcms_212423.pdf, 13 February 2014. 10. Hazans M. (2011) The changing face of Latvian emigration, Human Development Report 2010/2011. National Identity, mobility and Capability. Riga: Advanced Social and Political Research Institute of the University of Latvia, pp. 77 101. 11. Jobs and Enterprise in Deprived Areas (2004) Social Exclusion Unit, London: Office of the deputy Prime Minister. Available at: http://simonpoulter.co.uk/iod/iodpdf/jobsentfinalreport.pdf, 6 February 2014. 12. Krasnopjorovs O. (2012) Jauniešu bezdarbs Latvijā un Eiropā: reāla problēma vai skaitļu dancis? (Youth Long-term Unemployment in Latvia: the Real Problem or a Dance of Numbers?). Available at: http://www. makroekonomika.lv/category/tags/bezdarbs?page=1, 28 February 2014. (in Latvian). RESEARCH FOR RURAL DEVELOPMENT 2014, VOLUME 2 263

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