Examining Youth Unemployment Levels

April 23, 2013
Jock Finlayson

As Canada and other industrialized countries struggle to return to a sustainable economic growth trajectory following the steep downturn of 2008-09, the difficulties being felt in the job market are proving particularly painful for young adults.

Youth unemployment rates have surged in many countries since 2008 – and have reached truly frightening levels in parts of Europe. Across the 17 countries that comprise the common currency Eurozone, unemployment among those aged 15 to 24 stands at 25%. In Greece and Spain, the figure exceeds 50%, while Italy and Portugal are grappling with youth unemployment rates in the vicinity of 35%.

Canada and the United States have also seen unemployment jump, but the rates of joblessness among young adults are significantly lower than in the most distressed parts of Europe: 14% here and16% in the US by early 2013. Still, young job seekers in North America are certainly not having an easy time of it.

Regardless of the state of the economy, young people commonly encounter age-related barriers to accessing and advancing in the job market. To begin with, lacking prior relevant work experience, they are often at a disadvantage when competing for vacant positions. Second, they have a greater chance of losing their job when the economy turns down (“last in, first out”). Finally, if they do become unemployed early in their careers, young adults may be at increased risk of suffering subsequent spells of unemployment, and/or of becoming stuck in low wage jobs – a phenomenon known as “scarring” in the academic literature.

In a soft economy like today’s, the labour market challenges confronting young people are magnified. As the pool of unemployed/underemployed workers expands, employers seeking new staff become choosier and may be even less inclined to hire candidates with little or no experience. Then too, in the aftermath of a recession – particularly a recession accompanied by substantial declines in pension-related wealth and household net worth – some older employees will postpone retirement, thus reducing job openings and slowing labour market turnover. We have seen this play out in Canada since 2006-07: labour force participation rates for people aged 55 and over have been edging higher.

In the current context, these problems are being compounded by a skills/education mismatch that is making it harder for some young adults to find suitable work. According to a recent study by CIBC economists, 30% of Canadian businesses report facing labour shortages, despite a sluggish job market and large numbers of underemployed young people.[1] The CIBC researchers identified 25 occupations that showed signs of “labour shortage.” These include many skilled trades and technical occupations, some science and engineering fields, and a host of occupations in the health care sector. Shortages are also evident in accounting, auditing, and mining-related occupations.

There is evidence that too few people in Canada are being educated to work in occupations for which labour market demand is relatively strong. At the same time, record numbers of young adults are emerging with general-purpose undergraduate college/university credentials that don’t necessarily provide well-defined pathways to rewarding careers. To the extent that skills mismatches exist, they help to explain why it seems to be taking longer for many young adults to successfully transition from school to the job market.

For individuals, a significant unemployment spell can have long-lasting consequences. One US study found that a young person entering the job market during a time of high unemployment could expect to endure a relative “wage loss” extending up to 17 years after graduation.[2] Prolonged underutilization of young people in the labour force can compound existing social inequalities and reinforce patterns of intergenerational poverty and low income.

The economic losses caused by high youth unemployment extend beyond the impact on those directly concerned. For the economy as a whole, these losses also include “…the foregone value added that would have been generated by production of goods and services by those who are not at work, as well as the multiplier effect stemming from that original production.”[3] High youth unemployment also exacts a toll on governments’ fiscal positions, by driving up income support payments and lowering tax receipts.

Economic research indicates that pro-growth macro-economic and framework policies and targeted government programs can help to stimulate the hiring of young entry-level workers. Educational upgrading (with a focus on in-demand fields), market-driven training programs, and labour mobility may lessen the “scarring” effects of joblessness, and should also be part of the policy tool-kit used to address the risks posed by long-term unemployment among young adults.

[1] Benjamin Tal, “The Haves and Have-Nots of Canada’s Labour Market,” CIBC Economics, December 3, 2012. Available at http://research.cibcwm.com/res/Eco/EcoResearch.html

[2] Lisa Kahn, “The Long-Term Labor Market Consequences of Graduating From College in A Bad Economy,” Labour Economics, April 2010.

[3] TD Economics, “Assessing the Long-Term Cost of Youth Unemployment,” January 29, 2013, p. 4. Available at www.td.com/economics

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