Key Indicators and Drivers of Youth Unemployment

We examine labour market performance affecting young people in the light of recent policies in Europe, drawing on an analysis of EU Labour Force Survey data 2004-2012. Our aim is to develop a single index measure of labour market performance combining nine variables of labour market inclusion, human capital formation, labour market segmentation and transitions out of education.

The index provides a way of comparing relative performance of countries. No EU Member States achieves full 100 per cent performance on individual dimensions, for example avoiding entirely unsuccessful transitions out of school or achieving full employment of the 15-24 year olds; the index can be interpreted as measuring the shortfall of achievement across the four key dimensions of inclusion, human capital formation, labour market segmentation and transitions out of the education. This extends descriptive studies on the youth labour market in two ways:

1) Based on consistent data and formulas for 27 EU Member States and a time series of 9 years, our analysis is less affected by measurement issues, as cross-country differences in the multi-dimensional nature of policy performance over time are likely to be constant, similar to a fixed effect. In addition, we derive a second index based on principal component analysis to capture a latent concept of labour market performance, which is no longer affected by level differences potentially arising from measurement issues.

2) For individual countries, we describe how the performance improved over time by indexing the starting value in 2004 to 1. This allows us to show whether the combined achievement along the four dimensions improved over time.