The Effectiveness of Policies to combat Youth Unemployment

This study provides quantitative estimates on the impact of Active Labour Market Policy (ALMP) on youth unemployment in Europe based on a macroeconomic panel dataset of youth unemployment, ALMP and education policy variables and further country-specific characteristics on labour market institutions and the broader demographic and macroeconomic environment for all EU Member States. Using Blundell, Bond and Windermejer’s (2000) GMM estimator for dynamic panel data models, we estimate the impact of different ALMP options on youth unemployment ratios. Our results show that participation in vocational education at ISCED-3 level and some programmes of ALMP show significant effects on aggregate youth unemployment, while ALMP training programmes did not show a significant impact.

We contextualise our analysis with an evidence-base on the impact of ALMP on youth unemployment and relate our findings to available estimates of individual and social benefits of reducing the number of young people Not being in Education, Employment or Training (NEET). This literature found that being NEET at a young age is likely to result in lower earnings over the life course, poorer health and higher probability of committing crime, for which various studies – mainly from the United Kingdom – have provide estimations of these costs in monetary terms. While a full Cost-Benefit Analysis cannot be undertaken because of insufficient data on the costs of NEETs across the EU, our estimates can be used for some policy modelling, which allows us to gain an understanding of the costs associated with increasing ALMP and education intervention in order to reduce youth unemployment.

We are fully aware that the findings of this aggregate analysis of ALMP impacts on youth unemployment are severely limited by available data and we were constrained by very rough measures of ALMP spending and participation. Following this analysis, we believe that micro- and macroeconomic data applying coherent concepts of policy interventions for young people, indicators for policy effectiveness and improved estimates of the long-term cost of youth unemployment to the European economy need to be set up in order to allow for consistent research on the impact of policy and programmes