Youth unemployment and policy in Sweden

”The Nordic Welfare Model: What’s in it for Latvia?”

Oskar Nordström Skans

IFAU and Uppsala Center for Labor Studies

Youth unemployment is high in Sweden

0 1 2 3 4 50

1

2

3

4

5

Youth (20-24) to adult (25-54) unemployment ratio (OECD)

2007

2011

But relatively few long-term unemployed

0 10 20 30 40 50 60 70 800

10

20

30

40

50

60

70

80

Fraction of long term unemployed (> 6 months) among young (20-24)

unemployed (OECD)

2007

2011

Further facts

1) Long-term unemployment is confined to a subset of the young (OECD, 2008):

• Poor formal education (drop outs/bad grades)• Immigrant youths (in particular if arriving late)

2) School-to-work transition chritical phase: • Inactivity and inflow into unemployment peak at age 19• Suggest inefficient transitions from high school to work.

3) High fraction of youths on temporary contracts

0 20 40 60 800

20

40

60

80

Share of young (15-24) em-ployees on temporary con-

tracts (OECD)

2007

2011

Policy tools 1: Benefits

• Unemployment insurance benefitsRequire a continous work history few are entitled

• Program participation benefitsAt par with study grants (i.e. low), after 3 months.

• Means tested social assistance If other means are exhausted, strongly reduces

incentives to accept low intensive jobs.

Policy tools 2: Programs and subsidies

• ”Mandatory” programs after 3 months of registered unemploymentJob search assistance, employment subsidies,

practice programs, and labor market training…Evidence suggest that youths benefit from the

mix, at least in the short run.

• Generous grants for continued schooling among high school drop-outs

• Lower pay-roll taxes when hiring young workers

Possible explanations for the pattern:

• Dual employment protectionRigid for permanent employmentFlexible for temporary jobs.

• High minimunm wages Set through collective agreements

• Education ”Academic style” vocational high schoolsSlow transitions into higher education

Tentative conclusions I:The formal education system is keyPoor education may indicate other individual

problems unrelated to education

But evaluations suggest that raised thresholds in the education system have contributed to slower transition to work among the low skilled young

In addition, more resources in primary schools leads to better labor market outcomes

Tentative conclusions II:Contacts with employers is keyEvaluations of labor market programs and job

search assistance, as well as direct evidence on job search and employment patterns, suggest that a key element for a succesful transition to work is a direct contact with an employer.

Suggest that programs and education should seek direct involvement of employers to ease the transition.

Some references

Björklund et al (2010) IFAU Rapport 2010:13 (www.ifau.se)

Långtidsutredningen 2011, SOU 2011:11Various appendices (1, 2, 6 and 11) [in SOU 2010:88; 2010:93; 2011:2]

OECD (2008) Country Survey Sweden, OECD, Paris.

Fredriksson, Öckert and Oosterbeck (2012) IFAU Working paper, 2012:5 (www.ifau.se)