1 The current status of youth unemployment in The Netherlands
Name: Gijs Faber Student-ID: 10202617
Study Program: BSc in Economics and Business – General Economics Supervisor: Dr. Audrey Hu
2 Abstract
Statement of Originality
This document is written by Gijs Faber who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Content
1. Introduction ... 4
2. Literature review ... 6
2.1 General definitions regarding youth unemployment ... 6
2.2 The culture and history of Dutch labor relations ... 7
2.3 Earlier research about youth unemployment in the Netherlands ... 7
2.4 The five core characteristics for youth unemployment ... 9
2.4.1 Increased Labor Market Flexibility... 9
2.4.2 Expansion of Education, Skill and Qualifications Mismatch ... 10
2.4.3 Youth Migration ... 10
2.4.4 The Family Legacy ... 11
2.4.5 The European Dimension ... 11
3. Methods ... 13
3.1 Country-specific factors regarding each characteristic ... 13
3.1.1 Flexibility of the labor market ... 13
3.1.2 Level of education and the skills/qualification mismatch ... 14
3.1.3 Youth migration ... 14
3.1.4 Family legacies... 14
3.1.5 The European dimension ... 14
3.2 Hypothesis regarding each characteristic ... 15
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1. Introduction
Youth unemployment is what many students in my surrounding fear after their graduation. The subject is discussed both in media as well as in academia. On the one hand, newspapers, television media and fellow (former) students recall the gravity of the youth unemployment problem in the Netherlands. On the other hand, international comparison in literature puts the Dutch youth unemployment in a better perspective. For instance, the decreasing national ratio of total unemployment/youth unemployment is also a sign for optimistic thoughts (CBS, 2015). These contradicting statements made me want to investigate the seriousness of the problem of Dutch youth unemployment.
Keeping in mind that one additional day in unemployment accounts for up to six additional days of unemployment in the young person’s further working life (Schmillen and Umkehrer, 2013), it is clear that youth unemployment should be taken seriously.
At the same time, the topic of youth unemployment in the Netherlands
specifically has not been research extensively. What often happens in studies on this matter is that countries are compared to one another. Cahuc (2013), for instance, compared the polar cases of France and Germany. Other existing research on this topic focuses more on examining the extreme cases and their underlying causes, as Bell and Blanchflower have done for Greece (2013).
In this thesis the current situation of youth unemployment in the Netherlands will be placed in a theoretical framework to objectively determine the gravity of the unemployment. Subsequently, the European policy as well as the national policy will be linked to the different characteristics of the matter to analyze whether the aim of the Dutch government had been on the correct causes. By applying a theoretical framework to the Netherlands, the existing gap in literature about the status of the Netherlands regarding youth unemployment will be filled. Together this leads to the following research question:
How did youth unemployment in the Netherlands develop in the period from 2002-2015 and how does the Dutch policy relate to the European focus?
This research question will be answered by making use of a framework developed by O’Reilly, Eichhorst, Gabon et al. Based on an extensive review of the
5 research and debates on definitions of youth unemployment, their meta-analysis
created insights for an analysis of the current status of youth unemployment. By using this work as a benchmark paper five core characteristics of youth unemployment can be specified.
With respect to the theoretical framework, I expect the Netherlands to respond well on international developments of targeting policies on more vulnerable groups and using a strategy of decentralizing by applying regional approaches. However structural reforms to raise the flexibility of the labor market and improving the jump from
education to work could perhaps still be improved (Rijksoverheid, 2015). This thesis is structured in the following way. Firstly, literature on
unemployment is presented and earlier research of the situation in the Netherlands is outlined. On top of that, the theoretical framework is set forth with the line of reasoning coming to five core characteristics. Finding literature on corresponding measurement of the five characteristics expands this research. Afterwards the method, a literature review, in which five characteristics are operationalized for the case of the Netherlands, is presented. In this chapter the hypotheses as well as measurements of this research are explained. Then, the results – the developments in the Netherlands on the five characteristics – are presented in the chapter ‘results’. Finally, the conclusion contains an interpretation of the results in combination with a discussion in which limitations and suggestions for further research are presented.
6 2. Literature review
Unemployment is a widespread and ever existing phenomenon all countries have to deal with. Governments stake various stances in their approach to this issue and policy can take various angels. Because of the scarring effect youth unemployment can have on one’s entire working life, governments often prioritize this aspect (Gregg and Tominey, 2005). As implementing an effective policy is seen as country-specific, approaches vary. In this thesis a framework will be used to understand these country-specific levels of youth unemployment.
In this literature review, firstly general definitions used in literature on youth unemployment will be set out. Secondly, valuable information gathered from earlier research about youth unemployment in the Netherlands is summarized. Thirdly, the history of Dutch labor relations is set out. Fourthly, using a benchmark paper, the five core characteristics for youth unemployment are distinguished with possible indicators for measurement.
2.1 General definitions regarding youth unemployment
An unemployed person is defined by the Centraal Bureau Statistiek1, the Dutch well-known statistical institute as: ‘(…) someone without work for less than twelve hours a week, who is available to start work within the next two weeks and who has actively sought employment at some time during the last four weeks.’ (CBS, 2015b)
Unemployment is measured by the unemployment rate. This rate is the number of people unemployed as a percentage of the labor force.
A clear distinction between several numbers used should be highlighted. First of all, the minimum of twelve hours the Dutch statistical institute uses differs from the international standard of zero hours. Secondly, the aspect of ‘actively seeking’ in the Dutch definition is different than definitions used international statistics like ILO, Eurostat and OECD use, where unemployment is also defined as an unemployed person who does not actively searches for a job. This has a great impact on interpreting the numbers, because changes in educational participation then influence the size of the youth labor force (Bell and Blachflower, 2015). As an answer to that, the number for those Not in Employment, Education or Training (NEETs) is often used as measurement.
1 As the data will be recollected from CBS, The Netherlands Bureau of Economic Policy Research, the
7 Here a graph of the Dutch NEET and of the YUR in last 12 years will be inserted. Youth unemployment arises when there is a mismatch between labor supply and labor demand for young workers. There are a lot of factors influencing the complex system that the youth labor market is, resulting in a great variety of causes for youth unemployment. Taken into account all factors influencing the total unemployment rate, like the economic situation or the total amount of labor demand, goes beyond the scope of this thesis. The focus lays on the core characteristics for youth unemployment and these will be discussed extensively in the following sections.
2.2 The culture and history of Dutch labor relations
Part of the Dutch culture is the so-called ‘polder model’; a model based on constant consultation and cooperation. Regarding institutional factors this results in firmly established social partnerships and high levels of social trust (Delsen, 2002). A logical outflow of the good relation between trade unions, employers’ organization and the government was the Wassenaar Agreement in 1982. In that year the Dutch government decided to fight the high levels of youth unemployment by stimulating greater labor market flexibility. The arrangement between employers’ organization and trade unions involved greater liberalization of temporary contracts, and a relaxation of redundancy procedures and wage restraint (Crowley et al, 2013). It proved to be extremely
successful resulting in a considerable job growth, mainly consisting of part-time and/or flexible contracts. This moment in history is widely know as the ‘Dutch miracle’ (Hartog, 1999).
2.3 Earlier research about youth unemployment in the Netherlands
Before analyzing the current status of Dutch youth unemployment, earlier research on this topic is examined. First of all, a discussion paper of De Koning, Gelderblom and Van New gave a description of the size of the problem of youth unemployment in the
Netherlands in 2004 and made a comparison with other countries. Conclusions were that the problem should not be exaggerated, although the proportion of long-term unemployed was relatively high (De Koning, 2004). Another remarkable discovery was the high share of the young leaving school without a starting qualification. Remarks
8 about youth policies emphasized a better targeting as “some measures in the past had very low net effects because of a very broad targeting.” Crucial for successful targeting is an early identification of the groups.
Meijers and Te Riele (2004) agreed on this last remark, stating that the policy implemented did not serve marginalized youth. Furthermore, in their comparison of the Dutch and the Australian situation they emphasized that Dutch youth unemployment policy has been organized around the principle of a guarantee for youth. This guarantee implied a high level of commitment to cooperation between social actors, the
government and the private sector to come up with an offer for the unemployed. Also, this offers a lot of continuity and coherence compared to the rather ad hoc Australian programs.
Furthermore Nelissen (2002) performed an analysis of the impact of policy measures on total employment in the Netherlands, in which the only comment regarding youth policy was that promoting employment among low-educated youth was effective by the use of labor costs subsidies.
All these research have been conducted over a decade ago. The only recent research (Crowley et al, 2013) discussing the Dutch situation focuses on the high share of temporary workers and part-time contracts in the Netherlands. This applies not only to youth, a tendency towards part-time work exists throughout the whole working life (Crowley et al, 2013). On top of that, in comparison to other countries, women are well presented in the workforce. The government encouraged this development by
implementing the system of ‘flexicurity’, which helped enormously in fighting youth unemployment (Crowley et al, 2013). A system of ‘flexicurity’ consists of non-standard, flexible working arrangements balanced by strong social security rights. It attempts to reconcile employers' need for a flexible workforce with workers' need for security – confidence that they will not face long periods of unemployment. (Tangian, 2006)
As only in the research of Crowley et al. (2013) a clear characteristic of youth unemployment in the Netherlands given, further discourse about the situation is lacking in literature. This thesis will add to the literature by analyzing the current situation in the Netherlands.
9 2.4 The five core characteristics for youth unemployment
In this thesis the five characteristics defined by O’Reilly et al (2015) will be used to create a framework for analyzing the Dutch situation. In a meta-analysis ten professors of renowned universities used over a 100 articles and debates on definitions of youth unemployment, to distinguish the following five core characteristics. These five are presented one by one in the next section. If existing additional literature on how to measure the characteristics has been conducted.
2.4.1 Increased Labor Market Flexibility
The first tendency the professors highlight is that over time the flexibility of the labor market has increased, creating segmented labor markets where the burden of flexibility falls on workers with “atypical” contracts (O’Reilly et al, 2015). Empirical research shows that high shares of temporary and part-time work characterize youth
employment and therefore youth is hit harder by these developments (O’Reilly et al, 2015). Chung et al (2012) claim that these forms of employment can lead to subjective insecurities, which affect the lifetime employment situation. Paugam and Zhou (2007) point out that institutional factors can weaken this effect and therefore great differences between countries exist.
A footnote however, is that although institutional factors are correlated with levels of subjective insecurities, individual/job characteristics and economic conditions are more important (Erlinghagen 2008). So, besides examining the institutional factors influencing labor market flexibility, characteristics of the unemployed youth, available jobs and economic environment should also be investigated. An analysis by O’Higgins proves this point: “The analysis finds that labour market flexibility contributed significantly to the negative consequences felt by young people during the recession” (O’Higgins 2012).
Possible measurements
There are several factors influencing the flexibility of a labor market, but the main indicator is the amount of regulations. As an official OECD index describing the degree of labor market protection, Employment Protection Legislation (EPL) can be used as an indicator of flexibility (Verick, 2009). The number assigned to each country ranks the degree of strictness of their existing policies of labor market protection. A
10 regulated labor market negatively affects flexibility by concerning the strength of job security offered by a contract and hence the protection of employment. The more rigid EPL in a country is, the less the unemployment rate will increase in that particular country (Verick, 2009). A high level of employment protection is generally seen as disadvantage for a young workforce, by raising the threshold of finding a new job. 2.4.2 Expansion of Education, Skill and Qualifications Mismatch
Literature widely agrees that a certain level of education and qualification is needed to integrate into the labour market. About the effects of the different forms of education, varying from vocational versus general education to industry- versus occupation specific training, on the youth labour market however only exist weak consensus (Dietrich 2011, 30).
More general, and as the second core characteristic, O’Reilly et al (2015) notice an expansion of education systems and the existence of skills and qualification
mismatch. This implies an imbalance between labor supply and labor demand, which indicates over-education (or over-skilling) or under-education (under-skilling) (O’Reilly et al, 5). This situation, in which workers hold more or less qualifications than are required for their current job, is associated with substantial wage penalties and lower levels of job satisfaction and tend to have a long-term impact (O’Reilly, 5). This
educational selection mechanism in combining the skills and qualification with a suiting job is country-specific and thus a cross-country comparison contains serious limitations (Allmendinger, 1989; Shavit and Müller, 1998).
2.4.3 Youth Migration
The third development affecting youth unemployment is caused by the promoting of Intra-EU labor mobility to ensure more efficient labor allocation across the EU (O’Reilly et al, 6). Although this might improve macro-level outcomes in terms of lower
unemployment rates across the EU, it can also evolve at the cost of young migrant workers employed on very short-term flexible contracts accepting jobs beneath their qualifications (Kahanec & Zimmerman, 2015). In this way migration disrupts a national labor market and creates more unemployment. The high share of East-West youth migrants with tertiary education that found employment in low-skilled jobs, highlights
11 this negative effect (O’Reilly, 6) Lately, a range of policies tried to improve job matching and information by various EU employment packages and extension of the Erasmus mobility scheme (O’Reilly et al, 6).
2.4.4 The Family Legacy
Long-term exposure to unemployment for youth can also be part of a generational legacy (Martin, 2012). Factors such as poor role models and the transmission of attitudes toward employment and the welfare dependency attribute to
inter-generational unemployment (O’Reilly et al, 7). Hadjivassilou et al. (2015) discovered an increasing effect over time of parental education on youth labor market transition, contributing to growing levels of inequalities amongst young people. Furthermore, De Graafzijl & Nolan (2011) found that the concentration of joblessness within households also affects the level of poverty experience by unemployed youth. Growing up in an unemployed household (work-poor) compared to a household with working parents, are linked to opportunities to find work (Gregg and Wadsworth, 2000). Having a higher proportion of work-poor household in a country thus is correlated with higher youth unemployment.
Parents and other networks can be important factors in getting a job, let alone be temporary support contributing to human capital accumulation by for instance
financing college. On top of that, Bukodi & Goldthorpe (2011) mention that the family situation also has an effect on the possibility to wait for better job opportunities or taking what is on offer. Another way the household can affect the youth is by creating a possibility of moving out. This chance heavily depends on the welfare situation of a country, but it is positively correlated to employment.
2.4.5 The European Dimension
The last core characteristic distinguishing the current period of youth unemployment is the large financial investment in policy programs by the EU (O’Reilly, 8). Prior to the financial crisis policies could be distinguished between those emphasizing investing in, facilitating and individualizing new social risk (Knijn and Smith, 2012). These policies covered a broad spectrum from encouraging investment in own human capital to private saving schemes to protect again social risks (O’Reilly et al, 2015 p 6). The latest
12 large financial support had a different focus and made a range of new policies to address youth unemployment possible, each addressing to various aspects of the problem. First of all, mobility is promoted through the provision of information. Secondly, social inclusion and cohesion is promoted by offering innovative programs for the most vulnerable. In addition, money is made available to work on preventing early school leaving and to support graduates to get work experience. Fourthly, one program is mainly focused on the supply side by for example reducing tax on labor. The final and biggest program is the Youth Guarantee, implying an entitlement to a job, training or education of a defined group of young people up to age 25 (O’Reilly 10). Being resource intensive and having limited evidence on their long-term impact characterize all these programs.
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3. Methods
The method that is chosen to analyze the Dutch scores on the five before mentioned characteristics of O’Reilly is a literature review. As all literature up till now had mentioned a strong country-specific qualification for each characteristic, in this part, firstly, these national factors will be stressed out for the Netherlands. Linking indicators to the measurement defined before in the literature review will do this. By ending with a prediction for each characteristic, it will be possible to test these hypotheses in the next chapter.
3.1 Country-specific factors regarding each characteristic
First of al, the graph regarding the development of the youth unemployment rate in the period of 2002-2015 will be showed. A comparison of the fluctutions through time will be made with all indicators of the characteristics.
3.1.1 Flexibility of the labor market
As mentioned in the part about earlier research of the literature review, Crowley et al (2013) already discussed the existing Dutch system of ‘flexicurity’. When looking at the Dutch institutional factors influencing the labor market, the first noticeable fact is the large amount of non-standard, flexible working arrangements supported by strong social security rights. Although in the Netherlands, like in most other countries,
temporary workers have fewer employment rights than ‘regular’ employees, the level of employment protection, the training and wage guarantees and supplementary pensions are significantly higher compared to other countries (Crowley et al, 2013).
Based on this literature, as an indicator of the amount of flexibility the employment protection legislation can be taken. To measure the level of flexibility therefore the Employment Protection Legislation (EPL) from the OECD will be used. This is an official OECD index, assigned to each country ranking the degree of strictness of their existing policies of labor market protection. To strengthen this measurement, two kinds of EPL are included. First of all, the EPL of regular, fixed employment contracts (EPL normal) will be set out. Secondly, the EPL for temporary working contracts (EPL temporary) will be examined. The literature review highlighted that young workers are more likely to work in temporary contracts (Crowley et al, 2013). Therefore, a higher influence of EPL temporary than EPL normal should be expected.
14 3.1.2 Level of education and the skills/qualification mismatch
There does not exist literature on how to clearly measure the degree of expansion of education and the skill/qualification mismatch. However, by looking at the amount of youth unemployed per level of diploma, an indication is shown of the distribution of youth unemployment. Comparing the share of unemployed of each level of education with the overall unemployment rate makes it possible to draw tentative conclusions. Data will be recollected from the CBS, The Netherlands Bureau of Economic Policy Research.
3.1.3 Youth migration
With respect to measuring the impact youth migration had on Dutch youth
unemployment, the share of migrants in the youth unemployment rate can be examined. A growing share of young migrants unemployed will be an indication of the effect
migration had on youth unemployment in the Netherlands. Data will be recollected from the CBS, The Netherlands Bureau of Economic Policy Research.
3.1.4 Family legacies
Longitudinal data is needed to examine the effect of work-poor households on the youth unemployment rate. As for the Netherlands these does not exist this kind of data,
empirical research should be done to validate possible conclusions. This goes beyond the extend of this thesis and therefore it is chosen to set out existing literature about the effect households conditions have on youth.
3.1.5 The European dimension
A comparison can be made between the biggest recent European policy plans and the most recent Dutch plans. By discussing the aim of both policies, it can be examined whether the Netherlands shares the European way on fighting youth unemployment in a certain way. In that way the following question can be answered: Does the
Netherlands go along in the European dimension by implementing similar policies as the European Union? Data will be recollected from the Dutch central government (Rijksoverheid, 2015) and compared to the several European programs set out in O’Reilly et al (2015).
15 An overview of all the characteristics and their measurement method is given in the following table:
Characteristics Way to measure Data sources
Flexibility of the labor market Employment Protection
Legislation
OECD
Education Youth unemployment rate per
level of education
CBS
Migration Youth unemployment rate per
cultural background
CBS
Familiy legacies No measurement, literature
review used on household characteristics regarding youth unemployment
Reports published by CBS regarding circumstances unemployed youth
European Dimension Literature review on the
similarities and differences between Dutch and European youth unemployment policy
Latest publications of Dutch ‘Rijksoverheid‘ compared with O’Reilly
3.2 Hypothesis regarding each characteristic
As for the first characteristic of O’ Reilly, I expect the Netherlands to join the tendency of increasing labor market flexibility contributing negatively to youth
employment. The traditionally high share of part time and temporary contracts is a sign of a high level of flexibility, as these contracts tend to have a lower degree of
employment protection as regular contracts (Crowley et al, 2013). The indicators EPL therefore will show downgrading tendency, implying a less stricter labor market
regulation with a positive effect on youth unemployment. This tendency will be stronger for EPL temporary.
Based on the fact that the Netherlands score relatively well on their educational system (Universitas 21, 2014), I expect that the mismatch is getting bigger for the
16 persons who received the lowest education. Therefore, the share of unemployed with the lowest level of finished diploma will be raised the most.
For the third characteristic of O’Reilly et al, I expect the Netherlands to have a raising amount of migrants in the share of youth unemployment. Although immigration policy in the Netherlands has become more stringent, in comparison to other countries, the Netherlands still accepts a significant amount of immigrants (OECD, 2012).
With regards to the effect of household conditions on youth unemployment, I expect the Netherlands to have a raising share of work-poor households. The high level of social benefits makes it possible to life without work and a high share of children will be raised in a work-poor household (Barrett & McCarthy 2008). This negative role model will have a negative influence on youth unemployment and moreover increase the concentration of the problem of youth unemployment.
The final characteristic is the comparison of the Dutch and the European policy. I expect the Dutch government to generally share the focus of the EU by implementing similar programs. European funds are made available to conduct these policies and also in the Netherlands this money is used properly. On top of that, in 2004 policy in the Netherlands was already build on the principle of a guarantee for youth and one of the main programs of the EU covered in O’Reilly et (2014) is The Youth Guarantee Program (Meijers and Te Riele, 2004). On the other hand, I also expect the Netherlands to
conduct some distinctive policies aimed more on special targeted groups. In 2004 this focus was still lacking, but I expect that the government has learned from the past and is now specially aiming on the most vulnerable (De Koning, 2004).
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