Low education level, low labour force participation

A hard-to-break vicious circle

Begoña Cueto, Professor of Applied Economics,
University of Oviedo

The economic crisis has had a substantial impact on young people aged under 30. Occupation rates have fallen while there has been a rise in both unemployment and inactivity, a situation that includes those neither working nor actively job-seeking. The destruction of occupation has especially affected young people with a low level of education. All these factors may lead to not only labour exclusion but also social exclusion.

1. Introduction

One of the severest effects of the major recession has been the increase in youth unemployment. The destruction of employment has been con­siderable across the whole of Europe but in Spain it has been especial­ly intense and has affected young people to a greater extent. We have seen how the youth unemployment rate exceeded 50%. We have also witnessed the spread of what is, in our opinion, the undesirable term “ni-ni” (the Spanish equivalent of “neet”: not in employment, education or training) to categorise young people who neither study nor work. In general, there has been a tendency to “label” young people, under the assumption that many, faced with difficulties in finding work, “were doing nothing”. Perhaps, behind these labels, there is a tendency to boil the problem down to a question of age when the reality is much more complex. Specifically, despite the plentiful evidence on the importance of education for access to employment, people continue to talk about youth unemployment as if it were a homogeneous concept, when the labour integration problems of young people are very different. In par­ticular, young people with low levels of qualifications have a problem in terms of unemployment and inactivity alike. 

Young people with low education levels have low employment rates due both to unemployment and to their low activation. The lower the education level, the higher the inactivity rate.

Analysis of unemployment only gives us a partial view of the employment status of young people because, in addition to employment and unem­ployment, there is a third situation – inactivity – which is very relevant in the case of young people, as they are at a life stage in which studying usu­ally occupies a large percentage of time. It is necessary, therefore, to ana­lyse unemployment and inactivity and the composition of those groups of people who are in these situations. This analysis is key for designing policies that help resolve both problems (Elder, 2015). For this reason, our aim here is to analyse both employment and inactivity among young people, showing the diversity of situations that may apply to them. For this, microdata from the Active Population Survey (EPA) will be mined.

2. Employment among young people

Prior to the start of the crisis, people aged under 30 years in Spain reg­istered employment rates above 50% (55.7% in 2007), higher than the European Union average (50.7%) and very similar to those of countries such as Germany and Sweden. In contrast, by 2015, the employment rate for people aged under 30 years stood at 33.7%, over twenty points below the rate registered eight years previously and almost fifteen points below the mean Community average (47.2%). 

As observed in Graph 1, Spain is the European Union country that has suffered the largest re­duction in employment among young people, only comparable to that experienced by Italy, Greece, Ireland and Cyprus. 

However, not all young people have been equally affected by job losses, as the employment destruction effect differs greatly according to each per­son’s education level. As shown by Requena (2016), education provides protection from unemployment during all phases of the economic cycle and at all ages. Thus, unemployment affects individuals with a lower qual­ifications level in general to a larger extent, particularly during recessions. 

Graph 2 shows the employment rates by age group at different points in time: before the crisis (2007), during the crisis (2012) and in the last year for which we have data, by which time we were in a phase of recovery (2016). Each graph corresponds to one educational level and each line to a year. Thus, we have information on the differences in employment rates for each age group and, furthermore, the vertical distance between the lines provides us with data on the loss of employment suffered by each group.

For example, in the graph corresponding to people with primary educa­tion or less, we observe that the rates are very low for the youngest peo­ple (below 30% in 2007) and that they reach their maximum between 20 and 49 years (above 60%), and then fall from that age onwards. In summary, the curve takes the form of an inverted U, similar at all edu­cation levels, that shows the process of labour integration during youth and that of transition to retirement from the age of 50 years onward. 

The defence role played by education can be observed in two ways. First­ly, employment rates for any age group are higher among people with higher education levels. Both at times of expansion and times of crisis, people with low qualification levels do not reach an employment rate of 60%, while those who have higher education qualifications reach 90%.

Secondly, if we look at the distance between the lines corresponding to 2007 and 2012 (or 2016), we find that the gap is greater for the lower education levels and for the younger age groups. Effectively, the crisis has had a greater effect on young people, but above all, on those groups with the least qualifications. Thus, for those with only primary educa­tion or less, the employment rate among people aged under 30 years has fallen between 25 and 30 points. The reduction stands at around 20 points for those with secondary education (compulsory, with general or vocational orientation). In contrast, the impact is much lower among those with higher education qualifications, although the employment rate has fallen substantially. 

In short, the major recession has affected young people at a key moment in their working lives, i.e. the transition from education to employment, which may have repercussions in the long term, in terms of not reaching the employment rates of previous generations. The labour integration process is difficult and it has been shown that accessing the labour mar­ket in a climate of crisis has long-term consequences (see, for example, Oreopoulos et al., 2012, and Brunner and Kuhn, 2014). 

Illness or family responsibilities as reasons for not seeking employment are mentioned more often by young people with lower education levels.

All young people have low employment rates before the age of 20 years, whether their level of education is low, medium or high. The difference lies in the fact that, in the adult phase, people that reach a medium or high qualification level register occupation rates that reach levels close to 90% in the central stages of life. In contrast, people with low qualifi­cation levels barely achieve levels of 60%. This is not a factor linked to the crisis, it is a long-term phenomenon, to the point that, from the mid 1980s, the occupation of people with low qualification levels – especially males – has fallen (Garrido, 2010). The crux of the question lies in the fact that the group of young people with a low level of qualifications is still substantial (7.2% of young people aged between 16 and 29 years have primary education or less while 35.5% have compulsory secondary education). In view of the path followed by previous generations, we can indicate that their employment rates will be low and their employment status will not be good, which has consequences in terms of probability of being at risk of poverty and exclusion. 

3. Inactivity among young adults

The situation of inactivity includes people who are neither occupied nor unemployed. They are, therefore, people who are not participating in the labour market, but whose reasons for this behaviour may be very different. Furthermore, in the case of young people, there is a very rel­evant reason that it is worth analysing separately, which is that they are studying. 

The data from the graph below show us that from the start of the eco­nomic crisis, a very relevant increase has taken place in economic in­activity. If in 2008 the percentage of young people aged under 30 years who were inactive was 32.5%, since that year a rising tendency has been registered that by 2016 had situated inactivity at 44.5%. Its main cause is continuation of studies and, for this reason, both graphs display similar trajectories.

Specifically, the increase in inactivity is due fundamentally to the tra­jectory of groups with medium and low levels of education: those who have secondary levels (general orientation, i.e. Bachillerato; or vocation­al orientation, i.e. vocational training) display a greater tendency to­wards continuing with their studies. The economic crisis led to a radical change in the employment status of these young people, who during the boom period found work easily even if they had low qualifications. Thus, returning to formal training is revealed as a way of improving their probabilities for labour integration when employment grows again. If in 2006, 36% of young people with Compulsory Secondary Education (secondary education, first stage) were inactive, by 2016 they had reached 51.8%. For its part, inactivity due to studying represented 23.5% in 2006, reaching 43.9% by 2016. In other words, inactivity has increased but, fundamentally, due to people continuing to study. 

In short, the main reason for people not seeking employment is studying. But in addition to this reason, there are others that are also relevant, above all because their distribution is not homogeneous according to education level and sex.

Graph 4 shows the percentage distribution of the reasons for which inactive young people aged under 30 years are not seeking work. Those who have primary education display a distribution that is clearly different. Thus, illness or incapacity is the reason behind not seeking em­ployment for 28.5% of males and 17.2% of females in this group. 

In addition, among women, care of dependents appears as a significant reason at all education levels and, especially, among those with primary education or less, or secondary education with vocational orientation. If we add family or personal responsibilities to this reason, we find that 35.8% of young people with primary education or less are not seeking employment for this reason. This behaviour is similar in other countries in Europe (Maguire, 2015), but more information is needed to under­stand the conduct of this group of young people. 

4. The employment status of young people

To finish, the graphs that follow show the employment status of young people, taking into account employment, unemployment and reasons for inactivity, and showing this information by education level.

From the total group of people aged under 30 years (graph 5), nearly half are inactive, the main reason being that they continue to study. In fact, the percentage of students is very similar to that of occupied young peo­ple (36.7% and 37%, respectively). Of the total of young people, 18.5% are unemployed, a percentage that does not match the unemployment rate, since the latter is calculated as unemployed divided by economi­cally active (unemployed and occupied), without taking inactivity into account. In other words, the large majority of young people are “doing something”, whether working, studying, or seeking employment. 

By education groups, we observe interesting differences. For example, the proportion of occupied individuals among young people with pri­mary education only is higher than that of those who have obtained their Bachillerato (upper secondary, general orientation). The main reason is the high proportion of the latter who continue studying (some 62.7%). Thus, the lower occupation of young people with secondary education, general orientation, is due to the fact that the majority of them have gained access to university or to higher education courses after completing their upper secondary education. Also, among those with an education lev­el corresponding to the first phase of compulsory secondary education (ESO), the proportion of students is high (some 43.9%). 

In contrast, students represent only 20% of young people aged below 30 years with primary education or less. In addition, it is in this group that reasons for inactivity not linked to training are most significant. Some 24% of the young people in this group are inactive for other reasons, whereas in the rest of the groups, other reasons account for less than 10%. 

If we select young people aged between 25 and 29 years (graph 5), the group in which it is most probable that the student phase has come to an end, we observe that the panorama changes with respect to the previous graph. Thus, a clear positive relationship exists between the percentage of people occupied and education level, so that around 70% of those with higher education are employed, while those with compul­sory secondary education register proportions below 70% and those with only primary education do not reach 50%. 

Similarly, the proportion of unemployed individuals among young peo­ple aged between 25 and 29 years has a negative relationship with educa­tion level. This represents 30.2% of people with primary education only, around 20% of those with only secondary education and 12% among those with a university education. 

Probably, the most striking data are those related with inactivity. Among young people with medium and high education levels, inactivity does not reach 10%. In contrast, 26% of young people with primary educa­tion only are inactive. The relationship between inactivity and level of education is clear. The lower the education level, the higher the inactivi­ty rate. We must take into account that, in addition, this is not a situation that is resolved over time, as in Graph 2 we saw that low employment rates among people with low education levels occur among young peo­ple and older people alike. 

5. Looking to the future

Youth unemployment is, undoubtedly, one of the main problems in the Spanish labour market. The fall in employment contracts, particularly temporary contracts, limits the possibilities of young people who are trying to break into the labour market for the first time, and this has reduced their employment rates to very low levels (Malo and Cueto, 2014).

However, the impact of the economic crisis must be qualified to take into account, at least, two questions. The first is that unemployment does not affect young people in the same way according to their ed­ucation level. Despite the fact that this situation is well known, youth unemployment continues to be treated as if all young people have the same problems. To the contrary, the labour integration difficulties of a young university graduate bear no similarity to those of a young person who has quit compulsory education. However, the design of differen­tiated policies to tackle unemployment among young people that take into account their qualifications is not the norm; in fact, only a small percentage of the total participants in informal training are unemployed with a low level of qualification (Cueto and Suárez, 2011). 

Problems in labour market integration among young people differ according to their educational level. Different policies are needed to tackle different problems.

The second is that a problem of low labour participation also exists among young people with a low education level. If we analyse this spe­cific group, we observe that the percentage of inactive people (44%) is almost the same as that of occupied (28%) and unemployed (28%). Al­though inactivity is caused mainly by studying, the low activation level of this group of young people is a difficulty to be taken into account. Furthermore, very significant reasons for inactivity are family respon­sibilities in the case of women and own incapacity (due to illness, for example), in the case of men. On this latter aspect, more information would be needed to know what type of incapacity is involved.

In general, the low level of qualification results in low rates of activity in the labour market that are maintained in the long term, which may lead not only to labour exclusion but also to social exclusion. Taking into account the fact that the percentage of young people with a low level of education in Spain is higher than the average for the EU (in part due to higher school dropout levels), policies aimed at this group of young people are urgently needed, requiring programmes that are effective, first and foremost, in reaching them, i.e., capable of “activating them” in order to contribute to their progressive labour market inclusion. Within this context, both policies to prevent early dropout from education and active policies for the labour market have a key role.

Also necessary are evaluations of these types of programmes. Thus, ac­tive policies may have contrasting effects. A recent evaluation of active measures aimed at young people in Europe highlighted the fact that only some features may contribute toward reducing youth employment (Caliendo and Schmidl, 2016). In particular, for young people with low qualifications, good results were indicated for programmes related with the intensification and improvement of job-searching techniques or those that take into account the specific difficulties related to health problems or situations of social exclusion.

In the case of Spain, we should point out firstly that of the 37 studies reviewed in the evaluation mentioned, none corresponded to Spain, which shows that obtaining evidence on results of programmes and pol­icies is a matter that remains to be addressed. Secondly, it is observed that the policies launched in recent years (for example, the Youth En­terprise and Employment Strategy) prioritise programmes that support employment and self-employment, which have uncertain effects on the employability of young people and are, in their majority, aimed at all young people, without differentiation by profile.

Begoña Cueto, Professor of Applied Economics

University of Oviedo

6. References

Brunner, B., and A. Kuhn (2014): “The impact of labor market entry conditions on initial job assignment and wages”, Journal of Population Economics, 27(3).

Caliendo, M., and R. Schmidl (2016): “Youth unemployment and active labor market policies in Europe”, IZA Journal of Labor Policy, 5.

Cueto, B., and P. Suárez (2011): “Formación para el empleo en España. ¿Quién se forma?”, Moneda y Crédito, 233.

Elder, S. (2015): “What does NEETs mean and why is the concept so easily misinterpreted?”, Work4Youth Technical Brief, 1, ILO.

Garrido, L. (2010): “El impacto de la crisis sobre la desigualdad en el trabajo”, Papeles de Economía Española, 124.

Maguire, S. (2015): “NEET, unemployed, inactive or unknown – why does it matter?”, Educational Research, 57(2).

Malo, M.A., and B. Cueto (2014): “Young employment in Spain: from the blockade of the labour market to the Youth Guarantee”, MPRA working paper 59473.

Oreopoulos, P., T. von Wachter and A. Heisz (2012): “The short- and long-term career effects of graduating in a recession”, American Economic Journal: Applied Economics, 4(1).

Requena, M. (2016): “The social elevator. To what degree does education improve social mobility?”, Social Observatory of ”la Caixa”.

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Begoña Cueto, Professor of Applied Economics,
University of Oviedo

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