The economic recovery is taking hold on both sides of the Atlantic, but one age group is still lagging behind: millennials.
Diana Furchtgott-Roth & Jared Meyer, writing for CapX, show how huge debt levels and government overregulation are holding down young job seekers.
By Diana Furchtgott-Roth & Jared Meyer, June 17, 2015
In Britain and the United States government policy is resulting in poor job market prospects for millennials, those born between 1980 and 2000, while burdening them with obligations to pay off high levels of debt.
In Britain the unemployment rate for young people ages 16 to 24 is 16 percent and in the United States it is 12 percent. In contrast, rates for older people are lower. It is difficult for young people to believe that both countries have been in economic recovery for years, as the young have not proportionally shared in the growth.
Lack of employment at a young age has negative effects on individuals’ future prospects. Work provides experience that cannot be learned at university, and a lack of employment continues to have consequences years down the road in the form of lower earnings and decreased career opportunities.
The situation is worse in Spain and Greece, where youth unemployment rates hover around 50 percent, and in the EU, where the average is almost 25 percent. Shadow Secretary for Work and Pensions Rachel Reeves exaggerated when she said, “We have got German levels of adult unemployment but the rest of Europe’s levels of youth unemployment,” but her comment spoke to the two different labor markets experienced by the young and the old.
Even though many young people cannot find work, they are expected to eventually pay for their parents’ and grandparents’ spending through higher future taxes. The U.S. official government debt is £12 trillion. When future obligations to old-age healthcare and pension programs are taken into account, the so-called “fiscal gap” balloons to over £135 trillion. Individual U.S. states carry an additional £3 trillion in pension obligations. This translates into a fiscal burden of over £435,000 for each person living in the United States.
Britain, at 2.7 percent, has a similar deficit to GDP ratio as the States, 2.6 percent. However, this sum does not reflect the main reason young people will have to divert large portions of their hard-earned paychecks to programs for which they never voted—retirement pensions.
There are only three persons of working age for each British pensioner. Including the State Pension, the unfunded liability per household grows to £221,000. The Centre for Policy Studies has proposed mandatory Inter-generational Impact Assessments to measure the costs being passed on to future generations.
To stop betraying their youth, both countries need to restore fiscal accountability. Chancellor George Osborne has suggested a permanent budget surplus—in the States, we would settle for a simple balanced budget. Politicians need to stop promising benefits to current voters while passing the costs on to those too young to vote. Without high levels of economic growth, paying down deficits and shoring up unfunded entitlement promises will be impossible.
Another way to increase annual GDP growth rates is to reevaluate regulations and decide which are needed. It is difficult to start a firm, or to expand, when entrepreneurs have to obey countless commandments from Washington to Westminster.
While higher growth will go a long way towards increasing youth employment, both governments need to remove impediments to getting a first job. Minimum wage laws, prohibitions on unpaid apprenticeships or internships, and occupational regulations (such as those that limit Uber drivers) all make it more difficult for young people to gain valuable career experience.
In an increasingly competitive global economy, one thing is certain—countries that do not give their young sufficient opportunities now will be handicapped in the future.
Diana Furchtgott-Roth is director of Economics21 at the Manhattan Institute and Jared Meyer is a fellow at the Manhattan Institute. They are the coauthors of “Disinherited: How Washington Is Betraying America’s Young”, out last month from Encounter Books. Follow Diana on Twitter @FurchtgottRoth, and Jared @JaredMeyer10.