Jobless Youth, Lower Energy Costs Threaten Global Growth Rate

A perfect storm of unemployed youth, political gridlock in Europe and the United States, and declining energy prices are causing more economists to warn that an economic slowdown could cause upheaval in developed and emerging nations.

A perfect storm of unemployed youth, political gridlock in Europe and the United States, and declining energy prices are causing more economists to warn that an economic slowdown could cause upheaval in developed and emerging nations.

The eurozone has seen aggregate unemployment rates remain unchanged since EU leaders first met to discuss boosting jobs in 1997, when the region’s unemployment rate was 11%. Currently, the same region has 11.5% unemployment. More worryingly, a larger portion of that unemployment stems from young people and university graduates, who find themselves entering an impossible job market.

In some parts of Europe, youth unemployment has topped 60%, and some analysts believe that rate could increase in 2015.

Unemployed Youth

The eurozone had 24.6 million unemployed men and women in August, which was a slight improvement from July. Unemployment is also improving in the eurozone compared to a year ago, when the unemployment rate rose to 12%.

However, 23% of the unemployed in the European Union are young people who are economically active and looking for work. Likewise, the total youth unemployment rate for the European Union is 23%, and 23.1% in the eurozone.

In the United States, youth unemployment has been much lower than in the worst parts of the eurozone, but it remains higher than the eurozone average. At the same time, youth unemployment has increased considerably from pre-recession levels in the United States. In July, youth unemployment in the U.S. was 14.3%, lower than 16.3% a year prior. Young men were also more likely to be unemployed, with an unemployment rate of 15.1% versus 13.4% for women.

In total, the youth labor force participation has risen in the past year, but remains substantially lower than the historic norm. In 2014, 63.2% of young men and 57.8% young women were in the labor force, steady from the prior year but down significantly from the 1980s.

Today in the U.S., young people are 29% less likely to be in the labor force than a generation ago.

Declining work amongst the youth has been cited as a significant stumbling block for global growth, with the IMF recently warning that the eurozone’s failure to guarantee work for young people has contributed to its flat and decelerating growth rate. “Youth unemployment is a particular concern. Global youth unemployment stands at 13%—or around 74 million young people,” said Lagarde in a recent statement.

Additionally, Lagarde suggested that overall unemployment rate worldwide has risen 17.6% from before the global financial crisis in 2008. “The average jobless rate in developed economies stands at 8.5%, compared with 5.8% before the crisis,” Lagarde said.

Energy Deflation

While young people cannot find work, the cost of energy has fallen to extreme lows throughout the world as depressed demand from unemployment and a slowdown in emerging markets causes less consumption of oil and natural gas. Energy prices fell 2.4% in September from a year ago in the European Union, while the price of gas in the United States has fallen to its lowest point in 2014, at $3.28 a gallon on average, according to Gasbuddy.com.

While declining energy prices are good for consumers, economists warn that falling prices could cause a deflationary spiral for energy producers, who fail to invest in crumbling infrastructure due to diminished profits from energy outputs. That, in turn, could lower efficiency gains and reduce productivity in the future. This lack of investment has begun to threaten global growth, according to the IMF, who recently downgraded its expectations for worldwide growth.