This is a photograph of people at a job fair.
Figure 18.1 Looking for Work Job fairs and job centers are often available to help match people to jobs. This fair took place in the United States (Hawaii), a high-income country with policies to keep unemployment levels in check. Unemployment is an issue that has different causes in different countries and is especially severe in the low- and middle-income economies around the world. (modification of work by Daniel Ramirez/Flickr Creative Commons)

Bring It Home

Youth Unemployment: Three Cases

Chad Harding, a young man from Cape Town, South Africa, completed school having done well on his exams. He had high hopes for the future. Like many young South Africans, however, he had difficulty finding a job. “I was just stuck at home waiting, waiting for something to come up,” he said in a BBC interview in 2012. In South Africa, 54.6 percent of young females and 47.2 percent of young males are unemployed. In fact, the problem is not limited to South Africa. Seventy-three million of the world’s youth aged 15 to 24 are currently unemployed, according to the International Labour Organization (2013).

According to the Wall Street Journal, in India, 60 percent of the labor force is self-employed; largely because of labor market regulation. A recent World Development Report by the World Bank states that India’s unemployed youth accounted for 9.9 percent of the youth work force in 2010. In Spain—a far richer country—in the same year, the female/male youth unemployment rate was 39.8 percent and 43.2 percent, respectively.

Youth unemployment is a significant issue in many parts of the world. However, despite the apparent similarities in rates between South Africa, Spain, and India, macroeconomic policy solutions to decrease youth unemployment in these three countries are different. This chapter will look at macroeconomic policies around the world, specifically those related to reducing unemployment, promoting economic growth, and stable inflation and exchange rates. Then, we will look again at the three cases of South Africa, Spain, and India.

In this chapter, you will learn about the following:

  • Diversity of countries and economies across the world
  • Improving countries’ standards of living
  • Causes of unemployment around the world
  • Causes of inflation in various countries and regions
  • Balance of trade concerns

There are extraordinary differences in the composition and performance of economies across the world. What explains these differences? Are countries motivated by similar goals when it comes to macroeconomic policy? Can we apply the same macroeconomic framework developed in this text to understand the performance of these countries? Let’s take each of these questions in turn.

Explaining differences—Recall from Unemployment that we explained the difference in composition and performance of economies by appealing to an aggregate production function. We argued that the diversity of average incomes across the world was explained by differences in productivity, which, in turn, were affected by inputs such as capital deepening, human capital, and technology. Every economy has its own distinctive economic characteristics, institutions, history, and political realities, which imply that access to these ingredients will vary by country, as will economic performance.

For example, South Korea invested heavily in education and technology to increase agricultural productivity in the early 1950s. Some of this investment came from its historical relationship with the United States. As a result of these and many other institutions, its economy has managed to converge to the levels of income in leading economies like Japan and the United States.

Similar goals and frameworks—Many economies that have performed well in terms of per capita income have—for better or worse—been motivated by a similar goal: to maintain the quality of life of their citizens. Quality of life is a broad term, but, as you can imagine, it includes but is not limited to such things as low levels of unemployment, price stability—low levels of inflation—and the ability to trade. These seem to be universal macroeconomic goals, as discussed in The Macroeconomic Perspective. No country would argue against them. To study macroeconomic policy around the world, we begin by comparing standards of living. In keeping with these goals, we also look at indicators such as unemployment, inflation, and the balance of trade policies across countries. Remember that every country has had a diverse set of experiences; therefore, although our goals may be similar, each country may well require macroeconomic policies tailored to its circumstances.

Link It Up

For more reading on the topic of youth unemployment, visit this website to read “Generation Jobless” in the Economist.

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This section may include links to websites that contain links to articles on unrelated topics.  See the preface for more information.