The Youth Unemployment Bomb

(page 6 of 6)

Something similar is catching on in the U.S. AT&T, with almost 270,000 employees and an annual training budget of nearly $250 million, is trying to smooth high school students' transition to work with a program called Job Shadow that exposes students to the realities of employment. Insight into the minds of American teenagers has made AT&T executives realize the magnitude of the challenge. "I had three students shadowing me a while ago—juniors in high school," says Charlene F. Lake, AT&T's chief sustainability officer. "When I asked them what they wanted to do after high school, two of them hadn't thought about it. One girl said she'd like to teach and expressed surprise that she needed more education to do that. She didn't even realize she had to go to college."

For many young people who lack work experience, structure is the key. "You need to have rules and regulations," says Executive Director Mary B. Mulvihill of the Grace Institute in New York, which offers tuition-free training in personal and office skills to help "under­served" women become self-sufficient. "You need to say, 'If you do this, look how your life is going to change.' If it's more loosey-goosey, I don't think it works."

If the purpose is to create jobs, as opposed to just filling them, loosey-goosey may be exactly what's needed. Entrepreneurship—with all its guesswork and improvisation—could be the most underexploited means of reducing youth unemployment. In 2008 the University of Miami started an entrepreneurship program called Launch Pad inside its career center to send the message that starting your own company is a valid career option, not just a class to take.

Since then, University of Miami students and recent grads have launched 45 companies. Coral Morphologic collects and raises corals for sale to aquarium owners. Sinha Astronautics has conceived of a space plane for launching satellites into low-earth orbit. Audimated, a music website, allows fans to make money by promoting their favorite indie artists. The man who launched Launch Pad is William S. Green, senior vice-provost and dean of undergraduate education. "Young people are interested in managing their own lives and are a little bit cautious about big corporations," he says. "This has become the largest single student activity on campus."

After Miami's entrepreneurship initiative caught the eye of Stephen A. Schwarzman, the billionaire head of private equity firm Blackstone Group, the Blackstone Charitable Foundation last year launched a similar program in southeastern Michigan with Wayne State University and Walsh College. On Jan. 31, as President Barack Obama announced his Startup America initiative at the White House, Blackstone said it would expand what it also calls LaunchPad to five more cities, as yet unnamed, devoting $50 million over five years. Schwarzman, buttonholed at the World Economic Forum in Davos, said Blackstone "started getting focused on this area when it became clear that [government efforts] were not in our judgment going to lead to significant declines in unemployment."

To free-market economists, one solution to youth unemployment is simple: Clear away the government-imposed obstacles to hiring young people. They blame high minimum wages, for instance, for discouraging companies from hiring promising young people who haven't had a chance to accumulate the knowledge or experience to justify being paid even the minimum wage. Following that counsel, most European countries, where minimum wages are high relative to average pay, have lower minimums for young workers. (The evidence is that high minimum wages do exclude some young people, while benefiting others by raising their pay.) Likewise, too-strong protections for the permanent workforce can hurt young people because they aren't similarly protected and bear the brunt of downsizing in hard times, the ILO warned in a 2009 report.

Right or wrong, the free-market argument hasn't carried the day: Britain and New Zealand actually raised their minimum wages during the global downturn. And the argument for the negative effect of worker protections hasn't convinced Austria and Germany, which have strong employment regulation and yet have had healthier job markets in the past two years than countries such as the U.S. with fewer worker protections. Thea Lee, deputy chief of staff at the AFL-CIO, argues that unions can't be blamed for high youth unemployment: "Business likes to have workers with no power, no rights, no protections."

That's a bit harsh. After all, company executives are squeezed too, and hiring neophytes is costly. Joerres, the Manpower chief, blames the faster pace. "Businesses did more training when the life cycle of their products and employees was longer," he says. "Now if the life cycle of your product is 18 months and it takes 12 months to bring your employee up to speed, you lose."

Chronic youth unemployment may not be fixable. But there's evidence it can be reduced through the concerted efforts of government, labor, business, education, and young people themselves. Luckily the soil is fertile: All over the world, the hittistes and shabab atileen, NEETs and freeters and boomerang kids are hungry for a chance to thrive. Says John Studzinski, senior managing director at Blackstone Group: "To a certain extent, all you can do with youth employment is plant seeds."

With Stanley Reed, Carol Matlack, Dexter Roberts, Diane Brady, Caroline Winter, and bureau reports. Peter Coy is Bloomberg Businessweek's Economics editor.