A close look at Youth unemployment and the opportunity to fight back with entrepreneurship

by Emanuele Musa & Martina Orlea for the Youth Solutions Report of the United Nations SDSN

The possibility for young men and women to enroll in school, receive training or have a stable job, has important implications for future economic growth, development and stability. If overlooked, youth unemployment has the potential to have significant and serious social repercussions, both at the individual level and at the macro-economic one. Youth unemployment can lead to social exclusion and unrest. It can negatively affect the physically well-being of youths, impede their skills development, potentially cause youth homelessness and a lower output, loss of human capital and increased poverty, especially in developing countries.  

This is why reducing  youth  unemployment is  one of the  primary targets  of the 2030  Agenda for Sustainable  Development  under Goal 8 on “Promoting  sustained,  inclusive and sustainable economic growth, full and productive employment and decent work for all”. However, given the  huge  gender disparity in emerging and developing countries, the goal of reducing the youth unemployment rate is also directly linked to SDG 4, “Ensuring inclusive and equitable quality education and promote lifelong learning opportunities for all”, and SDG 5, “Achieving gender equality and empower all women and girls.

One possible way to address youth unemployment is to support young people in creating their own businesses. They have the interest and potential to become self-employed. Youth are more likely to have a preference for self-employment than adults and are more likely to believe that self-employment is feasible. However, the level of youth entrepreneurship and self-employment tends to be considerably lower than that of adults, more young men likely to be self-employed than young women. Similarly, more older youth are involved in running enterprises than younger youth.

1. The Problem: Unemployment

1.1 Overview

The sad reality is that Youth unemployment still is, in 2019, an urgent global problem. According to the International Labour Office (ILO), despite the modest economic recovery of the past 2 years, over 71 million young people are trained but have no job. This is a population greater than the whole United Kingdom!

Deborah Greenfield, ILO Deputy Director-General for Policy, said: “The alarming rise in youth unemployment and the equally disturbing high levels of young people who work but still live in poverty show how difficult it will be to reach the global goal to end poverty by 2030 unless we redouble our efforts to achieve sustainable economic growth and decent work. Our research also highlights wide disparities between young women and men in the labour market that need to be addressed by ILO member States and the social partners urgently” 

Youth unemployment in numbers

The global youth unemployment rate in 2018 is 13,1%, so it is three times higher than the figure for adults, which is 4.3%.

The rise in youth unemployment varies across different countries and regions:

• Increase in  Latin  America and the Caribbean,  as well as in other parts of Asia and the Pacific and Northern America
• Remains stable in sub-Saharan  Africa, and Eastern and Southern  Asia. 
• Falling slightly in Europe, Northern Africa and the Arab States. 

Between  2017  and  2030, the  global  youth labour  force  aged 15–24 will  increase  by 41.8 million people, driven by trends in Africa. Young people aged 15–24 in Africa and Asia and  the  Pacific will comprise 77.0 per cent of the world’s youth labour force by 2030. However the share of the total youth in the global workforce will decrease, as the population ages.

Working youth living in poverty

Of greater concern is the share and number of young people, often in emerging and developing countries, who live in extreme or moderate poverty despite having a job. In fact, 156 million or 37.7 percent of working youth are in extreme or moderate poverty, earning less than $1.9US a day while only around 26 per cent of employed adults live in such a situation. In Sub- Saharan Africa, almost 70 percent of young people  continues to suffer the highest youth working poverty rates. The gap between the youth and adult working  poverty  rates remains narrow, but there  has  been  virtually  no  improvement in  the working poverty situation for youth since 2012.

Women are the real victims

Across most labour market indicators, wide disparities exist between young women and men, underpinning and giving rise to wider gaps during the transition to adulthood.

It is estimated  that 21.8  per cent  of young people  are  neither in employment nor  in  education or training (NEET), and most of them female. Globally, the female NEET rate is 34.4 per cent (621 million young people), compared  to  9.8 per cent for males. The challenge is particularly acute in the Arab States and Northern Africa, where female youth unemployment rate is almost double that of young men, reaching as high as 44.3 and 44.1%, respectively.

The specific barriers faced by girls and young women to secure decent employment:

• Women are more likely to engage in “invisible” domestic work outside the home, which is poorly considered and regulated. There were 52.6 million domestic workers in the world in 2010, of which 80% are women. 
• According to the World Bank, in 90% of countries there is at least one law that is acting as a barrier to economic equality for women. Their research also highlighted that in 18 countries a woman has to ask for her husband’s permission to work.
• In the world, women earn on average 24% less than men, and more than 30% less in Sub-Saharan Africa and Southern Asia.
• Gender norms when women want to access education or the world of work.

1.2 Causes of youth unemployment

One of the main reasons why youth are unemployed is because of the lack of right skills: graduates lack the right skills to fit into today’s job market because school curriculums are not being updated fast enough to keep up and meet the present day needs of employers. Furthermore, the course contents of most tertiary education lack entrepreneurial contents that would have enabled graduates to become job creators rather than job seekers by building their entrepreneurship skills.  This is a problem that is affecting youth in both developed and underdeveloped countries. But mostly youth in developing countries are unemployed for different reasons than the youth in developed countries. Below you can find some of the other key reasons of youth unemployment  in developing countries:

• Rural urban migration: rural life is unattractive due to the existence of seasonal cycle or the lack of infrastructural facilities. Youths move to urban areas with the probability of securing lucrative employment in the industries. In addition to this, there is the concentration of social amenities in the urban centers. 
• Rapid population growth: the high population growth rate has resulted in the rapid growth of the labor force, which is far outstripping the supply of jobs. 
• The rapid expansion of the educational system: it directly leads to an increase in the supply of educated manpower above the corresponding demand for them. Ordinarily, this should not have been a problem, but the reality is that most emerging economies are too weak to absorb this large number of graduates.
• The digital divide: The world today has literally gone digital, for employment, this means that most professions will now require a person to be digitally savvy. To acquire digital skills young people need access to internet and other technologies, therefore youth from low-income countries often aren’t privileged enough to develop these skills.
• Corruption: Funds meant for development projects have been misappropriated, diverted, or embezzled and stashed away in foreign banks, robbing developing countries of the chances of using the funds to develop a vibrant economy that would have created jobs for the youths in various sectors of the economy. 

In developed countries the other key reasons are:

• Labor markets and regulations: First, a high level of employment protection regulations causes employers to be cautious about hiring more than a minimum number of workers, since they cannot easily be laid off during a downturn, or fired if a new employee should turn out to be unmotivated or incompetent. Second, the development of temporary forms of work such as internships, seasonal jobs and short term contracts have left young workers in precarious situations. Because their jobs are temporary contracts, youth are often the first to be laid off when a company faces a challenging period.
• Assistance and dependency: Many countries around the world provide income assistance to support unemployed youth until labour market and economic conditions improve. Although this support is strictly related to obligations in terms of active job search and training, it has led to an emerging debate on whether or not it creates dependency among the youth and has a detrimental effect on them.

1.3 The impact of youth unemployment

The effects of unemployment on youth are long term and lead to socially excluded generation at great risk for poverty.

1. Unemployment affect earnings for about 20 years: because they aren't able to build up skills or experience during their first years in the workforce, unemployed youth see a decrease in lifetime earnings when compared to those who had steady work or those who were unemployed as an adult. A lower salary can persist for 20 years following the unemployed period before the individual begins earning competitively to their peers. It  is  estimated  that one year of unemployment during youth can reduce annual earnings at age 42 by up to 21% (Gregg and Tominey, 2005) and that an extra three  months of unemployment prior to the age of 23  results in an extra two months of unemployment, on  average, between the ages of 28 and 33 (Gregg, 2001).
2. High unemployment rate can contribute to migration: the share of young people between 15 and 29 years old who are willing to move permanently to another country stood at 20 per cent in 2015. The highest inclination to move abroad, at 38 per cent, is found in sub-Saharan Africa and Latin America and the Caribbean, followed closely by Eastern Europe at 37 per cent.
3. Unemployment impacts also their families. Youth in many countries now live with their parents into their late twenties.This contributes to what is called the "full-nest syndrome". In 2008, 46% of 18- to 34-year-olds in the European Union lived with at least one parent; in most countries the stay-at-homes were more likely to be unemployed than those who had moved out. Prolonged  unemployment  magnifies  these  problems and increases  the chances that they are  passed on to their children.    In  addition  to these pronounced  individual costs, the  unemployed represent a significant  stock of unused economic resources that lowers output and the potential for economic growth.
4. Mental health risks and social exclusion: Being unemployed for a long period of time in youth has been correlated to decreased happiness, job satisfaction and other mental health issues. Unemployed youth also report more isolation from their community. They are progressively marginalised from the labour market and in turn can develop an anti-social behaviour. Low opportunities for young graduates create problem of violence due to lack of job and idleness, because without job they will not be able to play a useful role in the society

2. Youth Entrepreneurship: a potential solution?

2.1 Overview

One of the most promising solutions proposed to youth unemployment is youth entrepeneurship or self-employment. The 21st century is considered by many the “age of the entrepreneur”, which creates a friendly environment for young people to start their businesses.  However, studies show that there is a significant gap between youth wanting to start a business or be self-employed and youth actually starting one, with only 4% with businesses in the US being started by people under 30.

When thinking about entrepreneurship, it is important to say that entrepreneurship should not be defined ony by techpreneurs and Silicon Valley style of business, but also SMBs. Young people could lower unemployment by creating small enterprises, like shops, manufacturing facilities, HORECA businesses, where they could be self-employed and create jobs for other 2-3 people. This remark is important in the context of the fact that most programs supporting entrepreneurship today are focused on building scalable, tech start-ups and not SMBs. Additionally, van Ryzin (2010) and Harding (2010) came to the conclusion that young people tend to also be more interested in building social enterprises than older people, suggesting that they are “happy people, interested in politics, giving to charities, extroverted, and more liberal in their political ideology”.

Gender wise, there is a significant gap between male and female entrepreneurs. According to the OECD, around 6% of young women are entrepreneurs or self-employed, compared to 7.5%. Similar to youth unemployment, women seem to underperform men in setting up new businesses (except for Chile and Mexico), with differences waging from 0.5% in Japan to 9% in Greece. Looking at the chart below, it can be seen that the difference is bigger in developing countries as Brazil, Slovakia, Czech Republic, Romania, Poland. 

Looking at the current number of young entrepreneurs, it can be said that older youth (above 25) is more entrepreneurial than younger youth. This happens probably because people are more reluctant to start a business right after finishing college, feeling that they lack the practical skills needed, because of  the general theoretical approach to education. Entrepreneurship requires both theoretical and practical skills. A study focused on European university students came to the conclusions that immediately after srudies only 7.5% of graduates intended to become entrepreneurs, compared to 79.1% that wanted to find traditional employment. However, when asked about intention in 5 years after studies the numbers changed dramatically, with 33.5% wanting to start a business and only 49.7% wanting to be traditionally employed.

Businesses set up by young people are more likely to fail than businesses set up by other age categories. However, this is not only because of the fact that youth are less prepared to be entrepreneurs, but also because there are bigger chances for first time entrepreneurs to fail than those who built ventures before. Youth businesses do not necessarily grow, survive or provide sustainable incomes, but these are generally problems faced by any small business. 

The following sections will dive more into the problematic of skills needed for youth entrepreneurship, positive impact of youth entrepreneurship, barriers and challenges faced by young entrepreneurs and support and best practices.

2.2 Skills

Traditional educational system does not prepare young people to become entrepreneurs. Scholars consider that teaching entrepreneurship means teaching a mind-set which is more difficult said than done. Young people face information imperfections both pre and post start up.  Young people may simply be unaware of the potential of entrepreneurship, their entrepreneurial aptitude or the skills needed to be an entrepreneur.

Young people usually lack human, financial and social capital needed to successfully run and set up a new business. Since their previous employment experience is very small, they do not have the practical experience needed to start and run a successful business, which makes them also vulnerable in front of business partners, that do not offer them legitimacy. What is also an interesting point is that in the European Union, people whose parents were entrepreneurs are more likely to start a business as well, due to the fact that they have an entrepreneurship prone mindset.

2.3 Positive Impact

The main positive impact of youth entrepreneurship highlighted by this paper is reducing youth unemployment. However, a strong SME environment offers other long term benefits as: creating more jobs, a more stable economic market and tax funds.

Moreover, encouraging statewide entrepreneurship will create a generation of founders that will probably help and mentor other people to become entrepreneurs, creating a spill-over effect. Entrepreneurship culture takes years to build, but after it’s built it stucks and probably has an important role in creating other generations of founders.

To understand how significant the impact of such initiatives can be, we can look at GIST initiative, an entrepreneurial program funded by the US congress, that supported young entrepreneurs in 55 countries that in 3 years created 2000 jobs, raised $32 millions in venture capital and generated $300 millions in yearly revenues.

2.4 Barriers and Challenges 

There are many barriers faced by young entrepreneurs. Starting from an underdeveloped entrepreneurial mindset and the lack of practical experience, to a general ecosystem bias that prefers older entrepreneurs.

The general barriers for young entrepreneurs are:

• Lack of awareness about entrepreneurship opportunities
• Negative social attitudes
• Traditional education not focusing on entrepreneurship
• Lack of prior work and entrepreneurial resources
• Fewer financial resources
• Limited business networks
• Market barriers, including bank financing.

Financing is one of the main problems for entrepreneurs because they do not have enough personal funds to build a successful business and they seem less legitimate in front of financiers. Typically, young people have a limited credit history.  Financiers may judge that they cannot adequately judge the quality of their new or existing business proposition and, therefore, decided not to fund their business proposition. However, the Internet has brought some solutions to this problem, with many entrepreneurs crowdfunding for their ideas on websites as kickstarter and indiegogo.

Another challenge would be lack of models. Most young entrepreneurs promoted by the mainstream media are tech giants, as Zuckerberg and Gates, whose statuses seem impossible to reach for hopeful young entrepreneurs. Programs should promote models from the community, that made it using the same resources as the ones at their disposal and whose businesses have more of a local or national reach and are not already billion dollar corporation. Additionally, by recognizing and meeting these entrepreneurs, young people could also use them as a source for mentorship.

The gender problem is also striking in entrepreneurship, with more males being involved than females. This can stem from 2 causes: 1. Women are less educated and thus have even worse entrepreneurship skills than their male counterparts 2. Social attitude towards female entrepreneurship is not encouraging. Even in well developed countries, as the US or those in Western Europe, female entrepreneurship is still seen with reluctance, with more funds going to male funded enterprises.

For less-developer countries, as Sub-Saharan Africa, infrastructure is a big problem. With limited access to Internet, young entrepreneurs are losing the opportunity of E-business and they cannot access online resources to help them build a better business.

2.5 Support & Best Practices

A number of successful youth entrepreneurship initiatives were implemented all over the world. What is very important in this kind of programmes is that it is important to build an entire ecosystem and not just focused on one key element as funding or capacity building. In most countries these initiatives need to be government led and involve MNCs as well, that could finance successful ventures.

There are more pillars that need to be included when creating programmes to encourage entrepreneurship:

• Entrepreneurship education. It focuses on making young people aware of the importance of entrepreneurship, investigate if it is a desirable option for them and teach them some fundamental skills as recognizing opportunity and business plans. Basic entrepreneurial education should be mandatory in traditional school curricula - the EU has implemented mandatory entrepreneurial education classes in high school.
• Financial support for youth entrepreneurs also needs to be segmented. SMEs and self-employed young people should receive different funding than start-ups. Even so, they all should have equal access to financing instruments.
• Entrepreneurial   networks are   important   in supporting   entrepreneurship as   sources of motivation,   ideas, information, advice,   business partners, employees,   and customers. Networks vary widely  in their nature, from private networks  (family and friends) through market networks (business collaborators) to identity-based networks (e.g. ethnic affiliation), as well as in the strength of ties between actors. These networks could help young people overcome their lack of experience problems, by providing mentorship and support.
• Partnership based. Any youth entrepreneurship programme needs to involve all relevant stakeholders as government, schools, big companies and SMEs, and media. Without this mix, the programmes and progress will not be sustainable. 

There were many successful initiatives happening all over the world. 

• Germany - Garage Hamburg provided training, funding and a business incubator for unemployed people under the age of 35. 2 years after the start of the programme, 83% of participants were self-employed pr entrepreneurs and 10% were in employment or apprenticeship.
• The Prince’s Trust Youth Business Scotland in the UK focused on youth businesses with limited access to financing. By offering entrepreneurs finance, coaching and mentoring, 416 start-ups managed to move from early stage to seed stage and more businesses were started.
• National Open Apprenticeship Scheme in Nigeria Another example of an attempt at linking education and training and the workplace is the National Open Apprenticeship Scheme in Nigeria (NOAS). NOAS is under the National Directorate of Employment (NDE) in the Ministry of Labour and Productivity. Under this scheme, vocational education and training is provided to unemployed youth in over 100 occupations. The participants had after the programme the possibility to be self employed.

Conclusion

Goal  8 on “Promoting  sustained,  inclusive and sustainable economic growth, full and productive employment and decent work for all” should be a crucial goal for all activities looking at youth unemployment and entrepreneurship. With the young population in Africa and Asia doubling in the next decades, youth unemployment will become a major problem, leading to massive economic migration, social unrest and poverty. One way to address youth unemployment is through youth entrepreneurship - encouraging young people to start and run SMEs and startups.

Youth entrepreneurship has the potential to reduce youth unemployment and create economic prosperity, especially since young people are very interested to become entrepreneurs. This paper looked at the benefits of youth entrepreneurship, what is the status quo, what barriers need to be overcome and how successful programs need to look like. What is highlighted in this paper is that any initiative focused on building a new generation of founders needs to create an ecosystem, providing education and training, mentorship and funding and involve all relevant stakeholders.