European job market is rigged against younger workers, says Draghi
ECB president laments high levels of youth unemployment and warns near-zero inflation damages Generation Y’s prospects
The Guardian
Shiv Malik and Caelainn Barr
Friday 11 March 2016 09.00 GMT Last modified on Friday 11 March 2016 10.35 GMT
Europe’s economies are rigged to protect older workers at the cost of new employees, the president of the European Central Bank has told the Guardian.
Mario Draghi also said “tragic” high levels of youth unemployment had the potential to threaten social harmony in Europe and that rock-bottom inflation was damaging the prospects of Generation Y by redistributing their wealth to older people.
Mario Draghi: 'Reducing youth unemployment is a priority for everyone'
Draghi told the Guardian there should be a “more open, flexible, innovative and business-friendly society” that did not disadvantage new workers because companies were afraid of taking on new staff. He gave the exclusive interview as part of a Guardian series investigating the economic plight of young adults around the world.
Youth unemployment is a tragedy and prevents people from playing a full and meaningful part in society
Setting out his views before the ECB’s dramatic decision on Thursday to lower interest rates to zero percent in an attempt to pump life back into the Eurozone and return inflation back to a target rate of 2%, Draghi said:
“In many countries the labour market is set up to protect older ‘insiders’ – people with permanent, high-paid contracts and shielded by strong labour laws.”
“The side-effect is that young people are stuck with lower-paid, temporary contracts and get fired first in crisis times. That also means that employers are reluctant to invest in young people, so the incomes of this generation stay lower over their lifetime.”
Europe’s most powerful banker, 68, who has been at the ECB’s helm for four years, also said it was a priority for Europe to tackle chronic youth unemployment and reform a job market that locked out young workers.
“Youth unemployment is a tragedy and prevents people from playing a full and meaningful part in society. If every second young person is out of work – as is still the case in some countries in Europe – it seriously harms the economy ... and it threatens social harmony,” said Draghi.
Draghi said the situation for young people was made worse by a lack of inflation, which according to the bank’s own research was increasing inequality and damaging their prospects.
Low inflation means that savings, likely to be held by older people, maintain their value, while debts, which are more likely to be held by younger people, do not erode.
“Nobody stays young forever. The crucial question is whether a person can participate fully in the economy over his or her lifetime – get a good education, find a job, buy a home for the family,” said Draghi.
“What makes me worry is that increasing inequality might prevent people from doing that. This is an issue all our societies need to look at carefully.
“The ECB’s role in that is to maintain price stability, which prevents unfair redistribution. For example, our research shows that in the euro area too low inflation results in redistribution from younger, more indebted households to older households that are typically net creditors.”
Responding to Draghi’s comments, Johanna Nyman, the president of the European Youth Forum, said: “After the financial crisis, there has been an increasingly clear pattern: young people are paying the price for mistakes that were not ours.
“Of course, job creation is crucial. But young people should not be put in a position where we are told that it is a choice between low-paid jobs not matching our qualifications, unpaid internships or no jobs at all. ”
Near-zero inflation and fears of decades of Japanese-style low or no growth have been the latest issues to beset Europe since the 2008 financial crash.
In the euro area, inflation has been below 1% for more than two years and is expected to drop further because of a dramatic collapse in oil prices. In February, Draghi said he would “refuse to surrender” to its effects.
Thursday’s unprecedented move by Draghi to create an environment of even cheaper money by reducing interest rates on borrowing and expanding its money printing programme failed to stimulate markets at close.
Draghi’s interview comes amid a Guardian investigation into the incomes of Generation Y, also known as millennials, showing they are almost no better off in terms of disposable income than their parents were in a number of countries across Europe and America.
His comments are published on the day that sees the launch of the first Europe-wide intergenerational index showing that ageing populations and the fallout from the 2008 financial crisis have led to the prospects of young people across the EU hitting a 10-year low.
The index, drawn up by the Intergenerational Foundation thinktank, found that alongside increased future debt repayments, the average share of health spending consumed by the over-60s across the EU rose from 42% in 2000 to more than 54% in 2013.
In effect, over-60s consumed more than half of all healthcare resources in the EU, despite representing less than a quarter of all EU citizens.
Pension spend was also higher than 10% of GDP in some of Europe’s largest economies: France, Germany, Denmark, Italy and the UK.
Angus Hanton, the co-founder of the Intergenerational Foundation, said the findings “should act as a wakeup call to policymakers”.
“Younger generations are being systematically disadvantaged. We cannot expect the young to carry the burden of an ageing population if we do not give them the tools required to become economically active citizens. It is therefore in all generations’ interests to prioritise spending on the young,” Hanton said.
Asked whether today’s younger adults would have as good a standard of living as pensioners today when they came to retire, Draghi responded: “That’s our common choice. Our standard of living depends on the strength of our economy.
“Much focus is put on the central bank to raise growth, and it can contribute through price stability and a stable financial system. But in the long run real growth is driven by what the economy can produce. That is much more about ideas, technology, flexibility, motivation, skills. It is up to elected governments to set a growth-friendly environment.”
