In search of the ‘lost generation’

Economies may be recovering, but one problem looks set to linger – unemployment . The situation is especially severe for young people (15-to-24-year-olds). Currently, there are nearly 15 million unemployed young people in OECD countries, about four million more than at the end of 2007. (Explore the numbers at the OECD Factblog.)

As the recovery gathers pace, unemployment should begin to ease. But there’s a real concern that this recession will still create a “lost generation” of young people who, as a result of being unemployed in their teens and early twenties, face a lifetime of diminished job prospects.

What’s to be done? A paper just released by the OECD explores some possible solutions. These could include providing young people with a wider range of training and education opportunities, both academic and vocational, as well as offering those who leave school early with a “second chance” to get some skills. It could also mean making changes to employment protection rules that can trap young people in short-term, dead-end jobs.

Useful links

OECD Insights: From Crisis to Recovery – Employment and the Crisis

OECD work on employment

OECD Employment Outlook

Jobs – tough times for the young

Unemployment has risen sharply during the recession, and young people have been particularly hard hit. Even in good times, the youth unemployment rate (15-to-24-year-olds) can be two to three times that of adults, but it has increased much more rapidly during the crisis; even in Germany, young people are now one and half times more likely to be unemployed than prime age workers, while in Sweden their risk is four times greater.
(more…)

Dying for a drink

Rain, rain, please come back

Imagine a mile-wide lake evaporating so quickly that shellfish dry and shrivel inside their shells. That’s what happened in Damoguzhen in south-west China over the past few months.

A drought affecting all of south-east Asia is sucking the water from rivers, lakes, streams and wetlands, destroying crops, reducing the output of hydroelectric powerplants and threatening the livelihoods of millions of people.

The drought is causing political tensions too, first among the various groups competing for what water there is, and second among countries who share resources such as the Mekong river.

 It could be a sign of climate change, and with the post-Copenhagen talks getting off to a difficult start, a timely warning of what could be in store. Yet even without global warming, demographic change and economic growth will place the world’s water supplies under strain.

Over 90% of projected population growth by 2050 (3 billion more people) will be in developing countries, often in regions which already are water scarce. And according to the 2009 UN Water Development Report, in 2030, 47% of the world population will be living in areas of high water stress.

In Africa alone, by 2020, between 75 and 250 million people may experience increased water stress due to climate change. The UN report estimates that 24 to 700 million people could be displaced because of a scarcity of water.

Even today, unsafe water kills more people than all forms of violence, including war. Diarrheal diseases kill 1.8 million people a year, and one child under the age of five dies every 20 seconds from water-related diseases.  

We’ll be discussing sanitation and hygiene in a new OECD Insights on water. Other topics will probably include the amount of investment needed for water-related infrastructure ($772 billion a year in OECD and Brazil, Russia, India and China countries by 2015 to maintain existing infrastructure and finance new projects) as well as water for various uses.

Agriculture uses 70% of the world’s water at present but this could rise. Energy production is a big user too. For example nearly 40% of all freshwater withdrawn in the US goes to produce electricity at thermoelectric power plants.

The book is still in the planning stage, and we’d be happy to hear your ideas and arguments.

Useful links

The OECD Water Programme site has data, articles and a video of OECD Secretary-General Angel Gurría talking about water pricing.

World Water Council

The Guardian has a number of videos on drought in Damoguzhen and elsewhere.

Water Aid is an NGO working to improve access to safe water, hygiene and sanitation in the world’s poorest communities.

Water.org is a US-based organisation founded by engineer Gary White and actor Matt Damon, with similar goals to Water Aid.

Skilled, unskilled, too skilled?

A report from High Fliers Research published in February found that half the UK final year college students they interviewed believe they’ll have to take any job they’re offered, and a quarter say they’ve been forced to apply to employers that they aren’t really interested in.

We hear stories from most countries of people taking jobs they’re over-qualified for in any recession. The Insights blog asked Glenda Quintini and Paul Swaim of the OECD’s Employment Division what the impacts were on firms, workers and the economy as a whole.

Insights: Do employment data confirm what the High Fliers report implies – graduates are taking jobs they’re over-qualified for?

Paul Swaim: There’s anecdotal evidence of course, but it’s actually quite tricky to measure the extent of over-qualification, or under-qualification or the wrong qualification, come to that. Researchers have used various proxy measures to estimate how many workers hold  qualifications that appear to be a poor match for their jobs, but no real consensus view has emerged concerning how pervasive skills mismatch is in the economy as a whole. It is even harder to assess the extent to which the recession is increasing the number of graduates moving into jobs that don’t make full use of their qualifications, because detailed labour market data only become available with a considerable time lag.

Insights: How about for an individual employer – surely getting extra human capital on the cheap is a boost?

Glenda Quintini: That’s certainly what you might expect, but you have to ask what “human capital” actually means. Qualifications are one aspect, but that’s not the same as skills. A worker who’s learnt on the job, over the years, may have skills that aren’t reflected in any formal qualification. On the other hand, university graduates may vary in the skills they possess and some of them may be just as skillful as somebody who quit formal education after high school. Several studies argue that it is the less-skilled university graduates that end up in jobs that require a high school diploma.

Paul Swaim: You also have to look at the relation between earnings and productivity. If you assume that earnings do in fact reflect productivity on the current job, then there is some evidence that workers who are “over-educated” for their jobs earn somewhat more than “correctly-educated” workers in the same type of job. On the other hand, they’re probably earning less than if they were in a job normally associated with their level of education.

So employers who can hire workers who are satisfied to work in jobs they are over-qualified for may attain higher productivity than they would have got by recruiting less educated workers. While it seems likely that some employers profit from being able to hire over-qualified workers during a recession, it is hard to pick up that phenomenon in the labour market data available to us. In addition to the delay in the availability of data, which I mentioned earlier, there is also the complication that recessions tend to reduce labour productivity and profitability through a number of channels that could easily swamp any gains from an increase in over-qualification.

Glenda Quintini: Another thing you have to remember is that graduates might be happy to take any job when they’re unemployed and there aren’t so many jobs going, but once they actually start working, their attitudes can change, especially if the labour market picks up. Many studies have shown that qualification mismatch affects job satisfaction and whether people intend to stay with the firm. You could argue that mismatch damages productivity through lower job satisfaction and higher turnover.

Insights: Could productivity in the economy as a whole be affected?

Paul Swaim: Yes, but in several different ways making it hard to predict the overall effect. In the short run, it certainly is more productive for graduates take jobs they are over-qualified for rather than remaining idle. However, we should not lose sight of the fact that most of these workers would be even more productive in jobs that made full use of their qualifications and thus provide a better return on the money spent on educating them. Productivity is thus likely to suffer over a longer time horizon unless these workers move into jobs that better match their qualifications. Unfortunately, the evidence is quite mixed about how often this sort of “catching-up” occurs, once the economy begins to recover.

Insights: Any final thoughts?

Glenda Quintini: Going back to Paul’s point on wage effects, a study that derives the productivity loss economy-wide in Australia from the wage penalties experienced by mismatched workers estimates a cost of mismatch of up to 2.6% of GDP in 2005 (the paper by Mavromaras et al. (2007) is available online at http://www.iza.org/ as discussion paper No. 2837).

Useful links

Employment and the crisis from the forthcoming Insights From crisis to recovery

OECD Insights on Human Capital

FAQ: the crisis and employment

OECD Policy Brief on qualifications and lifelong learning

OECD work on recognition of non-formal and informal learning

The educationtoday blog has a post about the impact of recessions on graduate employment and earnings

Soros and the next big idea

It isn’t just economies that have been in trouble over the past couple of years; the profession of economics has also been going through a rough patch. Critics argue that, in the wake of the financial crisis, some of the favourite ideas of mainstream economists in recent decades are now looking a little threadbare.

Few have had more to say on the subject than George Soros, the billionaire investor and philanthropist. But rather than just complaining, Soros is trying to do something about it. He’s spent $50 million to establish The Institute for New Economic Thinking, which aims “to confront the flawed mechanisms in our economic and financial infrastructure and develop new paradigms in economic understanding.”

The institute has assembled an impressive advisory board of 26 men (the absence of women has not gone unnoticed), including five Nobel laureates (Amartya Sen and Joseph Stiglitz are among them), leading academics such as Harvard’s Kenneth Rogoff, the former IMF chief economist and blogger Simon Johnson, and the former BIS economist William White, who now chairs a senior economics committee at the OECD.

The institute’s first conference starts today (Thursday, 8 April) at King’s College, Cambridge – John Maynard Keynes’ alma mater – under the title “The Economic Crisis and the Crisis in Economics”.

The economics commentator Anatole Kaletsky, another of the institute’s advisors, describes the event as an opportunity “to reopen many of the debates closed down by unrealistic theories”.

This is not the first time Soros has challenged economic orthodoxies. The author of a number of books, he’s long questioned approaches like the efficient markets and rational expectation hypotheses, which have provided the intellectual underpinning for market liberalisation in recent decades. Instead, Soros promotes his own theory – “reflexivity” – that he believes better describes the complex interaction between realities and perceptions in markets.

Soros introduces some of his ideas in this lecture series, and they’re summarised in this book review by John Cassidy.

Whether Soros’s theories will ever become mainstream economic thinking remains to be seen. But his commitment to fresh thinking – and deep pockets – may well ensure that The Institute for New Economic Thinking is a player in the search for economics’ next big idea.

Useful links

OECD Insights: From Crisis to Recovery

Recovery continues but looks set to slow slightly

Recovery from the recession is continuing, but looks set to slow slightly in the first half of this year, according to the latest assessment of the global economy from the OECD.

The Interim Assessment says growth “gathered steam” in the last quarter of 2009, and stood at 3.7%* in G7 economies (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.). It was strongest in the United States, at 5.6%, and Japan, 3.8%, and weakest in Italy, which contracted by 1.3%.

But the assessment suggests growth will slow slightly in G7 economies in the first half of this year, to 1.9% in the first quarter and 2.3% in the second. For the three euro economies in the G7 – France, Germany and Italy – growth will be lower, with a forecast of 0.9% in the first quarter and 1.9% in the second.

Overall, the assessment notes a number of positive developments: Trade is recovering; business confidence is rebounding; unemployment may have passed its peak in the U.S., and lending conditions for banks have improved.

But there are downsides: The assessment warns that governments still need to be cautious in how soon they roll back the special measures they took during the crisis, citing “the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets”.

 * The growth numbers quoted here do not include standard error ranges; these are included on page 4 of the Interim Assessment pdf.

Useful links

 OECD Interim Assessment, handout and webcast 

OECD work on economics and growth 

OECD Insights: From Crisis to Recovery

What a tangled web we weave!

If they added a TV screen and electronic stylus, they could sell dozens of these

If it wasn’t for Ed Roberts, who died today aged 68, blogs probably wouldn’t exist. After selling electronics kits to model rocket builders, Ed went on to design and build the Altair 8800 for MITS, a company based in his garage. The 8800 was promoted on the front page of the January 1975 issue of Popular Electronics as the “World’s first minicomputer kit to rival commercial models”.

The young Bill Gates and Paul Allen read the magazine and contacted Roberts with an offer to write software for his machine. When he accepted, they moved to Albuquerque, where MITS was located, and founded a company known as Micro-Soft. Personal computing was born, and Ed Roberts is widely hailed as its father.

It wasn’t supposed to be like that. You may have seen some variant of the forecast attributed to IBM founder Thomas Watson that the global market for computers could reach five or six. And the history of technology is full of stories of predictions that turned out to be hilariously, or tragically, wrong. There are two basic mistakes.

The first is to imagine that the future is simply an extrapolation of the present. OECD Insights: International Trade tells how in the early 1980s, AT&T hired the consultancy firm McKinsey to study cellular telephony. McKinsey estimated that by the year 2000, there could be 900 000 cell phones worldwide. Today, twice that many handsets are sold in a week. McKinsey would have been right if phones and services had stayed much as they were at the time. In 1985, a mobile phone weighed 20kg and in the UK it cost the equivalent of 320 Euros at today’s prices to rent for three months.

The second mistake is to fail to see potential connections. Telephony and computing had been around for a long time before they got together to make the Internet. 

In these cases we’re talking about technology, where companies are actively seeking to transform ideas into profits. In science, the issues are a bit different, but some of the poor thinking underlying technology forecasts is often at work.

Scientific research is routinely accused of being a waste of money. Partly, this is due to media stories like the formula for a perfect wife. At a more fundamental level, though, many people, including politicians who decide on R&D budgets, don’t understand how science works.

Often, we hear that it should be “useful”. But how do you know in advance where research might lead and what its uses could be? Take ornithology. You could make a convincing case that bird watching is a fascinating hobby, but governments shouldn’t be paying people to do it. It doesn’t have much economic value, except as a minor tourist attraction. Then along comes avian influenza, and the possibility that some national poultry industries could be wiped out, or that the virus could even mutate and infect humans. Suddenly, migration patterns, nesting habits and the like become vital pieces of information.

The same is true about another piece of news that hit the headlines this week. Researchers working in Italy discovered that toads may predict earthquakes. The scientists were studying breeding behaviour. They weren’t looking for anything remotely to do with seismology, but the finding could turn out to be a “useful” contribution to predicting Earth tremors.

One of the most positive aspects of globalisation is that connections that once would have been impractical or unimaginable are commonplace. Not just goods, but ideas and knowledge flow quickly around the world and we’re no longer surprised by Japanese whisky or Texan basmati rice or Iranian Lacanians. But we would be surprised if we knew what new combinations the future has in store.

Useful links

OECD science and innovation web site