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How to improve the relationship between education and employment

Can we measure the link between education and youth unemployment?

James Bowers, Chief editor at Polytechnique Insights
On January 12th, 2022 |
5 mins reading time
3
Can we measure the link between education and youth unemployment?
Jörg Markowitsch
Jörg Markowitsch
Senior Partner and Policy Adviser at 3s Research & Consultancy
Key takeaways
  • Global youth unemployment rate is around 75 million with varying proportions across countries – compared with 621 million NEETs.
  • The youth labour market is a key indicator of a healthy economic system partly because when there is pressure on the financial markets the first to be laid off are the youngest and there are also fewer apprenticeships available during these periods.
  • Economic models of the education-employment linkage (EEL) have drawn upon an optimal equilibrium to propose that shared input from both public education systems and private entities is a solution youth unemployment.
  • Another model uses the EEL index to rank countries. The correlation between the EEL index and the youth unemployment rate shows that the countries with the best results are those with lower youth unemployment.

Youth unem­ploy­ment rate is defined as the per­cent­age of 15–24 year-olds capa­ble and edu­cat­ed to work (a.k.a. the youth labour force) who are unem­ployed. On a glob­al scale, this affects as many as 75 mil­lion young peo­ple who are trained but remain out of work1 (com­pared to 621 mil­lion for “NEETS”), with vary­ing pro­por­tions depend­ing on the coun­try. As such, par­tic­u­lar­ly in devel­oped economies, the youth labour mar­ket is one of the key indi­ca­tors of a healthy eco­nom­ic sys­tem; not to men­tion the impor­tant social repercussions.

In lib­er­al mar­ket economies like the UK or USA, when there is pres­sure on finan­cial mar­kets such as the Covid or 2008 finan­cial crises, it is the youngest who are laid off first. And in those coun­tries, there are also less appren­tice­ship places dur­ing these peri­ods, so the younger gen­er­a­tion strug­gle to find ear­ly-stage career work. Hence, there is a clear social func­tion of the edu­ca­tion sys­tem in inte­grat­ing youth into the mid­dle mar­ket. That’s why the efforts of oth­er coun­tries like Aus­tria and Ger­many to keep up appren­tice­ship places dur­ing crises have proven ben­e­fi­cial to main­tain­ing a low­er youth unem­ploy­ment rate.

The education-employment relationship

To bet­ter under­stand the fac­tors involved, over the years there has been much research into the rela­tion­ship between edu­ca­tion and the employ­ment. A rel­e­vant mod­el that was cre­at­ed by Buse­mey­er in Tram­pusch2 over a decade ago used a 4‑fold typol­o­gy to describe the link between edu­ca­tion and the labour mar­ket. Their mod­el essen­tial­ly dis­tin­guished between the com­mit­ment of the state towards edu­ca­tion and train­ing, whilst con­sid­er­ing con­tri­bu­tions from pri­vate com­pa­nies. These can either be low or high, so essen­tial­ly lead­ing to four types of skills regimes; for exam­ple, if con­tri­bu­tion of both is low, we can speak of “lib­er­al” sys­tems like the UK and USA. High state input and low pri­vate con­tri­bu­tions include coun­tries like France and Swe­den, or inverse­ly low state com­mit­ments with high input from com­pa­nies are seen in Japan. Where­as in Aus­tria, Ger­many, Den­mark and Switzer­land which can be con­sid­ered as “col­lec­tive skills regimes” com­mit­ments are high on both sides.

Although, this analy­sis didn’t nec­es­sar­i­ly com­pare whether one or oth­er sys­tem was bet­ter, it did pro­vide a clas­si­fi­ca­tion of how voca­tion­al edu­ca­tion and train­ing and its rela­tion to indus­tries dif­fers across countries.

Anoth­er way of look­ing at the edu­ca­tion-employ­ment link­age is to assume an opti­mal equi­lib­ri­um between the two and hence a shared input from both pub­lic edu­ca­tion sys­tems and pri­vate enti­ties (fig. 1).

Fig. 1. Source: Econ­stor3

This approach has been test­ed by researchers at the KOF Swiss Eco­nom­ic Insti­tute of the ETH Zurich by devel­op­ing the so-called edu­ca­tion-employ­ment-link­age (EEL) index. They looked at the most promi­nent voca­tion­al edu­ca­tion pro­grammes in OECD coun­tries and asked experts and stake­hold­ers about this link via sur­veys. For instance, they asked about the extent to which employ­ers con­tribute to the design of cur­ric­u­la or to skills assess­ment. Using that they came up with an index based on qual­i­ta­tive cri­te­ria that they weight­ed to gen­er­ate a quan­ti­ta­tive index.

Using the EEL index, it is there­fore pos­si­ble to rank coun­tries accord­ing to how close the coop­er­a­tion between edu­ca­tion and employ­ment is. In a way, this also proves the skills regimes approach, because col­lec­tive skills regimes (such as Aus­tria or Ger­many) turned out to rank high on the EEL index. How­ev­er, the Swiss researcher could draw more in-depth con­clu­sions. As such, they not­ed a cor­re­la­tion between EEL index (KOF EELI) and youth unem­ploy­ment rate – coun­tries that scored bet­ter were those with less youth unem­ploy­ment (KOF YLMI). 

Fig. 2. Source: Econ­stor4

But let’s remain pru­dent. Even though we have good argu­ments to believe there is a causal link, we don’t yet have the proof beyond cor­re­la­tions.  Also, this sort of research is usu­al­ly car­ried out in these one-off stud­ies, like snap­shots of cer­tain indus­tries in cer­tain coun­tries at cer­tain points in time. We can com­pare coun­tries, but for exam­ple we only have the EEL index for the year 2016 and there isn’t a com­pa­ra­ble index for oth­er years – so it would be inter­est­ing to have a longer time series.

Education, employment, and quality of life

Going beyond the cur­rent analy­sis, this then begs the next ques­tion: if there is a strong link between edu­ca­tion and employ­ment, can we improve soci­ety as a whole? Even though youth unem­ploy­ment rates can be a mark­er of eco­nom­ic health, the cur­rent mod­els don’t fac­tor in for oth­er larg­er soci­etal indi­ca­tors; like work-life bal­ance, qual­i­ty of life, or gen­er­al hap­pi­ness. We are still far away from hav­ing a com­pre­hen­sive mod­el of these relationships. 

Fur­ther­more, a high­er com­mit­ment edu­ca­tion scheme appears to be bet­ter but only in cer­tain aspects that we are look­ing at. Yes, more young peo­ple find jobs but once you start look­ing at oth­er eco­nom­ic indi­ca­tors such as pro­duc­tiv­i­ty and inno­va­tion, there impact of a close edu­ca­tion-employ­ment-link­age is less clear. Also, in terms of labour mar­ket trends, pre­dic­tions are becom­ing less and less suc­cess­ful in know­ing what skills are need­ed to the point where much of what we hear is polit­i­cal rhetoric; we have no sci­en­tif­ic evi­dence in which route we should go. It is there­fore under­stand­able that key skills such as numer­a­cy and lit­er­a­cy, which can be con­sid­ered uni­ver­sal, are empha­sised. Of course, issues like prob­lem solv­ing, cre­ativ­i­ty, and team­work – con­sid­ered “21st Cen­tu­ry” skills – are also cru­cial but these are less trans­ferrable across dif­fer­ent pro­fes­sion­al domains. 

Reorganising work

All in all, we mustn’t for­get that the way work is organ­ised is in the hands of com­pa­nies who employ peo­ple. This is the main lever­age I would say. You can try to change and improve the edu­ca­tion sys­tem as much as you want but if there is not the right sort of jobs pro­posed by employ­ers then it won’t have a pos­i­tive effect on employ­ment rate. Hence, job design and job qual­i­ty are key! 

Let’s take two extreme cas­es. On one spec­trum, we are see­ing a ten­den­cy for com­pa­nies to organ­ise work in a way that can be done by any­body. This includes micro-work such as that trad­ed by Ama­zon Mechan­i­cal Turk. Here, tasks are divid­ed into such tiny pieces, like click­ing on an image on a screen or scan­ning a prod­uct on a shelf, that no or lit­tle train­ing is required. How­ev­er, there is a dan­ger here that these meth­ods be used as elab­o­rate ways of human exploitation.

On oth­er hand, after recov­ery from the COVID cri­sis, in some coun­tries in Europe, the labour mar­ket is already back at rates from before the cri­sis. Some even have low­er unem­ploy­ment rates than before. The pan­dem­ic made many peo­ple con­sid­er what they con­sid­er a qual­i­ty job, and the new gen­er­a­tion of grad­u­ates are demand­ing much more from employ­ers than they did 20–30 years ago. It is putting pres­sure on busi­ness­es push­ing them to think about how to change work. In my view the “Great Res­ig­na­tion” is not a sin­gu­lar phe­nom­e­non of the COVID cri­sis, but the her­ald of a chang­ing labour mar­ket. As such, in years to come we will need to see a dif­fer­ence in work-organ­i­sa­tion to make jobs more attractive.

A ques­tion that remains, how­ev­er, is what role will the state play in where we are headed?

Fur­ther reading 

1https://​gdc​.unicef​.org/​r​e​s​o​u​r​c​e​/​y​o​u​t​h​-​u​n​e​m​p​l​o​y​m​e​n​t​-​facts
2https://​kops​.uni​-kon​stanz​.de/​b​i​t​s​t​r​e​a​m​/​h​a​n​d​l​e​/​1​2​3​4​5​6​7​8​9​/​4​6​7​4​7​/​B​u​s​e​m​e​y​e​r​_​2​-​1​i​o​1​3​f​4​5​g​l​2​x​n​4​.​p​d​f​?​s​e​q​u​e​n​c​e​=​1​&​i​s​A​l​l​o​wed=y
3https://​www​.econ​stor​.eu/​b​i​t​s​t​r​e​a​m​/​1​0​4​1​9​/​1​8​4​9​1​8​/​1​/​8​9​8​4​8​9​7​5​X.pdf
4https://​www​.econ​stor​.eu/​b​i​t​s​t​r​e​a​m​/​1​0​4​1​9​/​1​8​4​9​1​8​/​1​/​8​9​8​4​8​9​7​5​X.pdf