Youth unemployment rate and
impact of financial crises
Misbah Tanveer Choudhry
Department of Economics and Econometrics, University of Groningen,
Groningen, The Netherlands
Department of Economics, University of Brescia, Brescia, Italy, and
Department of Economics, Finance and Statistics,
University of Perugia, Perugia, Italy
Purpose – The purpose of this paper is to assess the impact of financial crises on the youth
unemployment rate (YUR). The authors consider different types of financial crises (systemic banking
crises, non-systemic banking crises, currency crises and debt crises) and different groups of countries,
according to their income level.
Design/methodology/approach – After a review of the existing (theoretical and empirical)
literature on the determinants of the YUR in general and at the occurrence of economic crises, the
authors present empirical estimations on the impact of past financial crises on young workers. The
relationship between financial crises and YUR is investigated by employing fixed effects panel
estimation on a large panel of countries (about 70) around the world for the period 1980-2005. The
“persistence” over time of the impact is also investigated. Finally the Arellano-Bond dynamic panel is
estimated, confirming the significance of the results.
Findings – According to the authors’ empirical estimates, two key results are relevant: financial
crises have an impact on the YUR that goes beyond the impact resulting from GDP changes; and the
effect on the YUR is greater than the effect on overall unemployment. The inclusion of many control
variables – including in particular GDP growth – does not change the sign and significance of the key
explanatory variable. The results suggest that financial crises affect the YUR for five years after
the onset of the crises; however, the most adverse effects are found in the second and third year
after the financial crisis.
Research limitations/implications – Although fully aware of the peculiarities of the last crisis, the
authors believe that the econometric results facilitate a better understanding of the impact of the
2007-2008 financial crisis on the youth labour market.
Practical implications – The main policy implication is that effective active labour market policies
and better school-to-work transition institutions are particularly needed to reduce the risk of
persistence and structural (long-term) unemployment, since young people have been worst affected by
the last crisis.
Originality/value – There are many studies on the characteristics and causes of youth
unemployment; considerable research has also been carried out into the labour market impact of
financial crises. This paper brings the two strands of literature together, by econometrically
investigating the impact of financial crises on YUR.
Keywords Economic depression, Econometrics, Labour market, Youth, Unemployment,
Financial crises, Labour impact of economic crises, Youth unemployment, Panel fixed effects,
Paper type Research paper
The integration of young people into the labour market is an important objective all
over the world and, in particular, it is a key policy issue of the European Employment
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International Journal of Manpower
Vol. 33 No. 1, 2012
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