Christine Lagarde: I want­ed to start off this morn­ing using an American poet and nov­el­ist, Langston Hughes. And I quote him to have said, What hap­pens to a dream deferred?” It is a ques­tion now fac­ing mil­lions all over the world, espe­cial­ly young peo­ple. Why? Because of pover­ty. Because of exces­sive inequal­i­ty. And that is what I want to dis­cuss this morn­ing.

It’s a trou­bling equa­tion, the impact of unem­ploy­ment on the young, and the long‐term con­se­quences of inad­e­quate social pro­tec­tion. But we will also explore ideas that can actu­al­ly help fix the prob­lem, deal with the issues, try to reduce pover­ty (one of the SDG goals), and reduce inequal­i­ty for the next gen­er­a­tion.

When it comes to inequal­i­ty, one mea­sure we look at, which is chal­lenged, is the Gini coef­fi­cient. It cap­tures the dis­tri­b­u­tion of wealth. And by these mea­sures, the advanced economies seem to be doing com­par­a­tive­ly well. But what is behind those num­bers? Let’s just con­cen­trate on the European Union.

Why did she pick the European Union? Ah. It is cer­tain­ly not the only region where young peo­ple are fac­ing head­winds. But, we have tak­en advan­tage of what is avail­able, and the data col­lect­ed on age groups in Europe over the last decade is help­ing us shine a spot­light on this par­tic­u­lar prob­lem.

As you can see, aver­age inequal­i­ty has remained broad­ly sta­ble. Here you go. And all of that since 2007. And this is in large part thanks to some social safe­ty nets and dis­tri­b­u­tion mech­a­nisms that exist in Europe and not in oth­er advanced economies, for that mat­ter. And it’s an impor­tant achieve­ment that has helped mil­lions of peo­ple. And it has strength­ened Europe’s posi­tion on inequal­i­ty com­pared with oth­er advanced economies.

But this top line that you see here actu­al­ly hides an under­ly­ing threat to European youth. The real­i­ty is that the gap across gen­er­a­tions in Europe has widened sig­nif­i­cant­ly. Working‐age pop­u­la­tions and espe­cial­ly Europe’s youth are falling behind. And if pol­i­cy­mak­ers fail to act, this gen­er­a­tion may actu­al­ly not be able to recov­er.

Now, what has dri­ven inequal­i­ty across gen­er­a­tions in Europe? There are many dimen­sions. Many, includ­ing wealth, includ­ing gen­der dis­crim­i­na­tion. But I want to take a clos­er look at income.

Income declined for young peo­ple after 2007. Due to what? Predominantly unem­ploy­ment. But they have since gen­er­al­ly recov­ered. For those who are 65 and old­er, incomes have increased since the cri­sis. Why is that? Because pen­sions were bet­ter pro­tect­ed. Youth in Europe have amassed the high­est debt rel­a­tive to their assets of any age group. That means that many young peo­ple are going to be vul­ner­a­ble to the next finan­cial shocks and are putting off invest­ing in their future. In short, those dreams deferred that we were talk­ing? They’ve put them on hold.

But incomes are only part of the sto­ry. Poverty is the oth­er side of it. Before the glob­al finan­cial cri­sis, the rel­a­tive pover­ty of the 1824, and the old­er (that is 65 and over), was sim­i­lar. Since the cri­sis, the gap has mas­sive­ly devel­oped. Look. The real­i­ty is that one in four young peo­ple in Europe now live below the rel­a­tive pover­ty line. Their incomes are below 60% of the medi­an. Now you might say. Sure, that prob­lem exists some­where. But not in my back­yard.” Is it real­ly hap­pen­ing across the con­ti­nent? Well, it is.

Look at that. Now clear, some regions in Europe are expe­ri­enc­ing more youth pover­ty than oth­ers. We can see the dif­fer­ent rates between the regions. But every­where, we have seen an increase. That means that young peo­ple in every region are indeed strug­gling.

How did we get here? Recessions and recov­er­ies do not impact young peo­ple the same way as old­er peo­ple. Limited skills and expe­ri­ence often make it hard­er for young peo­ple to find work. And in Europe, unem­ploy­ment of course rose dur­ing the cri­sis of working‐age pop­u­la­tions. But youth unem­ploy­ment start­ed high and spiked to what per­cent­age? [inaudi­ble response from audi­ence mem­ber] Twenty‐four per­cent. Correct. Twenty‐four per­cent in 2013. He’s an IMF advi­sor, actu­al­ly. So, 24% in 2013. Today, that’s improved a bit. Nearly one in five young peo­ple in Europe, though—one in five—cannot find work.

And we know that there is a con­nec­tion between unem­ploy­ment and inequal­i­ty. If any­thing it’s prob­a­bly the first big inequal­i­ty. Lost wages, lost sav­ings, can be extreme­ly dif­fi­cult to recov­er lat­er in life.

For those young peo­ple who are still look­ing for work, the prob­lem does not even end when they find a job. Why is that? Because what has hap­pened is that they’ve had long peri­ods of unem­ploy­ment. You know, the for­ev­er stage, the for­ev­er intern­ship, the non‐remunerated expe­ri­ence. Well, that can lead to scar­ring. Scars that are left with them. And it means ulti­mate­ly a low­er prob­a­bil­i­ty of employ­ment and life‐long depressed wages. Instead of dreams deferred, instead of dreams on hold, we’re talk­ing maybe about dreams buried.

But it’s not just unem­ploy­ment that has led us to that point. Underemployment and tem­po­rary con­tracts, as I said, became preva­lent dur­ing the cri­sis. The rise of the so‐called gig econ­o­my” exac­er­bat­ed the prob­lem and fur­ther decreased job sta­bil­i­ty, par­tic­u­lar­ly for the young peo­ple. And unfor­tu­nate­ly the social safe­ty net that exists in most European coun­tries was insuf­fi­cient to help the young who lost their job or could only find those part‐time jobs.

So fol­low­ing the cri­sis, non‐pensioned social ben­e­fits were often cur­tailed, not indexed on infla­tion, and some­times nar­row­ly tar­get­ed. This lim­it­ed effec­tive­ness of these pro­grams for the young peo­ple.

Now let us be clear. Fiscal pro­grams such as pen­sions and social secu­ri­ties have helped mil­lions before and after the cri­sis. And the point of our study is not to say it’s them ver­sus us. And cer­tain­ly not to under­mine what has been made avail­able to the senior cit­i­zens. And we need to con­tin­ue to pro­tect them. But we also need poli­cies that look out for the young and reflect the chang­ing nature of work. In fact, some coun­tries are actu­al­ly doing it and mak­ing progress.

Now, of course you would expect me to quote Germany. And I do. Long‐standing appren­tice­ship, train­ing pro­grams, have helped Germany’s young stay in the work­place. I know there are very recent num­bers that are a lit­tle bit wor­ry­ing but in the main, and cer­tain­ly over the time of the cri­sis it’s been very help­ful. And Germany’s flex­i­ble employ­ment rules allowed young peo­ple to keep their jobs dur­ing and after the cri­sis. Today, Germany’s youth have the low­est unem­ploy­ment rate of any European coun­try.

Now, is it just all about Germany? No. Mr. Prime Minister; Portugal. And I’m not doing that because you’re in the room. Policies were imple­ment­ed to exempt first‐time job­hold­ers from pay­ing social secu­ri­ty tax­es for three years. It has helped. In France (the Prime Minister is not here but let’s men­tion France) labor tax­es levied on employ­ees are being reduced, while a tax on total house­hold income is being increased. This should help working‐age pop­u­la­tions and rebal­ance some of the tax bur­den across gen­er­a­tions.

Now, we at the IMF are also look­ing at it. Our work high­lights poli­cies that can help the prospects for young peo­ple around the world. In fact we’re launch­ing a new paper today that focus­es on youth inequal­i­ty and pover­ty in Europe. And based on our analy­sis, I’d like to just men­tion a few poli­cies that we believe could have a pos­i­tive impact for young peo­ple.

One, look at the labor mar­ket. To cre­ate jobs and incen­tivize work, pol­i­cy­mak­ers can reduce social secu­ri­ty con­tri­bu­tions and tax­es on low‐wage work­ers. There is dis­cus­sion amongst econ­o­mists, some will say no no no, you have to go beyond that. We believe that at the low‐wage lev­el it is the most effi­cient. To help improve future job prospects, gov­ern­ments can invest—should invest—in edu­ca­tion and train­ing. This will allow young peo­ple to close the skill gap that we have observed.

Second, coun­tries can make gov­ern­ment spend­ing on social pro­tec­tion more effec­tive. How? Part of the answer is to actu­al­ly adapt social spend­ing, espe­cial­ly unem­ploy­ment and non‐pension ben­e­fits, to ensure that young peo­ple are bet­ter pro­tect­ed.

Third, tax­a­tion. Since 1970, there has been a decline in wealth tax. And in some coun­tries, not all, but in some coun­tries, more pro­gres­sive tax sys­tems and wealth tax, includ­ing inher­i­tance tax­es, could help fund much‐needed social pro­grams for younger cit­i­zens.

And as I said, in the end it is not one age group against the oth­er. Building an econ­o­my that works for young peo­ple cre­ates a stronger foun­da­tion for every­one. Because after all, the young peo­ple are going to be the con­trib­u­tors to the pen­sion schemes that are being hon­ored at the moment. And reduc­ing inequal­i­ty goes hand in hand with cre­at­ing sus­tained growth and rebuild­ing trust with­in soci­ety. Now, this is easy to say, and none of this is easy to do. But each pol­i­cy needs to adapt to the needs of coun­tries, rec­og­nize polit­i­cal real­i­ties, and stay with­in bud­get.

So, you may have heard me say that it’s when the sun is shin­ing that you need to fix the roof and that now it’s time to act—yes it is. Now, why is that? Because of the recov­ery that is accel­er­at­ing. Because of growth that is real­ly going to facil­i­tate that. Globally, but in Europe in par­tic­u­lar, where it had been long in the wait­ing. As I said, time to repair the roof when the sun is shin­ing. I’m bor­row­ing from John Fitzgerald Kennedy from his State of the Union Address in 1962. Not all of you might know that he actu­al­ly focused his speech and opened his speech focus­ing on the next gen­er­a­tion.

In this moment of glob­al growth and European recov­ery we have an oppor­tu­ni­ty to do the dif­fi­cult things which might oth­er­wise go undone. In Europe, one of the ways to fix the roof is by design­ing the poli­cies that will help the next gen­er­a­tion. Help them reach their dream. We can help. There are tools. There are poli­cies. There are best‐case sto­ries. We can just make sure that we don’t have to ask the ques­tion what hap­pens to a dream deferred?” Thank you very much.

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