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. 

Further Reference

Presentation archive

Help Support Open Transcripts

If you found this useful or interesting, please consider supporting the project monthly at Patreon or once via Cash App, or even just sharing the link. Thanks.