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The Impact of Financial Crises on Youth Unemployment Rate

  • Misbah Tanveer Choudhry
  • Enrico Marelli
  • Marcello Signorelli

The impact of last financial crisis (2007-08) and subsequent global recession (2008-09) has been deeper on the weakest segments of the labour market. In this paper, we mainly focus on the extent and persistence of the impact of (past and last) financial crises on youth (15-24) unemployment rate. After a review of the existing (theoretical and empirical) literature on the determinants of youth unemployment rate in general and at the occurrence of economic crises, we present empirical estimations on the impact of past financial crises on young workers. We empirically investigate the relationship between financial crises and youth unemployment rate by employing fixed effects panel estimation on a large panel of countries (about 70) around the world for the period 1980-2005. Gender specific effect of crises on young workers is also investigated. To analyse the severity of financial crises for economies at different levels of economic development, we re-estimate our model for sub-samples of high income OECD countries and other economies in the sample. For further robustness check and sensitivity analysis, alternative definitions of crises are considered. The "persistence" of the impact of financial crises for young workers is also investigated. Finally we also estimate the Arellano-Bond dynamic panel, confirming the significance of the results. Young people are far more affected by the employment crises than the elder; long term unemployment for young workers can be harmful and may result in “discouraged workers” effects and social exclusion from labour market. Notwithstanding some peculiarities of the last crisis, our econometric investigations can be useful to better assess its impact on youth unemployment. At the end of the paper, before presenting some final considerations and policy implications, very recent data on youth labour market dynamics are analysed and discussed.

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Paper provided by Università di Perugia, Dipartimento Economia in its series Quaderni del Dipartimento di Economia, Finanza e Statistica with number 79/2010.

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Length: 25 pages
Date of creation: 15 Oct 2010
Date of revision:
Handle: RePEc:pia:wpaper:79/2010
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  1. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
  2. Niall O'Higgins, 2005. "The Challenge of Youth Unemployment," Labor and Demography 0507003, EconWPA.
  3. Luca Nunziata & Stefano Staffolani, 2007. "Short-Term Contracts Regulations And Dynamic Labour Demand: Theory And Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(1), pages 72-104, 02.
  4. Niall O'Higgins, 2003. "Trends in the youth labour market in developing and transition countries," Social Protection Discussion Papers 27876, The World Bank.
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