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Europe’s Middle-Age Trap

From Project Syndicate by Edoardo Campanella:

European policymakers have finally recognized the severity of their youth-marginalization problem. But, just over the horizon, there looms another social catastrophe that they have yet to acknowledge. This time, it is middle-aged workers who are poised to suffer.

This might seem surprising, given that middle-aged workers seem to be the winners in today’s system. Workers in their late forties and early fifties enjoy stable employment, control the political system, and are less vulnerable to economic downturns than their colleagues who are closer to pension age.

Moreover, high entry barriers, seniority-related benefits, and tough restrictions on firing employees have enabled Europe’s middle-aged workers to retain even moribund jobs – a situation that has contributed substantially to youth marginalization. According to the OECD, from 2008 to 2012, unemployment among Europeans aged 45-54 increased from 5.2% to 7.7%, while youth unemployment jumped from 15% to 21.4%. At the end of 2013, approximately four million people aged 50-64 were unemployed, compared to nearly six million aged 18-24.

Such statistics explain why policymakers have so far failed to recognize that there is a problem at all. But middle-aged workers’ enviable conditions will soon begin to erode, as mounting competition from emerging economies and relentless technological progress weaken their grip on the system.

The traditional industries that employ older workers are disappearing rapidly from Europe, and the companies that are replacing them – such as high-tech start-ups – are dominated by workers under 40. The McKinsey Global Institute has identified 12 potentially disruptive innovations – including 3-D printing, advanced robotics, and autonomous vehicles – that will revolutionize the business landscape, creating new opportunities for young minds, while driving older workers from the job market.

In such a dynamic environment, workers can prosper only through continuous skills upgrading, willingness to move, and entrepreneurial resourcefulness. This gives young workers a major advantage. After all, it is far more difficult for middle-aged people to acquire new competencies, uproot themselves for a job (owing to more binding family constraints), or assume the risks associated with starting a business.

Although these trends are prevalent worldwide, Europe will likely be hit particularly hard. Its population is aging faster than, say, America’s, undermining the labor force’s ability to respond to the need for skills upgrading. And Europeans, who are accustomed to a particularly generous worker-protection system, will find it more difficult to adjust their expectations to the flexible, knowledge-based model recommended by the European Commission.

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