September 27, 2017

The Youth Employment Crisis: A Perspective from Mexico

Written by Stefan Scharnagl Villarroel

This post originally appeared on the Pyxera Global website. Reposted with permission.

Young people play a vital role in fostering global economic development. In the face of weak prospects for global economic growth, their involvement in the formal economy becomes increasingly relevant and urgent. In recent years, there has been much talk about the demographic dividend in most emerging economies and less-developed countries, a scenario where a larger proportion of the overall population is of working age. In Mexico, young people between 15 and 29 represent the largest age group. By 2022, the country will have the largest number of youth in its history and its size will shrink in the years that follow, as the country transitions toward an aging population. This demographic phenomenon is observable in the structure of the current population pyramid, which is undergoing a shift to an inverted form.

A large, economically active population offers a unique opportunity to accelerate economic growth, but for countries to capitalize on this circumstance, they must generate sufficient job opportunities for the younger generation and ensure a living wage with appropriate benefits. In countries like Mexico, however, those conditions don’t always exist. Globally, youth face unemployment rates two to three times higher than the rest of the population, depending on the country. The issue becomes more worrisome when considering the preliminary results from last year, when youth unemployment rose for the first time in the last three years. In short, by the end of 2016 there were approximately 71 million young people unemployed globally. In Mexico, youth unemployment varies between 7.5 and 8 percent, double the unemployment rate for the general population of working age.

As reported in the National Youth Participation Index 2015-2016 for Mexico, the youth unemployment rate has dropped considerably since 2014. This rate measures those who are unsuccessfully seeking employment as a percentage of the total number of young people in the country. Although this rate is decreasing, the employment rate has not yet increased. Availability of formal jobs has not risen for young people in recent years; many young people have simply stopped looking for them, occupying themselves now in the informal sector, at best, or with criminal organizations, at worst. Consequently, the share of young people in a recognized position with adequate compensation and benefits has not increased in relation to the total number of employees. The barrier to access to the formal economy remains a significant issue for young people.

The challenges for young people don’t end with poor job prospects. According to the International Labour Organization, appropriate compensation remains one of the issues that most affect young people. Those who do find work are often accepting jobs for which they are overqualified; 156 million young people in less-industrialized countries live in extreme and moderate poverty in spite of their employment. In addition, a young person is more likely to be underpaid and/or without benefits than an older professional.

In Mexico, transnational companies tend to have better human resources (HR) policies than domestic companies, and some even have specific policies for Millennials. These actions have helped companies to attract young talent and to increase their retention rates for that generation. Despite their clear success, most domestic companies have not adopted similar policies, limiting this mutually beneficial practice to a very small sector. HR policies for Mexican companies lag significantly behind comparable US-based companies. Even transnational companies have weaker policies in place in Mexico compared to their headquarters locations in more industrialized countries.

In general, inadequate compensation and lack of job security in Mexico represents a situation with long-term repercussions for this generation. Young employees receive lower wages; they get hired without a contract; and they work without benefits. This translates into a lower saving and consumption capacity than in previous generations, resulting in decreased spending on health and education, and fewer savings opportunities for their retirement, among other issues. Considering an aging population, they also have lower expectations for social security in their own retirement, as population trends suggest there won’t be a sufficient workforce to support the social security system for such a large, dependent population. The biggest consequences of today’s precarious working conditions will be revealed in 40 to 50 years, when this generation reaches retirement.

According to Manpower Group, more than 35 percent of employers report a talent shortage in the labor market, limiting their recruitment options. It is also important to consider the data reported in the National Youth Participation Index where three out of ten employees are young people. It’s mistaken to expect individual companies to grow their share of younger staff beyond current levels. Businesses might hire more young people in quantitative terms as the company grows, but it is hard to expect that on average they will have more than 30 to 35 percent proportion of young staff. Limited employment opportunities are not necessarily a problem that companies can solve by hiring more young people, but a problem in terms of the number of companies and their sizes. In fact, this is one reason why recent support to young entrepreneurs has increased in Mexico. This is one of the most promising current government strategies to reduce youth unemployment. As not everyone is equipped to be an effective entrepreneur, the risk is that not all fledgling companies will survive more than two years, hence the dedicated support.

The challenges that youth face in finding work in the private sector present opportunities to work with them to improve their professional development. Companies in Mexico are realizing that this issue not only affects them, but also their economic environment. The companies that harness this momentum and invest in their talent pipeline will have much higher productivity and will develop better growth prospects in the medium and long term. The same companies must adapt their recruiting processes and organizational culture to attract more young people to help them understand their clients. For many companies, the Millennial generation is soon to become their main customer and young collaborators can help a company create products and services that are better adapted to evolving preferences.

To solve youth employment crisis takes a systems approach that will affect the population as a whole rather than a focus on piecemeal solutions. Companies, government, civil society, and academia can work together to shape this approach, but it takes the commitment from all parts to do so. Small efforts are gaining traction in Mexico. For instance, some universities are implementing the German model of dual education, where students get practical and theoretical education in a cooperative program between universities and companies. But much more can and must be done. Ideas like a national employment system that maps the future talent needs of the private sector can improve the transition from school to work for youth in the coming years, thereby ensuring lower unemployment rates. Innovative proposals like this, that come from academia and civil society organizations, need to find purchase in more fertile ground, where government institutions, political interests, and business interests align to pursue long-term collective benefits instead of working for their own short-term gain. Both academia and civil society would gladly accompany the implementation of such actions.