Labor Productivity, Temporary Work and Youth Unemployment: the Experience of Southern Europe

Southern European countries with stagnating labour productivity have seen also a high and persistent presence of youth unemployment in the past 20 years. The latest crisis has further exacerbated these two negative macroeconomic phenomena, hitting other virtuous countries in the region. The size and persistence of youth unemployment have become unacceptable after 2010. Stagnation in labour productivity goes back to the 1990s, but it has not improved since then and even worsened after the crisis. The interaction of these two phenomena might reinforce each other. This work analyses one possible way for reinforcement. Taking Southern European countries’ structural differences into account, labour market past reforms have had a role in changing youth unemployment and aggregate productivity. This analysis gives estimates of (1) the elasticity of youth unemployment to temporary work, (2) the elasticity of labour productivity to youth unemployment, and (3) the elasticity of labour productivity to temporary work, which is a combination of the first and the second effect. Whether temporary contracts are offered to young or adult workers makes a significant difference. Moreover, the latest financial and economic crisis changed the reforms impact on labour productivity and youth unemployment.