The number of non-active young people is a global problem

The author is Director of Research and Advice at the think tank Asia House

Global youth unemployment is rising rapidly. China’s rate is at a record high. Even more problematic is the lesser-known neet rate, which measures the proportion of young people who are not in work, education or training.

A rising neet rate should ring alarm bells everywhere. It has quietly risen to over 20 percent globally, a level not seen in almost two decades. And even when employment is offered, according to the International Labor Organization, it is often the wrong, poorly paid and mostly informal employment.

As I take my son to school through the construction boom in southern Athens, I think of affordability. I am amazed at my young neighbor who has just taken a part-time job as a Junior Restaurant Manager with his PhD. “It’s better than no job,” she says.

This downgrading of jobs is a form of economic scarring, in which the quality of employment deteriorates even as the economy recovers. Scarring is ubiquitous in low-income economies. Advanced economies, including parts of the US, have not been immune either.

The stakes are highest for the poorest and most vulnerable economies, such as Niger, Yemen and Somalia, where rising neet rates are having catastrophic economic and social consequences. Added to this are now exorbitant food and energy prices.

In an era of multiple shocks, higher neet rates further anchor acute vulnerability. This applies to undiversified, resource-dependent and gender-unbalanced economies. Globally, 32 percent of young women are neets, compared to about 15 percent of young men. The Neet gap in South Asia is a staggering 53 percent of young women versus 6 percent of young men.

The economic consequences of this imbalance are serious. Rising neet rates will trigger the productivity shortfalls that entail the so-called middle-income trap. If countries’ productivity lags behind, the entire economy will never reach a higher income status. Compare the economic dynamism of Ireland and South Korea to the chronic turmoil of Mexico and Argentina.

Digitization and the associated jobs in the “platinum economy” could reverse the rising neet rates worldwide. A high-tech job is more than a job. According to economist Enrico Moretti, for every new high-tech job, five additional non-high-tech jobs are created in a city.

However, digital access remains woefully low in several emerging markets, particularly in rural areas, including in economic giants like India. Digital innovations are also fickle for workers in that they can depress wages, quickly shift work tasks, or eliminate jobs altogether.

Politicians take note of a few things. South Korea has presented its Human New Deal, which aims to address the impact of the energy transition and greater digitization on the labor market. This is to be achieved primarily through training and insurance for atypical forms of employment.

Ultimately, success in lowering the neet rate will be context specific. For some economies, such as Mexico and India, an improved investment climate for foreign companies – and the associated transfer of knowledge – would be consistent with prioritizing education. While Greece could devote much more to its think tank sector to allow graduate students to innovate.

Better education and labor market outcomes to foster innovation and productivity matter. Without further understanding and tackling the neet rate, growth and well-being will stagnate.

Elevated financial volatility, rising borrowing costs and geopolitical turmoil could spell sequential and multiple shocks. In this context, the neet rate is a key indicator of a wide range of vulnerabilities for young people – and a key barometer of the well-being of the next generation.