Speech László Andor: The Youth Guarantee – an essential investment for the future

Dear Ministers,

Ladies and gentlemen,

The EU's fragile recovery which started in spring last year now appears to have lost momentum , and the forecasts for 2014 and 2015 have been revised downwards.

The reform of the EMU has stalled following the introduction of a few elements of a Banking Union, and the risk of deflation has not been taken sufficiently seriously so far.

The decline in unemployment has lost pace and is almost at a standstill at 10.1% for the EU and 11.5% for the euro area. And much of the job creation observed is linked to an increase in part-time and temporary contracts.

Unemployment among young people is still very high . At 21.6%, the EU youth unemployment rate is over twice the overall rate and varies strongly across Europe: it ranges from 7.6% in Germany to over 51.5% in Greece and 53.7% in Spain. Such divergences in youth unemployment rates threaten the economic stability of the monetary union, and undermine social cohesion and the political confidence of an entire generation.

Europe risks entering a prolonged period of low growth and low inflation similar to the one which plagued Japan .

However, as opposed to Japan, in the case of Europe, this deflationary period would be coupled with high unemployment and the constant risk of disintegration. In this context, Mario Draghi i, Head of ECB, recently emphasised the need for more accommodative monetary policies and a more expansionary aggregate fiscal stance of the euro area, so that Europe can implement structural reforms without risking further short-term contraction in GDP and further deflationary pressure.

A failure to address the current cyclical shock will be bound to affect the EU’s prospects for growth and permanently scar employment and human capital. But, if we look at this from the reverse angle, we can say that structural reforms are needed to ensure that counter-cyclical policies are effective.

The Youth Guarantee is a key structural reform of this period . Its implementation is at the core of the EU coordination of employment policies and - therefore - at the core of the European Semester and the country-specific recommendations.

Alongside supply-side measures such as tailor-made job-search guidance and training courses , Youth Guarantee schemes entail measures to boost demand for young people's labour , such as well-targeted wage or recruitment subsidies and apprenticeship grants.

The Youth Guarantee has a cost, but it should be considered as an investment .

The reasoning is the following one: investing in the Youth Guarantee is crucial for preserving the EU’s future growth potential. As you know, the economic value of the Youth Guarantee has been highlighted by the OECD i, ILO i and Eurofound. More recently the G20 i strongly supported it and invited countries to step up implementation.

The economic value of the Youth Guarantee is related both to building up the human capital stock and to improving the flow of this human capital into and within the labour market. In other words, we educate and train young people - this is obviously an investment. But support to labour market transitions should also be seen as an investment .

Indeed, it pays off to ensure that young people quickly find relevant jobs, where their productive potential can be realised. For this, we need not only education and training but also good labour market flows. We need active labour market policies as well as measures stimulating demand for labour, such as targeted hiring subsidies.

These investments and their returns are harder to measure than for instance infrastructure investments. But they are very important - both to strengthen the human capital stock and to improve labour market flows and transitions. That's why Youth Guarantee expenditure should be considered as an investment.

Dear Ministers,

I am impressed by the speed at which the Youth Guarantee is being implemented, compared to other structural reforms. Some Member States have amended their legislation, others have introduced new policy instruments to scale up labour-market-related measures for young people. For example, in Spain the number of vocational education and training (VET) centres, of companies involved in dual VET projects, and of VET students has doubled since 2013. And I have recently visited Slovakia, where the Youth Guarantee has resulted in 12,000 jobs, mainly in SMEs, and most of them sustainable.

Since our meeting in Paris, the Commission services have been working hard to ensure that the European Funds can effectively support the implementation of the Youth Guarantee.

The new 7 years budget introduced the Youth Employment Initiative , worth €6.4 billion, which provides direct support to young people not in employment, education or training (NEETs).

The Youth Employment Initiative has been "frontloaded" for speedier absorption in 2014 and 2015. This means that this money will be committed in 2014 and 2015 rather than over the seven year period of the Multiannual Financial Framework. Moreover, expenditure on Youth Employment Initiative projects is eligible from 1 September 2013.

Since September last year, many Member States have been spending the YEI money and the expenditure will be reimbursed after the operational programmes are adopted.

But financial support to youth employment far exceeds the €6.4 billion of the Youth Employment Initiative.

Three investment priorities of the European Social Fund (ESF) directly support the implementation of the Youth Guarantee.

Member States have proposed to allocate over €4 billion to the investment priority specifically supporting young people's labour market integration.

Another €11 billion is estimated to be allocated to other ESF investment priorities - such as access to employment, self-employment or modernisation of labour market institutions- and therefore contribute to the Youth Guarantee's implementation.

Indirectly, ESF resources for education investments also contribute to the success of the Youth Guarantee. And Member States can consider which Youth Guarantee measures they will finance from the ESF and YEI contributions.

Dear Ministers,

Let me conclude with some considerations about the macroeconomic situation we are facing.

Evidence shows that the overall unemployment rate can only be expected to fall if the annual GDP grows by more than 1.5 per cent on average. Reducing the youth unemployment rate would also require higher GDP growth rates.

The Youth Guarantee is a key component of our economic recovery strategy . But, in the absence of overall economic growth, it would be impossible for any employment reform to solve the unemployment crisis.

The rules of EU funding should not be blamed for the slow progress with the reduction of unemployment in the EU, an especially in the Eurozone i.

The Member States and EU institutions should make a greater effort to develop a better macroeconomic framework that favours growth and job creation, and in which the Youth Guarantee can also deliver even more visible and sustainable results.

This is why the discussion later this afternoon is so important.

Thank you.