WASHINGTON: Declining incomes for European youth since the global financial crisis are dimming their prospects, and IMF chief Christine Lagarde today urged governments to take action to ensure they do not fall further behind.
A new International Monetary Fund study showing that while average income inequality in the European Union "has remained broadly stable there since 2007," Lagarde said the data reveal "a worrying trend: the gap between generations in Europe has widened significantly."
"Working-age people, and especially the young, are falling behind. Without action, a generation may never be able to recover," Lagarde said in a blog post that accompanied the release of the report.
Strong European safety nets helped older workers, whose pensions were also protected, but incomes for young people declined due to high unemployment, which spiked to 24 percent in 2013, and one-in five are still looking for work.
IMF research shows that an employment gap can lead to longer-term wage loss or "scarring" that erodes potential earnings, she said. A worker with less experience is less likely to find a job, and those lost wages cannot be saved.
"Wages not earned and savings not put aside can be extremely difficult, if not impossible, to recover later in a person's career," she warned.
That gap also can lead to rising levels of poverty among younger workers.
The solution, Lagarde said, is replicating policies such as those used in Germany and Portugal, including apprenticeship and training programs, and exempting first-time job holders from social security taxes for three years.
Measures to "create jobs and incentivize work" could include reducing taxes on low-wage workers, investing in education and training, and protecting younger workers with unemployment and non-pension benefits, she said.
Another strategy would be to focus on wealth taxes, which she said are lower today than they were in 1970, including inheritance taxes, to fund programs for younger citizens.
"Let me underline again: this is not about one age group versus another," Lagarde said. "Building an economy that works for young people creates a stronger foundation for everyone"
since young people with jobs with productive contribute to social safety nets. "We can help heal the scars of the crisis."