The income gap across generations in Europe has widened to the detriment of young people and without adequate policies, an entire generation may never be able to recover, the International Monetary Fund (IMF) warned on Wednesday. Average income inequality in the European Union (EU) has remained stable since 2007, but a closer look at the data shows that this apparent stability results from two opposing trends. On one hand, the incomes of young people aged 18 to 24 years have stagnated after returning to levels attained before the global economic and final crisis. On the other hand, the incomes of people aged 65 years and above have increased by 10% “as pension benefits were better protected,” the IMF noted in a new study.
To reduce risk of young of young people becoming poor and suffering irreparable income loss, it is essential to facilitate their integration into the labour market, the IMF stresses. The Washington-based institution therefore recommends creating incentives for youthful employment such as reducing social security contributions and taxes on low-wage workers.
“To help improve future job prospects, governments can invest in education and training, which can help young people close the skills gap,” IMF Executive Director Christine Lagarde said on Wednesday. “Without action, a generation may never be able to recover,” Lagarde warned in a blog on inequality and poverty across generations in Europe.
“Today, nearly one in five young people in Europe are still looking for work,” she recalled, stressing that it’s not a matter of pitting one generation against another. “Building an economy that works for young people creates a stronger foundation for everyone,” she explained. “And reducing inequalities across generations goes hand-in-hand with creating sustained growth and rebuilding trust within society.”
The IMF head cited the example of Germany, where apprenticeships and training programmes have helped young people stay in the workplace. Another good example, she said, is Portugal, which exempted its first-time job holders from paying social security taxes for three years. “While youth unemployment remains high, this measure goes in the right direction,” she noted.