[MUSIC] We will come back to this interactive web tool later on. Before looking at the results, Thomas, can you tell us about the various components of the index? >> Of course, first of all it's important to note that the index indicators are sorted into four dimensions. Each of these dimensions contains between two and five indicators. >> What are the selection criteria for choosing the indicators? >> We selected indicators based on three criteria. First, they need to reflect a labor market outcome. Second, it has to be clear whether a low or high value is desirable. And third, the data needs to be available. The first dimension is called the activity state. It contains three indicators and captures to what extent the youth are active. The working conditions dimension consist of five indicators that capture the quality of employment. Education, the third dimension, aims to capture the quantity and quality of education and training via two indicators. Finally, the Transition Smoothness dimension entails two indicators reflecting the ease of transition from education into the labor market. >> The guide to the KOF Youth Labor Market Index, which you can download on the KOF homepage under the rubric Indicators, provides a detailed description of the individual indicators, which are based on data from Eurostat, DOECD and the ILO. Thomas, can you give us an overview of the specific indicators? >> Yes, I'm happy to do this. Let's start with the activity state dimension. In order to understand the nature of the three indicators included in the activity state dimension, it is useful to start with the observation that the population of youth can be divided into two parts, those who are employed and those who are not. The youth that is not employed can be further divided into four states of non-employment. The first state of non-employed youth is called unemployment. The second state of non-employed youth is called discouraged. It represents a relaxed definition of unemployment, because it further comprises persons that have already given up on searching actively for a new employment. The remaining part of the non-employed persons can be further divided into persons who are inactive for other reasons, for example taking care of a child or traveling, and persons who are in education and training. Based on these distinctions, we can define different indicators of the activity state, namely the unemployment rate, the relaxed unemployment rate, and the rate of youth that is neither in employment, education or training. >> The activity state dimension captures how active the youth are in the labor market. However, the quality of that activity can differ substantially across individuals. Thomas, which indicators captures the working conditions? >> The KOF Youth Labor Market Index includes five indicators for working conditions. The first indicator, the temporary worker rate, refers to the share of employed youth that has a temporary work contract for less than 18 months. Note that it is important to restrict the length of the contract, because youth that are enrolled in a dual vocational education and training program also have a temporary worker contract. Since these titles are fairly self explanatory, I will not go into the details of the involuntary part-time worker rate, the atypical working hours rate, and the in-work at risk of poverty rate. However, I would like to say a few words about the vulnerable employment rate. This indicator refers to the share of employed youth who work in a family business or are self employed. The indicator therefore captures to what extent the youth enjoys legal protection. This indicator is particularly important in emerging economies, where the informal sector has a much higher relevance. This argument illustrates that the relevance of the indicators differs across countries. >> The education dimension captures the quantity and quality of education and training. How does the KOF Youth Labor Market Index measure this dimension? >> The education dimension has two indicators. The first indicator in the education dimension measures the share of youth who are enrolled in formal education or training, capturing the amount of investment into human capital. The second indicator aims to capture the mismatch between the skills provided by the labor force and the skills demanded by the economy. Empirically, we approximate the theoretical concept by a comparison of employment and unemployment across three education levels, namely primary, secondary, and tertiary education. This measure exploits the idea that skills mismatch is lowest if the unemployment rate is the same in all three education levels. >> Hey Thomas, let me ask a question. What are the drawbacks of this skills mismatch rate? >> That is a very good question. The first drawback arises because the measure relies on the comparability of the ISCED education classification across countries. Another drawback of the measure refers to the fact that it represents a crude approximation of the theoretical concept of skills mismatch. Unfortunately, problems with data availability prevents us from including other measures in the KOF Youth Labor Market Index. >> Thank you very much for this explanation. The last dimension of the KOF Youth Labor Market Index characterizes the difficulty of youths in the transition from education and training into the labor market. This dimension is closely related to the activity state dimension, but focuses more strongly on the dynamic component of the transition. Thomas, which indicators belong to this dimension? >> The transition smoothness dimension has two indicators. The first indicator refers to the unemployment rate of the youth relative to that for the adult population. This indicator shows us whether unemployment is more specific to the youth, which would suggest a low transition smoothness. The name ratio highlights that this indicator is a ratio of two rates. The second indicator, the share of the youth labor force that is unemployed for more than one year, represents an extreme form of transition problems. [MUSIC]
