Youth Unemployment: Leveraging best practice for actionEuropean ConferenceHorsens, April, 26th/27th 2012

PLENARY PRESENTATION

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company 2 | 2

Observations on youth unemployment

Proposed agenda

Winning strategies: What countries have done well

A call for action

McKinsey & Company 3 |

Labor market is critical for young people and employers – the first struggle to find a job, the latter struggle to hire skilled candidates

"Egypt is certainly no stranger to the relationship between civil unrest and joblessness."

New York Times, 21.07.2011

"Thousands of unemployed, low-paid, under contracted or precarious young people are demanding for change and hope for a better future. Madrid, Barcelona and Valencia set the pace, millions are to follow »los indignados« in the next days and months" El Pais, 15.05.2011

In developed and developing countries alike, young people are in the streets …

… while companies face gloomy hiring perspectives for the next years

52

54

66

Competitors recruiting

some of your best people

Challenges recruiting /

integrating younger staff

Limited supply of candidates with theright skills

1 Survey of 1,201 business leaders in 69 countries by PwC)

Global CEO Survey 20101, percentage of companies facing a particular challenge

McKinsey & Company 4 |

Transition from education to permanent work is a challenge – especially for low-skilled graduates

SOURCE: OECD; Eurostat

1 Average of selected OECD countries; years to find permanent job = 5 – years spent in permanent employment during 5 years after leaving school2 Low-skilled defined as less than upper secondary education according to ISCED classification

Number of years spent in permanent employment during the 5 years after leaving school Selected OECD countries, 2008

▪ The average young person needs ~ 2.3 years of his/her first 5 years after school outside a permanent job1

▪ For average low-skilled2 graduates this figure increases to ~ 3.4 years

Difficult transition from education to employment

0

1

2

3

4

5

De

nm

ark

Ice

lan

d

Au

stria

Sw

itze

rlan

d

Est

on

ia

Un

ited

Kin

gd

om

Ne

the

rlan

ds

Lu

xem

bo

urg

Ge

rma

ny

Fra

nce

Fin

lan

d

Be

lgiu

m

Sw

ed

en

Gre

ece

Po

lan

d

Ita

ly

Sp

ain

Po

rtu

ga

l

Low-skilled = 1.6

Total = 2.7

Low-skilled2Total

McKinsey & Company 5 |

Example France: Due to lack of transparency, students specialize in educational paths that do not match market needs

SOURCE: MGI

1 Number of open jobs in industry for the qualification level indicated 2 Last year students in the various industry-specific education institutions3 2008

Lack of transparency will distort the incentive structure and create a mismatch between offered and required skills as in the example of France

1'000 persons, 2009Employment

opportunities for spec. qualification1

Economic sector

Last year students heading for employ-

ment in industry ²Qualification1

Textile 77 111111Bef. High School

Communication 4747 241241High School

Construction 66 174174High School

Agriculture, fishing 1313 111111

Before High School

Humanities 5353 383383Bachelor

Healthcare 44 8282Bachelor

IT n/an/a 112112Engineer

McKinsey & Company 6 |

Unemployment may not even be the worst problem for the young – low participation and precarious employment are equally serious

SOURCE: Données HCP, Rapport du CES

Example decomposition analysis on youth population in MoroccoMillions, 2010

9,3

5,2

4,1

0,7

3,4

1,4

2,0 1,7

-56,0%

-83,9%

-40,2%

-16,7%

Fully paid/

access to med. Service

0,3No med.

InsuranceRegularly

paidWithout

regularpayment

EmployedUnem-

ployedActiveInactivePopu-

lation 15-29 years

McKinsey & Company 7 | 7

Proposed agenda

Winning strategies: What other countries have done well

Our core beliefs on youth unemployment

A call for action

McKinsey & Company 8 |

▪ General or sector-specific growth initiatives corresponding to qualifications of graduates: industrial policies favoring existing talent to develop a competitive advantage

▪ Morocco: Emergence Program

▪ Tunisia: Off-shore strategy and qualification label

▪ Systemic approach: Align needed and obtained qualification by institutionally involving employers in vocational training

▪ Involving employers in targeted adaption of qualifications for pre-qualified young unemployed

▪ Individual approach: case management, personal coaching, application and interviewing practice, career counseling

Winning strategies for change Country case

▪ Germany: Dual System of Apprenticeship

▪ Tunisia: Off-shore readiness label for graduates

▪ Norway: Job Club▪ France: TRACE Dispositive

Detailed hereafter

Depending on the relevant root causes in a country, we present strategies that have worked in other countries

SOURCE: McKinsey EMEA Welfare & Employment KiP team

Root cause pattern

DE

MA

ND

CL

EA

RA

NC

E

1 Lack of hard skills

3 Skill mismatch

2 Lack of soft skills and motivation

5 Discouraging regulation

4 Lack of transparency

6 Low job creation

SU

PP

LY

▪ Incentives to hire/retain: limit overprotection of incumbents and create hiring incentives

▪ Ensuring decent working conditions: regulative standards favoring stable employment

▪ Information services: comprehensive and specific up-to-date information on vacancies, jobseekers and required qualifications

▪ Uruguay: PROJOVEN program for vulnerable youth

▪ Germany: Virtual Labor Market and Regional Labor Market Monitor

McKinsey & Company 9 |

0

5

10

15

20

25

30

35

40

45

0 5 10 15 20 25 30 35 40 45 50

NetherlandsNorway

Germany

Austria

Denmark

Czech Republic

Enrollment in in-company vocational education1

Estonia

Spain

BelgiumFrance

IsraelIceland

Finland

Luxembourg

HungaryPoland

Ireland

Youth unemployment rate (age 15-24)

High participation rate in vocational training correlates with low youth unemployment – dual systems do specifically well

SOURCE: OECD, Team

2010, percent

1 In percent of the age cohort; 2 For a sample of 17 OECD countries that offer in-company vocational education systems

High Impact

Low youth unemployment rate: 10% vs. 19% OECD average (2010)

High participation

ø 42.8% of each cohort take part in dual apprenticeship

>50% of companies > 50 FTE provide training

~350 recognized training occupations in more than 20,000 companies and 650 schools for 43,000 places

1

McKinsey & Company 10 |

Model calculation for Spain: Under reasonable assumptions, apprentices and employers benefit from dual apprenticeship

Additional lifetime income for apprentices …

.. and Productivity premium for employers

825,000

+150,000

Trained employee

975,000

Untrainedemployee

Employer benefit per trained employee1, EUREmployee life time payoff1, EUR

SOURCE: OECD; McKinsey

1 Output from modeling of discounted lifetime payoffs assuming 3-year apprenticeship, 20% of time spent in school, and apprentice wage of EUR 11,000 p.a.2 Includes reduced hiring cost and quality-premium of in-house worker discounted with the probability that trainee leaves after apprenticeship

MODEL

Increasing enrollment to dual apprenticeship to best-in-class level in countries with high youth unemployment would reduce youth unemployment by 900,000 through OECD

Net appren-ticeship premium

+25,000

Training costs

-41,000

Lower laborcosts of apprentices

+22,000

Productivitypremium2

+44,000

1

McKinsey & Company 11 |

Individual Coaching improves “soft skill” aspect of employability: TRACE1 Dispositive in France

SOURCE: DARES Premieres Syntheses Information, december 2004

2

Impact

▪ 320 000 participants from 1998 to 2003

▪ 70% of the participants found a job

▪ 40% found a training position

▪ Ratio remains stable in 2 years after program

▪ 75% of participants valued the role of their personal coach

▪ 50% of them met at least 1 month with him during their time in the TRACE program

1 TRACE: Trajet d’accès à l’emploi,troduced with 1998 Loi d’orientation relative à la lutte contre les exclusions2 24 months underspecific conditions as of 2002

▪ Personalized coaching up to 18 months³

▪ Program activated and monitored within local public networks

“Pathway to employment”

▪ Individual „contract“: Activation of applicant vs. support and coaching

▪ Support includes, e.g., – advice on CV, access to trainings – financial help – access to stable accommodation

McKinsey & Company 12 |

Sector-specific growth initiatives create sustainable employment opportunities

1 Offshore Ready Label – industry-specific certificate for offshore industry developed with offshore cluster2 Emergence Program – sector specific development strategy for 7 industries

SOURCE: McKinsey

Impact

▪ Forecast Tunisia1: ~150,000 new jobs in IT offshoring

▪ Forecast Morocco²: ~10 sectors clusters in development, e.g.– Automotive :

▫ 20’000+ new jobs▫ Launch of Tangiers

Automotive City ▫ Commitment from

manufacturer to invest €1bn in new assembly plant

– BPO/ IT Offshoring: ▫ 25’000+ new jobs ▫ "CasaShore" cluster

6

Background Approach

▪ Robust economic growth ▪ High academic

unemployment

▪ Develop industries with market potential and high employment opportunities, e.g.– IT offshore services– Automotive– Agri business

▪ Implement industry-specific qualification program involving employers/ investors

McKinsey & Company 13 | 13 SOURCE: project team, international experts

Offshore Ready label

1 Higher education level

1 Certificate in French language - level B1 (at least)

1 Certificate of internship

• B1 level certified by the official test administrator

• Certificate for voluntary internships• Certificate for company internships

+

+

+

+ 1 Technical certificate

Level B2 certificate issued by official test administrator

Certificates TBD (e.g. certificate in accounting or a short-list of recognized degrees)

BPO voice BPO Data

R&D

First degree in computer science + certificate(s) in information technology and communication (e.g. Microsoft) – list TBD

ITO

Employers must be involved in deciding the content of training modules for job seekers seeking Offshore Ready certification

“Offshore Ready label” is a specific certificate for working in offshore industry and was worked out with employers

6ILLUSTRATIVE

McKinsey & Company 14 | 14

Proposed agenda

Our core beliefs on youth unemployment

A call for action

Winning strategies: What other countries have done well

McKinsey & Company 15 |

To overcome youth unemployment, countries should …

SOURCE: McKinsey EMEA Welfare & Employment KiP team

… Design comprehensive program based on success cases, e.g.

McKinsey & Company 9|

Our database contains 150 case studies and best practice instruments from over 40 benchmark countries covering 9 essential issues

SOURCE: McK Case Study Library

Case studies across geographies… … cover our 9 issues

McK engagements on employment

External case studies

# case studies by issue

Overall high unemployment

1

High vacancy rate

2

Job vulnerability

3

Long term unemployment

4

Youth unemployment

5

Elderly unemployment

6

Female unemployment

7

Governance and performance of institutions

8

Effectiveness of instruments

9

12

6

8

14

36

7

5

29

12

2

FOR DISCUSSION

… Thoroughly analyze root causes of youth unemployment in the country, e.g.

▪ Hard skills lack– Low-skilled unemployment much higher than

high-skilled– Level of tertiary/ upper secondary education

low

▪ Systemic approach to foster labor-market-ready qualifications, e.g. establish apprenticeship

▪ Skills do not match needs– High-skilled unemployment is

specifically high▪ Job creation omits youth

– Youth unemployed grows faster/ declines slower than general unemployment

▪ Develop sectors with need for skilled workers

▪ Create vocational training involving employers

▪ Create incentives for employers to take on young unemployed

▪ Soft skills lack – Young people stay unem-

ployed longer than older– Employer feedback is bad

▪ Individual approach with coaching, e.g. by successfull peers

▪ Create incentives for employers to take on young unemployed

If

McKinsey & Company 16 |

Backup

McKinsey & Company 17 | 17

The McKinsey value proposition in employment

Broad, global expe-rience in practical labor market advisory services

▪ Focus of our work in the public sector – more than 100 prominent engage-ments per year

▪ Experience on 6 continents working for multilaterals, countries, regions, cities and agencies

▪ Clients include national governments and public labor agencies

Own, globally recognized think tanks on economics and public services

▪ 20 dedicated Researchers in the US and Europe

▪ Regular attention in leading business newspapers

▪ Over 50 detailed country- and sector studies on sources of economic growth

▪ Cooperation with leading academic researchers

Broad sector and topical expertise

▪ Dedicated industry practices for all sectors of the economy

▪ Dedicated functional practices with in depth-knowledge of overarching topics, e.g., human resource development, education, sustainability, etc.

Experienced practitioners

▪ Ca. 60 consultants on all levels with a specialization on employment

▪ 30 dedicated back-office researchers with an economics background

McKinsey & Company

BVA-ZZH-564-20101008-VMS1-s

| 22SOURCE: federal states’ VGR

1 Actual, price level 20072 Proportion of population of working age from 18 to 65 years of age of the total population

GDP per capita analysis and benchmarking

30.7

26.0

30.2

22.4

GDP/capitat1

in EUR thou, 200740

41

47

37

Productivity1

in EUR per working hour

770

638

646

604

Hours worked per capitain hours

55

45

45

43

Employees per capitain %

1,389

1,408

1,425

1,417

Hours worked per employeein hours

87

77

83

76

Labour force participation ratein %

96

91

89

90

1 – Unemployment ratein %

67

65

61

62

Employable rate2

in %

Region A

Region B

Benchmark A

Benchmark C

Tested approach, standard diagnostics and bench-marking databases

▪ Over 110 standardized case studies, including internal and external experience

▪ Proprietary diagnostic toolset

SOURCE: EMEA Welfare & Employment KiP team

McKinsey Center for Government

McKinsey & Company 18 |

Knowledge base: We have collected more than 110 case studies from around 40 countries covering 9 essential issues

Case studies across geographies… … cover our 9 issues

McK engagements on employment

External case studies

# case studies by issue

Overall high unemployment

1 12

High vacancy rate

6 6

Long term unemployment

2 11

Youth unemployment

3 21

Elderly unemployment

4 8

Female unemployment

5 12

Governance and performance of institutions

8 29

Effectiveness of instruments

9 12

Lack of employ-ability/ vocatio-nal training

7 20

SOURCE: EMEA Welfare & Employment KiP team

McKinsey & Company 19 |

Input for congress documents: Speaker Bios

SOURCE: McKinsey

Katrin Suder

Dr. Katrin Suder, Director and leader of the German Public Sector Activities of McKinsey and Company as well as of the Berlin office, where Katrin Suder is also located and lives with her family including a daughter born in January 2011. Katrin Suder focuses on social welfare and unemployment activities, co-leading a worldwide knowledge activity within McKinsey on the topic as well as, functionally, on strategy and technology questions. Katrin Suder received a PhD in Physics and holds a university degree in Physics as well as in Theater and German literature.

Jörg Schubert

Dr Jorg Schubert is a partner in McKinsey's Middle East Office, based in Dubai, and leads McKinsey's work with governments in the Arab World. Over the past ten years his work has been focussing on the topics of education, employment, and labour market governance, which have drawn high attention globally in the wake of the 'Arab Spring'. Jorg's clients include the Ministries of Labour in the UAE, Saudi Arabia, Bahrain, Yemen, and Libya. Jorg is a qualified solicitor in Germany. He holds a doctorate in law and degrees in Economics, International Economic Law, and Constitutional Law of the Universities of Bayreuth, Germany, and Warwick, UK.

Kai v. Holleben

Kai v. Holleben is a senior expert of McKinsey’s Public Sector Practice, based in Berlin. He has been consulting public sector organizations since 1994 before joining McKinsey in 2007. Currently, his work focusses on labour market institutions and large-scale IT projects. Kai serves the Federal Labour Agency as well as the Ministries of Labour in Germany and Saudie-Arabia. He co-leads McKinsey’s worldwide knowledge activity on labour market issues. Kai holds a master degree in economics.

McKinsey & Company 20 |

Input for congress documents: Brief Summary

SOURCE: McKinsey

Youth unemployment is commonly known as the most severe labour market issue in most European economies, yet the root causes differ from country to country.Katrin Suder and Jörg Schubert from McKinsey present an analysis on root causes like shortfalls in the education system’s ability to create labour-market ready qualifications, uninformed career decisions in transition phases and issues in overcoming existing skill mismatches.

Furthermore, they show cases of countries who have overcome the problem of youth unemployment or at least have tackled the issue successfully. Cases include an analysis of the key success factors of Germany‘s dual system of apprenticeship as well as less known interventions like soft skill coaching of young unemployed in France‘s TRACE positive and creating a „brand“ of qualified employees for the offshoring sector in Tunisia.

Youth Unemployment: Leveraging best practice for action