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Europe Faces Lost Generation as Inequality Mounts, Lagarde Warns

  • Young people risk being left behind, IMF chief predicts
  • Youth incomes have stagnated since financial crisis: IMF

Europe’s youth risk being left behind unless the European Union takes steps to address the growing income divide across generations, IMF Managing Director Christine Lagarde said.

The incomes of young people have recovered after dropping when many lost their jobs following the financial crisis, according to the IMF. Still, youth incomes haven’t grown compared with pre-crisis levels, whereas the incomes of those 65 or older have risen 10 percent, since their pensions were protected, Lagarde said in a blog post Wednesday.

“Working-age people, and especially the young, are falling behind,” she said. “Without action, a generation may never be able to recover.”

Lagarde delivered her warning as business and political elites meet in Davos, Switzerland at the annual gathering of the World Economic Forum. Inequality is one of the topics on the agenda, as policy makers and corporate executives grapple with a populist backlash against globalization that’s buffeted the political order across the developed world.

The European unemployment rate for those aged 18 to 24 peaked at 24 percent in 2013, and nearly one in five young people on the continent are still looking for work, Lagarde noted. One in four young people in the region is now at risk of poverty.

Prolonged spells of unemployment can lead to “scarring,” by making it harder for people to find work, she said. “If they do find it, it will likely be at lower wages,” said Lagarde.

The rise of the “gig” economy, with its emphasis on temporary contracts, has undermined job security, especially for the young, she said, adding that non-pension social benefits were scaled back following the crisis.

European policy makers can address the problem by reducing social-security contributions and taxes on low-wage workers and investing in education and training, Lagarde said. Governments should also better protect young people in the event of unemployment, such as through better jobless benefits, according to Lagarde, who added that higher taxes on inheritances and other wealth levies could fund social programs for youth.

“This is not about one age groups against another,” she said. “Building an economy that works for young people creates a stronger foundation for everyone.”

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