When young workers are left behind: The economic cost of youth unemployment and underemployment

The just-concluded 2025 Gyeonggi–ILO International Labour Festa brought together policymakers, employers’ and workers’ organisations, and young people from around the world to examine the opportunities and challenges facing youth in a labour market reshaped by remote work, the green transition, artificial intelligence, automation, and the gig economy. 

As labour markets around the world weaken,[1] the personal cost of starting a career in a downturn is significant and the macroeconomic implications can be equally severe. Persistent youth unemployment and underemployment threaten long-term productivity, fiscal sustainability, and economic growth. A new and troubling dimension is also emerging: artificial intelligence may increasingly displace precisely the entry-level jobs that have traditionally served as stepping stones into stable employment.[2] 

The well-established “scarring effect” of entering the labour market during a recession—where young people experience wage losses of 10–15 per cent that can persist for a decade or more—is not merely a collection of individual hardships.[3] At scale, it becomes a macroeconomic drag. When large cohorts of young workers are trapped in low-quality jobs or excluded from employment altogether, they fail to accumulate the skills, experience, and job matching that underpin productivity growth. At the same time, high youth unemployment creates a dual fiscal burden: it reduces lifetime tax contributions while increasing public spending on income support and related services. 

These effects compound over time, lowering an economy’s long-term growth potential. A “scarred” generation with weaker earnings prospects, poorer health outcomes, and delayed household formation contributes less to aggregate demand and innovation. In turn, subdued demand can further weaken labour markets, reinforcing a vicious cycle. Because these impacts fall disproportionately on disadvantaged young people, they also exacerbate inequality—undermining social cohesion and sustainable growth. 

Addressing youth unemployment and underutilisation is, therefore, not only a social imperative but a macroeconomic investment. Macroeconomic policy itself has a central role to play by supporting price stability, sustaining aggregate demand, and fostering conditions for full and productive employment—ensuring that today’s young people can become tomorrow’s drivers of growth. 

*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of ILO.

Kee Beom Kim is the Macroeconomic and Employment Policies Specialist at the Employment Policy, Job Creation and Livelihoods Department of the International Labour Office (ILO), based in Geneva, Switzerland. During his twenty year tenure at the ILO, he was also based in Bangkok and Jakarta. His work focuses on undertaking research on key macroeconomic and employment issues and on providing technical support in the design and implementation of economic, employment and labour market policies.