Youth Unemployment: Leveraging best practice for action

1. Youth Unemployment: Leveraging best practice for action European Conference Horsens, April, 26th/27th 2012 PLENARY PRESENTATION CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2. Proposed agenda Observations on youth unemployment Winning strategies: What countries have done well A call for action 1

3. Labor market is critical for young people and employers – the first struggle to find a job, the latter struggle to hire skilled candidates • … while companies face gloomy • hiring perspectives for the next years • In developed and developing countries alike, young people are in the streets … Global CEO Survey 20101, percentage of companies facing a particular challenge • Limited supply of • candidates with the • right skills "Egypt is certainly no stranger to the relationship between civil unrest and joblessness." New York Times, 21.07.2011 • Challenges recruiting / integrating younger staff • Competitors recruiting some of your best people "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 1 Survey of 1,201 business leaders in 69 countries by PwC)

4. Transition from education to permanent work is a challenge – especially for low-skilled graduates Number of years spent in permanent employment during the 5 years after leaving school Selected OECD countries, 2008 • Total • Low-skilled2 • Total = 2.7 • Low-skilled = 1.6 • Portugal • Spain • Italy • Poland • Greece • Sweden • Belgium • Finland • France • Germany • Luxembourg • Netherlands • United Kingdom • Estonia • Switzerland • Austria • Iceland • Denmark • 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 1 Average of selected OECD countries; years to find permanent job = 5 – years spent in permanent employment during 5 years after leaving school 2 Low-skilled defined as less than upper secondary education according to ISCED classification SOURCE: OECD; Eurostat

5. 7 111 • Textile • Bef. High School 47 241 • Communication • High School 53 383 • Humanities • Bachelor • Agriculture, fishing • Before High School 13 111 6 174 • Construction • High School n/a 112 • IT • Engineer 4 82 • Healthcare • Bachelor Example France: Due to lack of transparency, students specialize in educational paths that do not match market needs 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, 2009 Employment opportunitiesfor spec. qualification1 Last year students heading for employ-ment in industry ² Economic sector Qualification1 1 Number of open jobs in industry for the qualification level indicated 2 Last year students in the various industry-specific education institutions 3 2008 SOURCE: MGI

6. Unemployment may not even be the worst problem for the young – low participation and precarious employment are equally serious Example decomposition analysis on youth population in Morocco Millions, 2010 • -56,0% • -16,7% • -40,2% • -83,9% • 0,3 • Popu-lation 15-29 years • Inactive • Active • Unem- ployed • Employed • Without regular payment • Regularly paid • No med. Insurance • Fully paid/ access to med. Service SOURCE: Données HCP, Rapport du CES

7. Proposed agenda Winning strategies: What other countries have done well Our core beliefs on youth unemployment A call for action 6

8. Detailed hereafter • Root cause pattern • Winning strategies for change • Country case 1 • Lack of hard • skills • Systemic approach: Align needed and obtained qualification by institutionally involving employers in vocational training • Germany: Dual System of Apprenticeship 2 • Lack of soft skills and motivation • Individual approach: case management, personal coaching, application and interviewing practice, career counseling • Norway: Job Club SUPPLY • France: TRACE Dispositive 3 • Skill mismatch • Involving employers in targeted adaption of qualifications for pre-qualified young unemployed • Tunisia: Off-shore readiness label for graduates 4 • Lack of transparency • Information services: comprehensive and specific up-to-date information on vacancies, jobseekers and required qualifications • Germany: Virtual Labor Market and Regional Labor Market Monitor CLEARANCE 5 • Discouraging regulation • Incentives to hire/retain: limit overprotection of incumbents and create hiring incentives • Ensuring decent working conditions: regulative standards favoring stable employment • Uruguay: PROJOVEN program for vulnerable youth 6 • Low job • creation • General or sector-specific growth initiatives corresponding to qualifications of graduates: industrial policies favoring existing talent to develop a competitive advantage • Morocco: Emergence Program DEMAND • Tunisia: Off-shore strategy and qualification label 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

9. High participation rate in vocational training correlates with low youth unemployment – dual systems do specifically well 1 2010, percent • Youth unemployment rate (age 15-24) • Spain • 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 • Estonia • Ireland • Hungary • Poland • France • Belgium • Finland • Czech Republic • Iceland • Denmark • Israel • Luxembourg • Germany • Austria • Netherlands • Norway • Enrollment in in-company vocational education1 1 In percent of the age cohort; 2 For a sample of 17 OECD countries that offer in-company vocational education systems SOURCE: OECD, Team

10. Model calculation for Spain: Under reasonable assumptions, apprentices and employers benefit from dual apprenticeship 1 • MODEL • Additional lifetime income for apprentices … • .. and Productivity premium for employers Employee life time payoff1, EUR Employer benefit per trained employee1, EUR • 975,000 • +22,000 • -41,000 • +150,000 • +44,000 • 825,000 • +25,000 • Untrained • employee • Trainedemployee • Productivity • premium2 • Lower labor • costs of apprentices • Training • costs • Net appren-ticeship premium • 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 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 SOURCE: OECD; McKinsey

11. Individual Coaching improves “soft skill” aspect of employability: TRACE1 Dispositive in France 2 • Impact • Personalized coaching up to 18 months³ • Program activated and monitored within local public networks • 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 • “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 1 TRACE: Trajet d’accès à l’emploi,troduced with 1998 Loi d’orientation relative à la lutte contre les exclusions 2 24 months underspecific conditions as of 2002 SOURCE: DARES Premieres Syntheses Information, december 2004

12. Sector-specific growth initiatives create sustainable employment opportunities 6 • Background • Approach • Impact • 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 • 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 1 Offshore Ready Label – industry-specific certificate for offshore industry developed with offshore cluster 2 Emergence Program – sector specific development strategy for 7 industries SOURCE: McKinsey

13. R&D ITO First degree in computer science + certificate(s) in information technology and communication (e.g. Microsoft) – list TBD “Offshore Ready label” is a specific certificate for working in offshore industry and was worked out with employers 6 • ILLUSTRATIVE • Offshore Ready label + 1 Higher education level 1 Certificate in French language - level B1 (at least) + • B1 level certified by the official test administrator 1 Certificate of internship Employers must be involved in deciding the content of training modules for job seekers seeking Offshore Ready certification + • Certificate for voluntary internships • Certificate for company internships 1 Technical certificate + BPO voice BPO Data Level B2 certificate issued by official test administrator • Certificates TBD (e.g. certificate in accounting or a short-list of recognized degrees) 12 SOURCE: project team, international experts

14. Proposed agenda A call for action Our core beliefs on youth unemployment Winning strategies: What other countries have done well 13

15. 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 To overcome youth unemployment, countries should … • FOR DISCUSSION • … Thoroughly analyze root causes of youth unemployment in the country, e.g. • … Design comprehensive program based on success cases, e.g. • If SOURCE: McKinsey EMEA Welfare & Employment KiP team

16. Backup

17. The McKinsey value proposition in employment Broad, global expe-rience in practical labor market advisory services Own, globally recognized think tanks on economics and public services Tested approach, standard diagnostics and bench-marking databases Broad sector and topical expertise Experienced practitioners McKinsey Center for Government • 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 • 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 • Over 110 standardized case studies, including internal and external experience • Proprietary diagnostic toolset • 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. • Ca. 60 consultants on all levels with a specialization on employment • 30 dedicated back-office researchers with an economics background SOURCE: EMEA Welfare & Employment KiP team 16

18. 12 1 • Overall high unemployment 11 2 • Long term unemployment 21 3 • Youth unemployment 8 4 • Elderly unemployment 12 5 • Female unemployment 6 6 • High vacancy rate 20 7 • Lack of employ-ability/ vocatio-nal training 29 8 • Governance and performance of institutions 12 9 • Effectiveness of instruments 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 # case studies by issue • McK engagements on employment • External case studies SOURCE: EMEA Welfare & Employment KiP team

19. 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. • Kai v. Holleben • 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. • Katrin Suder • 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. • Jörg Schubert Input for congress documents: Speaker Bios SOURCE: McKinsey

20. 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 Input for congress documents: Brief Summary SOURCE: McKinsey