Who do young people trust and why?

Trust and trustworthiness between individuals permit mutually beneficial interactions in the face of the inevitable incompleteness of information and contracts. The existence of such social capital also provides the foundation of individuals’ trust in institutions. It allows societies to overcome the inefficient outcomes associated with individual opportunism and myopic selfishness, boosting economic efficiency and economic growth. Being employed, being jobless, or having a temporary contract … Does this affect young people’s attitudes to trust and trustworthiness? And does it make any difference if you know the labour market status of the other person?

Indeed it does, on both counts. Those who have managed to find good jobs, along with those who choose not to participate in the labour market or education, are more trusting than students, while the unemployed and above all those who find themselves in precarious employment are the least trusting of all. Young people – whether employed or not – also showed strong signs of solidarity with those who did not have jobs.

Methodology

The questions were investigated using trust game experiments involving young people from three different European countries: Hungary (Budapest), Italy (Naples) and the UK (Oxford). Young workers, students and NEETS were brought into the laboratory, anonymously paired, and then asked to make decisions with immediate financial consequences both for themselves and for an anonymous counterpart about whom they initially knew only that they were also young.

Young people (aged 18-29) were drawn from outside the usual university background. This was one of several innovative aspects of the experiment as it is relatively unusual to undertake experiments on the general population rather than university students.

Trust games

In the trust game, the core element underlying the analysis, participants were divided into two groups: senders and receivers. Senders were given a sum of money and asked to decide how much of it to send to an anonymous partner (receiver). The receiver would receive any monies sent by the sender multiplied by three. S/he would then decide whether to reciprocate by sending back some or all of the money received from the sender. All these aspects of the game were common knowledge and, in a second round of the trust game, information was also provided on the labour market status of the counterpart.

The point is that decisions concerning the amount of money to send or send back were not motivated by knowledge of the personal characteristics of the partner, apart from – in the second round – their labour market status, but rather depended on the trust and reciprocity, in other words the social capital, of the participants.

A dictator game and a lottery choice

We also implemented a dictator game and individual decision problems such as a lottery choice in order to control for other motivational factors, including unconditional preferences (i.e., altruism and inequity aversion) and attitudes towards risk that might affect young people’s behaviour in the experiment. Moreover, we further combined the behavioural information derived from the experiment with survey-based data to enrich our understanding of the role of attitudes.

The central twofold purpose was:

1. to explore whether behavioural trust and trustworthiness are systematically affected by subjects’ socio-economic characteristics; and,
2. to test the extent to which behaviour is affected by knowledge of counterparts’ labour market situation. Perhaps young workers would display solidarity towards their unemployed colleagues, for example.

Our findings

Diversity of NEETS

The experiment produced various interesting results, as well as suggesting a number of possible avenues for further investigation. We found, in the first place, statistically significant differences in behaviour – of both senders and receivers – across countries and across labour market states. Econometric analysis allowed us to qualify this basic observation, and in particular demonstrated the importance of distinguishing amongst different types of NEETs.

Consequences of precarious employment

A second major finding is the relevance of precariousness in employment in its deleterious effects on behavioural trust. Concerns have regularly been voiced in recent years about the negative effects of the increasing prevalence of temporary employment forms on young people’s early labour market experiences; the results presented here appear to strongly support these concerns. Precarious employment appears to be at least as damaging to behavioural trust as unemployment, adding further support to those who would question the ever-increasing flexibilisation of youth labour markets.

The results of the analysis are consistent with, but also enlarge upon, existing findings in the behavioural economics literature. There are, for example, similarities in our results to those of Fehr et al. (2003) who found a negative impact of unemployment on behavioural trust amongst working-age adults in Germany. Unfortunately, the equally deleterious consequences of precarious forms of employment for social capital also emerge from our experimental analysis. This suggests that the rapid spread of such non-standard employment amongst young people in Europe today – and the predictability of the continuation of this upward trend – may also have consequences for long-term economic and social harmony.