Your location:

Youth Unemployment: cyclical and structural concerns

    Yesterday’s youth unemployment figures look shocking. There are now 1.02 million 16-24 year olds out of work, 21.9% of the economically active population. 730,000 of these are not in full-time education.

    With headlines and information like this bumped out on a monthly basis, the fear felt by young people is perfectly understandable. Opponents of the Coalition government have sought to use the scrapping of Educational Maintenance Allowance and the effects of increased tuition fees, which transfer more of the cost of education to the individual or their family, as evidence that we are gearing up for a period of reduced opportunity for young people.

    In fact, in order to understand the causes of youth unemployment we must make a distinction between structural and cyclical effects. Youth unemployment has been increasing in the UK since 2004, suggesting an underlying problem, but there has been a large jump in the number of workless young people since the onset of the financial crisis and subsequent recession.


    Graph of unemployment rate

    The jump is not an unusual effect for a recessionary period: when the job market is more competitive, employers are likely to select candidates with strong experience over those with little. Furthermore, young people are bound – on average – to have much less experience of searching for jobs effectively and of preparing for interviews.

    But youth unemployment also tends to be higher than aggregate unemployment even outside of recessions. Young people tend to be unsure about what they want to do and so suffer much more from short-term ‘frictional’ unemployment associated with job change. They also tend to be less mobile, due to a lack of resources which deters them from moving to match themselves with jobs in the first place.

    The cyclical component of the current high youth unemployment rate will therefore tend to lag behind general employment growth. We would expect the rate of youth unemployment only to begin to fall when the economy starts growing significantly. The key danger at the moment is that sluggish growth over a good number of years might lead to a significant number of young people who have never experienced work, leading to a so-called ‘lost generation’.

    It is therefore crucial that the Government seeks to adopt strong pro-growth policies wherever possible. But more than that, the Government must examine the structural factors behind youth unemployment, because there is much qualitative evidence to suggest that conditions for young people are worse now than they have been in previous recessions: there are far more labour market regulations than existed previously, alongside evidence to suggest that basic skills deficiencies have been exacerbated. As mentioned above, youth unemployment was increasing even in the ‘good years.’

    A package for dealing with youth unemployment therefore requires both ordinary pro-growth policies alongside policies to overturn current barriers to youth employment in the jobs market and policies to improve job search and job match.

    Not all of the policies to break down barriers will be universally popular. In a paper for the CPS released today, Dominic Raab MP suggests suspending Minimum Wage legislation for under 21s working for small businesses, for example. Canadian research shows a minimum wage greater than 45% of the average wage hurts the employment prospects of low earners. For 18-21 year olds, the minimum wage is 65% of the average for their age group, and for 16-18 year olds it is 76%. The minimum wage is simply pricing many young people, without significant job skills or experience, out of the jobs market. We have an absurd situation where young people can work for free (on an internship) or at the minimum wage rate, but nowhere in between. Many of the poorest youngsters, who cannot afford to take an internship but can’t find work at the NMW rate, are left stranded.

    Likewise, employment regulations that reduce the likelihood that firms will hire young workers, such as the Agency Workers Directive, restrict the ability for young people to gain vital experience.

    In terms of the more structural barriers, a short-run priority remains improved job search and matching provision. International evidence presented in Conditions for Growth suggests that services such as deep counselling, job-finding incentives and search assistance should be combined with increased monitoring and sanctions for non-compliance. For those longer-term unemployed, getting the individuals into public training programmes can be effective but the programmes should be small and directed carefully at the needs of job seekers and local employers. Private sector incentive schemes, such as the Work programme, have been shown in other areas to yield significant results but, again, these must be short programmes and closely monitored.

    The nature of education and training is also important. The BBC Newsbeat survey recently highlighted the views of many employers and universities on the standards of basic skills for school leavers. Despite GCSE and A-level results seemingly improving year on year, half of the firms completing the survey claimed that the UK’s education system was not leaving young people well trained enough to work at the companies cited.  Susan Anderson, of the Confederation of British Industry, has recently said, “Too many young people are leaving school without meeting the basic levels of skills in maths and English which are fundamental for work.” Michael Gove’s recent introduction of the English Baccalaureate is therefore a welcome innovation. But it is vital that these basic skills deficiencies are actually eliminated over the coming years, particularly in an increasingly global jobs market.

    Finally, if the Government is serious about rebalancing the UK economy back towards manufacturing, then it needs to ensure competitive apprenticeship and vocational training structures exist. More of a challenge, however, will be a change of culture. I recently saw that when asked to name a famous engineer, many school children said “Kevin Webster” from Coronation Street. The fact that a fictional soap mechanic was frequently cited suggests we have a long way to go before we have a population of young people aspiring to technical professions.

    There’s quite simply no silver bullet here – and attempts to attribute blame or short-term causes miss the point. A combination of the economic situation, regulation, skills deficiencies, job search techniques and attitudes all contribute to our current plight. Comprehensive analysis of solutions requires that all these factors are considered.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

    Be the first to make a comment

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.