Unemployment of young people in the UK has been steadily rising, reaching a record of 1.04m in December 2011.Observers in the UK and around the world, including the UK’s National Institute of Economic and Social Research and the World Economic Forum, agree that youth unemployment represents one of the most serious economic and social problem facing developed and developing economies alike.
In the UK approximately one in five young people actively engaged in the labour market (those defined as active), are looking for work but cannot obtain a job.
Globally some 75 million 16 to 24 year olds are unemployed. In some countries in the Arab world, up to 90% of 16-24 year olds are unemployed. Across the European Union, Spain tops the pile with youth unemployment of 47.1 per cent, with the lowest rate in Austria at just 7.3 per cent.
In the UK there are a 7.3m young people aged between 16 and 24 with roughly two thirds (4.8m) economically active and one third are economically inactive. The economically active are either working or available for and seeking work - that is either employed or unemployed, and the economically inactive are not available or not seeking work. Most of these are students (1.8m).
Youth unemployment in the UK has risen consistently during the last three recessions – in 1993 it was 15%, and by 2008 it has risen to 19%, with the latest rate at 22%. It is clear that the UK is suffering from a structural problem, as well as suffering severe bouts of demand deficient youth unemployment.
According to the Commission on Youth Unemployment, unemployed young people represents a financial time-bomb, with an estimated direct cost to the exchequer in 2012 of £4.8 billion and further costs to the economy of £10.7 billion in lost output.
Of special concern is the number of long-term unemployed young people – defined as looking for work for 12 months or more - and those referred to as ‘NEETS’ – not in education, employment or training. In the wake of last year’s riots, concern is also focussing on unemployment among young black people.
Causes of youth unemployment
It is clear that young people face a number of significant challenges when attempting to make the transition from education and training to the labour market.
While young people experience higher rates of unemployment than older generations their job security is lower, and they receive lower average pay. In addition, they are more likely to be employed on a part-time or temporary basis. Young people are also likely to be more proportionately affected by recession. Low-skilled youth show the highest unemployment rates. Ethnic minorities also seem to suffer higher rates of youth unemployment, although some economies fair better than others in this respect.
According to recent research undertaken at Manchester University, which compared the UK and the USA – unemployment affecting black youth was significantly higher in the UK. According to Professor Yaojun Li, unemployment figures for black men in the US over the last three recessions were up to 50% lower than in the UK. He believes that the affirmative action programme and requirements for public institutions to employ people from all sections of the population adopted in the US has helped reduce the unemployment rate among black people.
Many countries have introduced specific ‘active labour market policies' (ALMPs), including the provision of information and advice, the introduction of new types of employment contract and incentives to hire young people. Other policies include the provision of work experience and ‘job guarantees’. In many countries, specific vulnerable groups have been targeted, including early school leavers, disabled young people and those with few qualifications.In Austria, some 40% of young people go into work-based apprenticeships and many attend vocational colleges, where general education is combined with practical employment skills. Somewhat surprisingly, only 20% follow an academic programme.
In the UK, as in the 1980s and 90’s, recent government policy has focussed on supply-side incentives, including the introduction of a Youth Contract, which includes an injection of £1bn to get young unemployed people working or studying. It also includes wage incentives worth more than £2,275 for each 18-24 year old an employer recruits or provides with work experience placements. There are also 20,000 incentive payments to support employers who create apprenticeships and £126m to help teenagers into education, employment or training.
In 2010 the European Commission launched its Europe 2020 Youth On The Move initiative, to encourage young people to become more flexible and mobile, and to provide the young with better quality information across from across Europe.
What is clear is that while such supply-side policies are essential to remove rigidities and restructure the labour market, firms will only take on workers when they themselves experience an increase in demand and are confident that this will be sustained. Given the lack of demand across Europe it is unlikely that youth unemployment will begin to fall in the medium term.