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Jonathan  Wright

Too little, but not too late? A reaction to yesterday’s youth unemployment announcements

Authors: Jonathan Wright Jonathan Wright

13 May 2011

In recent months there has been a rather sterile debate about whether or not youth unemployment is better or worse than it has been in the past. However, 963,000 16-24 year olds unemployed is still a significant amount - the highest levels since records began (in 1992) - and something needs to be done about it.  
Yesterday, the Coalition responded with a £60 million package to get more young people into employment. They have also accepted the recommendations of the Wolf review (to make sure all young people have adequate levels of English and maths by the time they are 19). This is clearly welcome.

In March I blogged about the interventions announced in the 2011 Budget to tackle youth unemployment. 50,000 extra apprenticeships were announced, taking the total to 250,000. The government will also fund 100,000 work experience places, and the number of University Technical Colleges will be doubled to 24. The announcements yesterday went further – including a £10 million innovation fund for voluntary and community organisations to tackle the issue of NEETs. The government also praised the “100 large companies” that have pledged to provide work experience placements.

But critics cite the abolition of the Future Jobs Fund (a £1billion package introduced by the previous government to help young people into work) as sending a different message. We also await the effect that cuts to educational maintenance allowance will have, and the trebling of tuition fees. These developments may discourage young people from entering education, adding to an increasingly competitive labour market.  Not to mention the disproportionate effect that public sector cuts might have on young graduate employment outside of the Greater South East.

In addition, the scale of investment seems relatively small compared to the magnitude of the task that lies ahead; especially given the short and long-term implications of neglecting to deal with youth unemployment.

We know that periods of unemployment at an early age can lead to wage scarring later in life.  This isn’t just bad for the individual; it can be bad for everybody, and cause long lasting problems for the economy – in terms of lower productivity and economic output. Levels of youth unemployment in the UK overtook the OECD average in 2006 and the ratio between youth and adult unemployment is much higher than in comparator countries; with clear implications for our long-term international economic competitiveness. There are also negative social outcomes associated with youth unemployment – a Prince’s Trust report published in 2007 stated that youth crime costs £1 billion a year.

Finally, any intervention needs to recognise the complexity of youth unemployment in the UK. This includes the difference between graduate and non graduate youth unemployment (the unemployment rate increased faster for graduates during this recession); youth unemployment/NEET rates in different parts of the country (a young person is much more likely to be unemployed in the West Midlands compared to the South East for example); and whether or not we are dealing with a cyclical or structural problem (youth unemployment is highly sensitive to the business cycle but has been rising since the boom period of 2003/2004).

The chart below shows that despite participation in full-time education increasing since 1992, the proportion of young people not in full-time education and workless has been rising throughout the 2000’s and it now stands at over 20%. The risk of being workless for a young person not in full-time education is now five percentage points higher than it was during the last recession – over 1.4 million people.

Scandalous or ‘unremarkable’, youth unemployment does not appear to be going away – this is not just damaging for the individuals concerned, but for the long-term economic competitiveness of the UK. The Coalition’s decision to take action is welcome, but £60 million is insignificant in comparison to the size of the problem. We will be looking more closely at youth unemployment and NEETs over the coming months, to understand why the problem is not going away and to find solutions that will make an impact. For now, we know that what’s on offer from the Coalition is too little - but it isn’t too late to do more, and the sooner the better.

Comments in Chronological Order (Total 2 Comments)

Sauncho Smilax

13 May 2011 2:12PM

The removal of the EMA will be disastrous in the long-term as well - the policy was based on "one of the most extensively evaluated pilot programmes of any government programme" (for Tory policy-makers - a pilot is when you try out an idea before implementing it across the country), which found that "EMA had a significant impact on both participation and attainment".

Jonny Wright

16 May 2011 5:45PM

Indeed - evidence published by the Institute for Fiscal Studies in 2009 found that EMA (a means tested benefit for 16-19 year olds who stay in education) had a 'substantial' impact on participation rates in post 16 education - for example it 'increased the proportion of eligible 17-year-olds in education from 54% to 61%.' The £530 million intervention will be replaced with a £180 million bursary scheme - but in the longer term it is likely that these savings will be outweighed by the potential loss from lower productivity, tax base etc as a result of decreased participation today and the associated scarring effects.