Westminster Blog

This Wednesday, unemployment among 16-24 year-olds is expected to top 1m people, its highest since records began in 1992. This has triggered a lot of anxiety and head scratching in government circles, prompting a whole week of events this week focusing on young people. That began today with David Cameron’s article about schools that are not failing but neverthless are “coasting” and need to be improved.

Why is youth unemployment so high? The first thing to say is obvious: there is a recession. It is true that youth unemployment has risen faster than overall unemployment, but this always happens in a recession, for two reasons: 1) employers are reluctant to lay off older workers, because of higher redundancy payments and “last-in-first-out” policies; 2) the first thing many organisations in difficult times do is stop recruiting, especially younger people.

As you can see from the table below, the figures were nearly this high immediately after the recession in the early 1990s. And while it is true that the number of young people unemployed is about to hit a record, that tells us little more than the fact that the labour force is bigger than ever.

But while this is all cyclical and will hopefully be eradicated once economic growth returns, there is a deeper structural problem as well. Since 2004 there has been a noticeable uptick in the number of young people out of work. In fact, as a general trend, it can even be traced back to 2000. The table below shows that more clearly.

So why has this been happening? The most authoritative study on this comes from Prof John Van Reenen of the LSE’s Centre for Economic Performance. He suggests a few possibilities:

Immigration

2004 also happens to be the year the EU enlarged to take on an extra eight countries from central and eastern Europe. Put crudely, did they take all our young people’s jobs?

The answer to that appears to be no. While there is a positive correlation between the number of young people out of work and the share of immigrants in London, that correlation is not repeated elsewhere in the country. If a higher share of immigrants caused greater youth unemployment, you would expect it to do so everywhere, so it seems more likely that this is a statistical quirk.

New Deal

Labour started the New Deal for Young People in 1998, which gave all 18-24 year olds out of work for six months or more a personal job adviser. According to one evaluation, this reduced joblessness in this group by 20 per cent. So when in 2004, the government’s focus shifted from young people to lone parents and those on incapacity benefits, that may have been a reason for youth unemployment to start rising again.

Minimum wage

In October 2004, the minimum wage was extended to cover 16-17 year olds (except apprentices). Could this have been a trigger?

Quite simply, no. When the minimum wage was extended in 2003, it had minimal impact. What’s more, unemployment rose from this point even among 16-17 year-old apprentices, who were exempt from the extension.

Skills

Even though the number of educated people coming onto the jobs market has risen dramatically in the last decade or so, wages for qualified people have been rising too, more quickly in fact than those for relatively unskilled people. This would suggest there has been a boom in the demand for skilled workers, which might count against young people with less experience.

This apparent skills gap is Number 10′s favourite explanation, as evidenced by David Cameron’s article in the Telegraph today focusing on “coasting schools”. But the problem with the explanation is that youth unemployment was falling during the 1990s and the early 2000s, even though the increase in demand for skilled jobs was going on then.

Why Number 10 might be looking in the wrong place

The most persuasive of these explanations appears to be the shift in focus on the part of job centres from young people to lone parents and those claiming IB. If that is the case, perhaps ministers should look a less at education and more at the benefits system for how to avoid creating a “lost generation”.