House of Commons - Youth Unemployment and the Youth Contract

Youth Unemployment and the Youth Contract - Work and Pensions Committee Contents

2 Youth unemployment trends

9. Youth unemployment is not a new problem. Successive governments have tried to tackle the issue but with limited success. Youth unemployment has not fallen below 500,000 in the last 30 years and at least one in seven young people has been out of education and work at every point during that period.[6] The youth unemployment rate is invariably higher than the unemployment rate across the whole of the population. In part this is because younger people tend to move more frequently between jobs as they try to establish their careers; therefore at any given point in time young people are more likely to be out of work.[7] However, there are also cyclical and structural elements to youth unemployment and variations according to geography and between social groups. This chapter seeks to set current youth unemployment levels and rates in context by considering some of the main youth unemployment trends since the 1980s.

Measuring unemployment[8]

10. Statistics on youth unemployment are compiled and presented in a number of different ways. It is important to note some of these differences as each measure produces very different headline statistics.

11. International Labour Organization (ILO) unemployment is the standard, internationally accepted measure which includes everyone, including full-time students, who is not working but is looking for and available for work. The ILO definition of unemployment takes no account of whether or not people are claiming state benefits and can include, for example, carers, lone parents and disabled people. It is measured using the Labour Force Survey (LFS), from which the Office for National Statistics (ONS) produces the official ILO unemployment figures. Since 1992 the ONS has used the LFS to produce quarterly labour market data every month. The data have a two-month time lag, so for example the LFS data published in July 2012 covered the period March to May 2012. The data are also subject to sampling variations and cannot be broken down to a sub-regional level; however, it is generally accepted that they give the most complete picture of unemployment.

12. The claimant count is published monthly by the ONS and is simply a snapshot of the number of people out of work and claiming Jobseekers Allowance (JSA) on a particular day in the previous month. Claimant count is therefore the most accurate and up-to-date information. It also has the advantage that it can be broken down to a more local level. However, it cannot reveal the full extent of unemployment. This is partly because the eligibility rules for JSA have been significantly tightened over recent years—people with working partners or significant financial savings and most 16-17 year-olds are not entitled to JSA, for example. Claimant count is also sensitive to policy changes that can affect who is and is not included, which can distort comparisons over time (see below). It also excludes a large number of Incapacity Benefits and Employment and Support Allowance claimants, some of whom may be seeking work whether or not it is expected of them.

13. Economically inactive people are neither employed nor unemployed. They do not work but are not seeking work and are not available for work. This includes, for example, most full-time students and some carers, lone parents, people with health conditions or disabilities and people who have retired early. Economically active people are either employed or unemployed according to the ILO definitions and together make up the "labour market".

14. The unemployment rate is the percentage of the economically active population who are unemployed according to the ILO definition. This is distinct from the unemployment proportion which is the percentage of the entire (or particular subset, such as all 16-24 year-olds) population who are ILO unemployed.

15. NEETs are defined as people aged 16-24 years old who have left full-time education and are not in employment or training. NEETs are a diverse group including young people who may have been excluded from school and have no qualifications and university graduates who have been unable to find work or are between educational courses. DfE publishes "authoritative national estimates" of the number of NEETs in England annually and in-year quarterly estimates based on LFS data.

The cyclical impact of recessions

16. Youth employment has been described as "ultra sensitive" to the economic cycle. In difficult economic times job vacancies become scarcer, employers tend to keep hold of experienced staff and entry-level recruitment is scaled back. It can also be easier and cheaper to make younger workers redundant. All of this adversely affects young people, who have tended to suffer disproportionately during recessions.[9]

17. It is clear that young people's employment was adversely and disproportionately affected by the 2008/09 recession. The Centre for Economic and Social Inclusion (Inclusion) illustrated that ILO youth unemployment "not only rose by nearly twice as much as it did for older people during the recession (as a share of the population) but it has accounted for nearly all of the increase since 2009."[10]

Figure 1: Percentage point change in proportion of population unemployed

18. Employment of young people tends to rise quite rapidly once the economy and labour market recover after a downturn. The Chartered Institute of Personnel and Development (CIPD) noted that under-25 year-olds were recruited to two-thirds of the new jobs created when the economy showed signs of recovery between the second and third quarters of 2010, for example.[11]

19. After the falls in 2010, there was a return to rising ILO youth unemployment which reached a peak of 1.04 million in the period December 2011 to February 2012. It then fell slightly in each of the subsequent four sets of labour market statistics to stand at 1.01 million in April-June 2012, a youth unemployment rate of 21.5%.[12]

20. A great deal of media coverage of youth unemployment since November 2011 has focused on the ILO 16-24 year-old unemployment figure exceeding 1 million "for the first time since records began".[13] However, as noted above, quarterly LFS statistics have only been published as a consistent and continuous series since 1992, when the economy had just emerged from recession. This was followed by a long period of economic growth before the 2008 financial crash, the subsequent and ongoing Eurozone crisis and the first UK double-dip recession since 1975.

21. In absolute terms there are more ILO unemployed young people today than there were in the 1990s but almost certainly significantly fewer than there were in the 1980s. According to the ONS—after taking account of changes in the way unemployment has been measured since the early 1980s—there were 1.2 million unemployed 16-24 year-olds in spring 1984, an unemployment rate of 19.6%. Youth unemployment following the early 1990s recession peaked at 924,000 (18.3%) in 1993.[14]

22. Direct comparison of ILO youth unemployment rates over time is further complicated by rising participation in post-16 education. In 1992 some 75% of 16-24 year-olds were economically active; in 2010 the equivalent proportion was 64.2%. A shrinking youth labour supply, as post-16 participation rates have increased, has significantly raised the unemployment rate for any given level of ILO youth unemployment. This effect was illustrated in a paper published by the Chartered Institute of Personnel and Development in 2011:

Table 1: Labour market status of young people aged 16-24, 1992, 2008 and 2010 (thousands)[15]

23. Of the 1,023,000 unemployed 16-24 year-olds in April-June 2012 some 299,000 were full-time students and 724,000 were not in education.[16] DWP noted that the ILO youth unemployment number excluding students is currently lower than in previous recessions: the number of young unemployed people excluding students peaked at over 1 million in 1984 and 830,000 in 1993. The unemployment proportion (of the entire 16-24 year old population) is currently around 10% compared to 12% in 1993 and 14% in 1984.[17]

Long-term ILO youth unemployment

24. A number of witnesses noted with concern that there had been a sharp rise in longer term youth unemployment since 2008.[18] DWP highlighted that the number of 16-24 year-olds unemployed for a year or more (using the ILO definition) had increased from around 100,000 in 2008 to 250,000 in 2012.[19] This is the highest level since 1994.[20]

Long-term youth claimant count

25. There have also been large fluctuations in long-term 18-24 year-old claimant count during the downturn. In 2008 there were around 6,000 young people who had been claiming JSA for more than 12 months. This figure had risen to over 28,000 by May 2010 before falling, for 11 consecutive months, to 16,600 in April 2011. A steady rise then saw the figure reach 60,000 by April 2012.[21]

26. The Minister for Employment told us that "there has been no significant increase in long-term youth unemployment in the last two years".[22] He was in fact referring to long-term youth claimant count. As noted above, claimant count is very sensitive to changes in state benefits and welfare-to-work policy. The Minister was keen to point out that policy changes have increased the long-term youth claimant count since 2010. Principal amongst these changes is the introduction of the Work Programme—the Government's single mainstream contracted welfare-to-work programme—from summer 2011. The Work Programme replaced the previous Government's New Deals and other contracted employment programmes. The Government also terminated the previous administration's Young Person's Guarantee, including the Future Jobs Fund (YPG/FJF, see chapter 4) from March 2011.

27. Under the New Deal for Young People and later the YPG/FJF, 18-24 year-olds were given a full-time training, work experience or temporary subsidised job placement after 10 months on JSA. These young people were paid a training allowance (or government-subsidised wage in the case of the FJF) and stopped claiming JSA. They were therefore no longer included in the claimant count. If these young people returned to JSA after their placement, the JSA claim was treated as new, which limited significantly the number of claimants reaching 12 months on JSA.

28. Under the arrangements introduced by the current Government, young people referred to the Work Programme or the Jobcentre Plus Work Experience scheme remain on JSA until they move into regular paid employment, which has had a significant impact on the long-term claimant count. A DWP research paper concluded that:

It should also be noted, however, that there is evidence to suggest that around 43% of FJF participants sustained a job seven months after starting their initial six-month subsidised placement, the majority with the same employer.[24]

29. The argument about numbers distracts from the more important question of what is on offer for those who are long-term unemployed. Young people now undertaking short-term work experience or referred to the Work Programme remain on JSA and are therefore part of the claimant count. The quality and effectiveness of the programmes on offer to them is the most important issue.

Regional variations during the recession

30. There are significant regional variations in youth unemployment and claimant count. In 2010/11 the youth unemployment proportion ranged from around 10% in the South West to 14.5% in the North East. The proportion of the youth population claiming JSA ranges from 5.5% in the South East to 11.5% in the North East.[25]

31. Variations are much larger at a sub-regional level. The CBI reported "enormous" variations in youth unemployment rates between local authority areas. It highlighted data from the Annual Population Survey which suggests that youth unemployment in Huntingdonshire was 7.7% in September 2011 compared to 73.4% in North Warwickshire, for example.[26]

32. DWP appeared to downplay regional variations, noting that current variations are less marked than after previous recessions and also that all regions have seen a rise in youth unemployment since 2008.[27] However, Inclusion highlighted claimant count data that show that local authority areas which had the highest levels of youth claimant count prior to the downturn have seen the largest increases since 2008.[28]

Minority ethnic groups

33. There are some striking variations in youth unemployment figures according to ethnic group and there have been disproportionate rises amongst some groups during the current downturn. This is particularly true of young black men. Runnymede Trust reported ONS statistics that showed that 55.5% of economically active black men aged 16-24 were unemployed and that this figure had almost doubled since 2008 (see chapter 6).[29]

NEET levels

34. As noted above, participation in post-16 education has increased greatly over the past four decades. NEET rates are consequently lower now than in the 1980s. More than 18% of 16-18 year-olds were NEET in the mid-1980s compared to around 10% now.[30]

35. Despite increasing educational participation, falling youth employment since 2008 has been accompanied by a rise in the overall number of NEETs. Statistics on NEETs reflect large seasonal variations linked to the academic year; in particular, numbers peak during the summer after young people leave school. However, comparison of Quarter 4 data since 2008 shows a steady rise in the total number of NEETs over the course of the downturn. At the end of 2008 there were an estimated 853,000 16-24 year-old NEETs; by the end of 2011 there were 958,000.

36. Within this group, the number of 16-18 year-old NEETs was the same at the end of 2011 as it was in 2009: 178,000. This is because the fall in 16-18 year-old employment has been largely offset by a rise in educational participation by that group. The overall rise in 16-24 year-old NEETs is therefore accounted for by a steady rise within the 19-24 age group—from 647,000 in Q4 2008 to 780,000 in Q4 2011.[31]

37. NEET rates also vary widely across England, particularly at a sub-regional level. Research by the Work Foundation found that NEET rates in "hotspot" towns and cities such as Doncaster, Grimsby, Warrington and Wigan were as high as 25%. This compares to rates under 10% in Oxford, York, Plymouth and Cambridge, for example.[32]

Evidence of a structural element to youth unemployment

38. There was consensus amongst expert witnesses that a return to economic growth would be "a very large part of the answer" to youth unemployment.[33] However, it was also noted that youth unemployment began to rise in the mid-2000s, prior to the economic downturn, suggesting a structural element to the problem in addition to the cyclical impact of the recession.

39. The UK Commission for Employment and Skills (UKCES) pointed to evidence of two key structural changes in the economy. The first is in the types of jobs available. Since 2001 there has been stagnation or decline in the types of administrative, sales and "elementary" occupations that disproportionately employ young people. These types of employment have also been adversely and disproportionately affected by the recession. Furthermore, little or no growth is forecast in these occupations for at least the rest of this decade. In contrast, occupations that have grown over the same period include "managers, professionals and associate professionals", all of which are much less likely to employ young people, particularly those with lower qualifications.[34]

Figure 2: Long-term employment trends affecting young people[35]

40. The second structural change is the rising share of private sector employment in smaller businesses in the UK economy. Between 1998 and 2010 the share of private sector employment in large businesses of 250 or more employees fell from 50% to 40%. Over the same period the proportion in micro-businesses rose from 11% to 22%. This trend is likely to be further disadvantaging young people as there is evidence that smaller businesses tend to favour recruitment of more experienced workers. They also tend to have more informal recruitment processes, placing a premium on good contacts which younger people are less likely to have.[36] Chris Bowman, Managing Director of a small engineering company, told us in oral evidence that his youngest employee was in his early forties.[37]

41. It is clear that youth employment has been adversely and disproportionately affected by the economic downturn since 2008. This in itself is unremarkable and accords with trends following the recessions of the 1980s and 1990s. Substantial recovery in youth employment rates will to a large extent depend on a return to economic growth and resultant increase in the number of jobs available. However, we welcome active Government intervention in the youth labour market now to try to ease the labour market disadvantage currently faced by a significant proportion of young people.

42. Not all of the increase in youth unemployment can be explained by the economic downturn; youth unemployment was rising prior to the 2008/09 recession. Government policies will therefore also need to address disadvantages experienced by young people as a result of structural changes in the economy in recent decades. These conditions are forecast to continue and we believe that it will therefore be vital for the Government to focus on preparing young people for the types of vacancies likely to be available in the economy and on encouraging small businesses to recruit younger workers.

43. Government policies will need to recognise and address regional and sub-regional variations in youth unemployment by focusing the available resources on areas where it is most difficult for young people to find work. We also believe action is required to address disproportionately high youth unemployment rates amongst some minority ethnic groups, in particular young black men.

44. We examine the likely effectiveness of the Government's measures in pursuit of these aims in more detail in the subsequent chapters.

6 Q 2 [Tony Wilson] Back

7 See, for example, CIPD, Getting the measure of youth unemployment, March 2011 Back

8 Adapted from Youth unemployment statistics, Standard Note, SN/5871, House of Commons Library, April 2012 and the ONS Labour Market Statistics Hub, www.ons.gov.uk. See also Inclusion, Youth Unemployment: A million reasons to act?, November 2011, p 12 Back

9 See CIPD, Getting the measure of youth unemployment, March 2011 Back

10 Ev 98 Back

11 CIPD, Getting the measure of youth unemployment, March 2011, p 4 Back

12 ONS, Labour Market Statistics, August 2012 Back

13 See, for example, "Youth unemployment hits 1 million", The Guardian, 16 November 2011 Back

14 ONS, Characteristics of young unemployed people, February 2012, p 2 Back

15 CIPD, Getting the measure of youth unemployment, March 2011, table 1 Back

16 "Jobs continue to be created leading to rise in employment", DWP press release, 18 July 2012 Back