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14 March 2011

Don’t ignore the lost generation

The coalition should stop playing with stats and do something about youth unemployment . . . and fas

By David Blanchflower

Last week, the Prime Minister conducted a secret brainstorming session at 10 Downing Street with business leaders, academics and civil servants to discuss the problem of youth unemployment. That is good news: the hope is that the coalition government will do something to fix the problem. So far, it has done the opposite by abolishing the Future Jobs Fund and the Educational Maintenance Allowance.

Hopefully, the Budget next Wednesday will contain some measures to help the young. But don’t hold your breath.

A major concern is that the government is responding to the problem by trying to lower the youth unemployment statistics rather than reducing youth unemployment itself. Iain Duncan Smith has apparently written to the Office for National Statistics, trying to get them to lower the figures. There remains a real danger that large numbers of youngsters will become a lost generation.

The classic error in such circumstances is to assume that there is no problem — and then find out that there is, when it is too late. Action is preferable to inaction.

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What do we know about youth unemployment? First, we know that long spells of unemployment when young can cause permanent scars. Work by the welfare reform expert Professor Paul Gregg at the University of Bristol has shown that this kind of scarring occurred in the 1980s recession in the UK.

Second, work by Lisa Kahn in the US has shown that if a recession hits when someone is between 18 and 25, this lowers their lifetime income because they enter lower on the occupational ladder and never catch up. This is true even for those who do not become unemployed.

Third, most youngsters do just fine: when the boom comes, they manage to find jobs. The ones who are especially impacted are those with the fewest skills, who are frequently from minorities in inner-city areas.

Fourth, high levels of youth unemployment tend to be associated with poor social outcomes, including increases in crime (especially property and street crime).

A note by John Philpott of the Chartered Institute of Personnel and Development, which he expanded on in a BBC interview today, suggested that the whole idea that there is a youth unemployment problem needs to be rethought. He commented that:

There is a common and correct perception that young people have been relatively adversely affected by the recession as employers have preferred to retain experienced prime age and older workers, thereby limiting opportunities for those entering the jobs market. References to “a lost generation” of young people, denied an initial foothold in employment and scarred for life in terms of later job and earnings prospects, are commonplace. But is the situation really as unprecedentedly bad as the headline figures suggest?

It is John, in case you hadn’t noticed. He went on to argue that this is much less of a problem than people think because:

The relative scale of youth unemployment is only properly understood in the context of consideration of the transformation of the youth labour market in recent decades resulting from greatly increased participation in post­16 education. This has had the effect of reducing the proportion of the 16­24 year age cohort active in the labour market, thereby raising the measured youth unemployment rate for any given level of unemployment.

Let’s look at that claim with some data from the attached table (see below). Of particular importance is what has happened since May 2010 when the coalition took office.

UK youth labour market

1. Since May 2010, there has been a fall in the number of unemployed youngsters who are in full-time education of 20,000 from 294,000 to 274,000. At the same time, there has been an increase in the number of unemployed not in full time education of 64,000 from 627,000 to 694,000.

2. The number of students in full-time education has fallen by 116,000 since May 2010.

3. Based on the latest labour market release from the rolling quarter of April-June 2010 to October-December 2010, overall employment increased by 98,000. In contrast, the employment of 16-24 year olds fell by 69,000.

4. The youth unemployment rate of those not in full-time education is 19.4 per cent (ie number unemployed/(employed + unemployed) which from the table is 691/(691+2871). That is approximately one in five of those not in full-time education. Overall, counting those in full-time education and those not in full-time education, the unemployment rate of those age 16-24 is 20.5 per cent. So Philpott is quite wrong to argue “that 1 in 8 young people are unemployed rather than the frequently cited but misleading figure of 1 in 5”.

So there is no youth unemployment problem then? Sorry, there is. And it is going to get a lot worse as the measures to help the young are removed. Stop fiddling with the statistics and do something about it before it’s too late.