The unknown effects of youth unemployment
by Matt Grist
We predicted back in February that youth unemployment would continue to rise to around 1.2 million and might stubbornly stick around that level. Unfortunately, it looks like we might be proved right. Today’s figures show 1.027 million young people unemployed, with a scary 40 per cent of the young unemployed out of work for 6 months or more. Things are being done to counter this trend - the Deputy Prime Minister recently announced some supply-side measures to target youth unemployment (specifically, job subsidies in the private sector). Time will tell if these bring the unemployment rate down for young people (now at a record 22 per cent).
We have made our own recommendations about what to do to tackle the UK’s long-term problem with youth unemployment. But policy reform of the labour market and the education system that feeds it can only go so far. What really counts is economic growth to create jobs in the first place. And it doesn’t look like there will be very much of that for quite a while.
And this brings me to my point. We tend to think of policy responses to a problem in terms of current features of a situation we presume will stay constant. But in fact, when a problem is long-term and far-reaching, the situation that surrounds it will inevitably change, sometimes radically. What might change about the context of youth unemployment?
Economically speaking, what seem like secure truths may well become untruths. It is taken as lore, for example, that having more older workers and immigrants in the economy only marginally affects the youth unemployment rate. Intuitively, one would think ‘job-blocking’ and an increased supply of labour would raise unemployment amongst the young, but this hasn’t proved to be the case. Why not? Largely because in a service economy, people can just keep paying for more services and thus creating new jobs; and in an economy with strong consumer demand, people can keep on buying more goods, thus creating more jobs. Yet both of these forms of consumption were based on easy credit and asset-price bubbles, precisely things that will not be part of the economic landscape again for quite some time (we hope).
So it may be no longer safe to assume that more older workers and more immigrant workers won’t keep young UK citizens out of work. That could change the way we think about work – more as something we need to share out amongst citizens and spread out across the life-cycle, than as something that just springs into being in a globalised, flexible economy. But it may also change the way young people feel about work too. In short, young people might have reason to get much angrier than they currently are, as it becomes more and more apparent that they are being screwed by the economy, and that old assumptions about the return of growth are no longer tenable.
With this changing economic and social context, who knows what the effects of long-term youth unemployment will be. All we can be certain of is that they will see to the tumbling of a few pieces of received wisdom.