Youth unemployment frequently makes it into the headlines. It is an issue that many young people here in the UK – and elsewhere in Europe – have been struggling with ever since the 2008 financial crisis, and even before then.
Maarten van Schaik is joined by Callum Biggins, author of A Demanding Job. Finding sustainable employment for Britain’s youth for the London-based liberal think tank CentreForum. As an institution trying to promote liberal thinking in the UK, CentreForum works on four different themes – Education and Social Policy, Globalisation, Economics and Liberalism.
Maarten started by asking Callum about his personal motivations for picking a topic like youth unemployment to write a research paper on.
Callum Biggins: Youth unemployment is a very topical issue, and one that is quite politically sensitive. While I was writing the report, the level of youth unemployment (ie those not in education, employment or training) went over the psychologically important one million threshold. So, it was a topical issue and we at CentreForum thought we should write our response to it, our critique of it, saying why youth unemployment was at such high levels. And, more importantly, suggesting what the government could do to tackle this growing problem.
MvS: You just mentioned there are over a million young people unemployed. What kind of people are we talking about here?
CB: Well yes, that was one of the central contentions of the report. We found that the reporting of youth unemployment tended to describe unemployed young people, that is those aged sixteen to twenty-five, as one homogeneous group. However we found that, somewhat unsurprisingly, youths in this range vary quite substantially in terms of their characteristics. For instance, we found that youth unemployment has been relatively static for those aged sixteen and seventeen between 1993-2011 – hovering round about ten per cent. This said, unemployment has been rising steadily for this group since the financial crisis, so since 2008.
We also found that unemployment varied significantly by education level as well as by age. So, those with low skills or a low qualification are far most likely to be unemployed. We also found, and this was the most pressing concern, that twenty per cent of those over 18 who are unemployed are skilled to a very low level and this has not increased at all since 1992. So that suggests education is failing some young people.
MvS: In your report there is a fairly substantial section about the scarring effects of unemployment for the youth. Could you expand a little bit more what you exactly mean by scarring and what different types of scarring there might be?
CB: Obviously, no matter when you get unemployed during your economically active life you are going to be scarred as a consequence of it. We found that these effects are particularly severe during your youth.
Research has shown that, during sustained periods of youth unemployment, you are more likely to have lower future wage earnings later on in your economically active life, as well as an increased probability of future periods of unemployment. More specifically, research by Gregg and Tominey show that a wage scar between twelve and fifteen per cent occurs following a period of youth unemployment . Further still, the scarring effects are evident up to twenty years after the initial period of unemployment. So, if you put that in some sort of context, you have got someone who is unemployed at the age of seventeen, but by the age of thirty-seven, they are earning twelve to fifteen percent less than their peers, just because they were unemployed at the age of seventeen. So obviously youth unemployment, as well as having consequences here and now for the Exchequer and the tax payer, also has significant consequences for the person involved.
Secondly, the scarring following youth unemployment is the social and emotional consequences. So this means the impact of youth unemployment transcends the economic sphere. Research suggests health and social issues following a period of youth unemployment are commonplace. So a sustained period of youth unemployment is widely believed to have a significant impact on the future – on the individual’s future happiness, job satisfaction and personal health.
MvS: So those with limited education and low initial work skills are the ones hardest hit by youth unemployment. Do you think the changing make-up of economies in Western Europe, and the UK especially, over let’s say the course of the last decades, with more and more companies choosing to set up shop elsewhere in the world, might play a role here? To some it may seem that with the changing economy there is just less of a demand for lower skilled labour here in the UK, and they would see the rise of the levels of those in higher education as a sign of that. Do you think the idea of the UK moving towards a society where there is more of a demand for higher skilled labour is a correct one?
CB: I would not say it is more to do with a higher education. I still believe there is a place in the modern economy for those people who decide not to go into higher education or further education. The point of the report, a large part of the report even, was to dispel many of the common myths. So for instance, if you pick up a standard paper, you may happen to read an article about EU migration having a negative effect on the ability for young people to find jobs because EU migrants are taking those jobs. Our research found that was not the case. Our research found it was the lack of demand by employers for low-skilled jobs in the manufacturing industry that was contributing to the high levels of youth unemployment. There was also quite a large rhetoric concerning the employability of young people and whether or not the school curriculum accurately reflects the needs for employers.
MvS: Another thing that seems to pop up when people are debating or discussing youth unemployment, and it does not really matter whether you read about it in a newspaper or are discussing it with friends in a pub, is the idea of some sort of ‘free rider’ effect i.e the idea of having young people in unemployment as a result of the welfare system in place in the UK. It is an argument I hear in the Netherlands often as well. It is the assumption that social benefits have a negative impact on youth unemployment, that they take away the incentive for you people to look for jobs. Do you think these assumptions have any truth to them?
CB: For a large majority of the population in the sixteen to twenty-four age bracket it doesn’t apply. I think the major problem is, is that in the past thirty years or so there has been an increasing shift towards kids staying at home with their parents post sixteen education. So this, in effect, disincentivises them to look for work immediately and stay on in higher education or whatever when it may not be the right thing for them to do. It was also currently against them not getting practical work experience because their parents can give them pocket money where in bygone generations you might have been on a paper round at six-thirty every morning before school.
MvS: In 2012 we reached the staggering number of over one million young people in unemployment right now. Could you expand a little bit about what kind of impact that has on the UK’s economy?
CB: Well, we calculated that in total it costs the Exchequer five billion in terms of welfare payments but also it costs the economy ten billion pounds in lost economic output through these people being economically inactive or underemployed.
MvS: So clearly we are dealing here with a problem with not just direct costs but also we see loads of missed income out of taxation, as a result of wages…
CB: Aside from the direct economic costs of it there is also a large societal cost in terms of scarring for the young people.
MsS: I was wondering whether you could explain some of the attempts undertaken in the recent years to tackle youth unemployment and why you think these attempts might or might not have had the desired effects?
CB: Obviously, youth unemployment is hardly a new phenomenon. The Labour government made persistent efforts to tackle it – their first initiative was the New Deal for Young People and the second one was the Future Jobs Fund. We believe that both of these initiatives failed to accurately target the problem. To an extent they were kicking the can down the road. They weren’t providing long-term sustainable opportunities for young people to find employment.
MvS: A very considerable section of your report is a comparative study of the approaches undertaken here in the UK in Manchester and the system used in the Netherlands. Could you explain what kind of measures were put in place and why you think these were more successful than the way it is usually approached in the UK at present?
CB: Firstly taking the Manchester example. The case study we looked at was under the Labour government where the Future Jobs Fund was in place. And we found that in the Manchester there was a greater involvement of all stakeholders within the process. So rather than it just being a government-led initiative, they also actively engaged with local employers to ensure that they were able to establish a wide range of public, voluntary and community sector partners to provide employment opportunities for unemployed young people in Manchester. So, under this initiative fifty-five per cent of the participants under the Manchester scheme were either in employment including apprenticeships, in education or volunteering. So in practical terms this means over eight hundred people become re-engaged with the labour market. Contrast this with the outcomes for Greater Manchester (39%) and nationally (43%). So the 55% in the Manchester case study represents a big increase, fifty-five per cent against forty-three per cent nationally. It demonstrates that if everybody comes together, starts pulling in the same direction, there is not an overlap of efforts. It is a more an effective and efficient way of tackling youth unemployment. Results could be improved considerably.
MvS: And would this be the same back in the Netherlands?
CB: We choose that case study firstly because the Dutch economy is quite similar to that of the UK in terms of the way you break it down between, industry, agriculture, financial services, etc. But in the Netherlands, there is a quite significant incentive on local authorities and principalities to tackle youth unemployment themselves rather than waiting for the top-down approach that is adopted in the UK. So they favour a much more local approach. Through favouring this approach, local Dutch governments are better able to tailor youth unemployment initiatives to their own individual economy, depending on what their local economy needs rather than what the national economy needs.
MvS: So, looking at the people that are in youth unemployment, and after having looked at the two case studies about Manchester and the Netherlands, could you list a couple of the recommendations you make in your research paper?
CB: In general, the report concludes that, using the case studies we just talked about, both Manchester and the Netherlands, if you have a more proactive approach on the local level, that can have significant improvements on the national level. So, that means you can tailor initiatives to suit the local economy. One of the examples we used in the report suggested that what may work well in Newbury won’t work out in Newcastle because the two economies are totally different. The two economies have totally different needs. Also the characteristics of the young unemployed in those two areas are remarkably different. So, initiatives need to be tailored towards the local situation. There is no point having an initiative that works well in one area but won’t work well in the other.
Everything has to be tailored to suit the local economy, so with this in mind the report calls for greater autonomy for local authorities to determine their own youth unemployment initiatives rather than a central government diktat which may or may not work for that particular region. Using the Dutch example, again we call for a tailoring of initiatives for local economy needs.
Also, both case studies proved that intervention needs to begin much sooner than the currently determined by the Youth Contract. Somewhat perversely, it dictates that intervention begins earlier for those unemployed people aged over twenty-four than those aged under twenty-four – even though those aged under twenty-four often have a greater impact of scarring from being unemployed. As the Dutch case study illustrates providing young people with access to support is critical, given their relatively poor knowledge of the labour market and the risk of extended unemployment. So, we recommend that intervention begins much sooner to minimise detachment of the labour market and dependency on the welfare state.
Also, a critical part of what we found doing our research, was that employment initiatives have to comprise a real job element. Now this is not so much about the youth contracts or youth employment initiatives being real jobs. It was more so to do with participants receiving a wage in return of their labour. To incentivise them to think ‘Hold on, the world of work is better than the world of benefits. I want to go out and work rather than stay in bed.’ Or those other stereotypes people have of the youth unemployed.
As both case studies illustrate, in this way they not only will gain experience that is essential for improving their employability (and thereby enhance their long-term employment prospects), but they will also experience the financial benefits of being employed.
MvS: One final question. If you were in control of government, let’s say you are prime minister, what kind of changes would you try to put in place? What concrete changes would you want to see in order to solve this problem or minimise the effects of youth unemployment?
CB: There is no silver bullet. I do not think you can just solve youth unemployment like that. It is clearly, as the data illustrates, a structural problem which may have been exacerbated by the financial crisis. So for that reason it has to be quite a multi-lateral approach. You cannot just target one specific area, because ultimately that will not solve the problem with youth unemployment. I would encourage, as the Manchester case study suggests, greater involvement of local authorities to pump up local youth employment in their area.
I would also encourage that companies which bid for public sector contracts should have youth employment sustainability clauses in those contracts. So to get a large public sector contract for building a new hospital (or whatever), then, as part of them being awarded that contract they should be taking on unemployed youths and giving them practical work experience to help them increase their employability for future jobs which may come their way.
MvS: Thank you very much, Callum Biggins.
This podcast was made for Pod Academy by Maarten van Schaik. For more information about Pod Academy, the research we have dealt with in our podcasts and other interesting news on podcasting, please visit us at www.podcademy.org, or go to our Facebook or Twitter pages. For more information about CentreForum, please visit www.centreforum.org, where you can also download your own copy of Callum’s research paper on youth unemployment.
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