Young are Hit Hardest as Jobs Take a Dive

When does unemployment among young people become as big a political issue as it did in the 1980s? Perhaps not before too long. Nearly a fifth of 18 to 24-year-olds in Britain are out of work, part of a 5m army of young unemployed across the European Union.

David “Danny” Blanchflower, until earlier this year a member of the Bank of England’s monetary policy committee, thinks unemployment among under-25s in Britain will hit 1m by September, from 927,000 now. Not so long ago that would have been a bad figure if spread across all age groups. As it is, two in five of the unemployed are under the age of 25.

This has implications for the wider economy. It suggests the rise in “breadwinner” unemployment is not as extreme as in the recession of the early 1980s, which may explain why some spending has held up better than feared. For the young, however, it is bad news. Another 730,000 of this age group are economically inactive — not in education, employment or training (Neet).

Last week Yvette Cooper, the latest in a long line of Labour work and pensions secretaries, announced 47,000 jobs and work-experience places for young people funded by the £1 billion Future Jobs Fund.

In his April budget Alistair Darling, the chancellor, announced additional resources for Jobcentre Plus and the Flexible New Deal, and the offer of a guaranteed job, training or work placement for all 18 to 24-year-olds unemployed for 12 months. All this activity is for a reason, which is that the problem of unemployment among young people is going to get worse before it gets better. That is true in Britain, and it is true in the rest of Europe.

Spain is the youth unemployment capital of Europe, with a jobless rate among under-25s of 33.6% in the first quarter, but 12 of the EU’s 27 members had youth jobless rates above 20%. Honourable exceptions with rates below 10% were Austria, Denmark and the Netherlands. The Dutch rate for under-25s was a mere 6% in the first quarter, though latest national figures suggest it has risen to more than 11%.

Why are young people so badly affected? In Britain there is the curiosity of rising employment among oldies — those beyond normal retirement age of 65 for men and 60 for women — alongside falling employment among younger people. Older people’s employment is up 48,000 over the past year, as more choose to stay on at work, partly as a result of poor pensions performance and a sharp drop in savings income.

The number of 16 to 24-year-olds in jobs, in contrast, has slumped by 319,000 over the same period. To a certain extent young people are always likely to suffer worst in recessions, as Ian Brinkley of the Work Foundation points out.

They suffer most when employers stop hiring because so many of them are new entrants to the job market. The impact of a hiring freeze is thus more keenly felt among younger age groups. They have the alternative of continuing with education but otherwise their first welcome to the job market is the grim reality of unemployment.

Young people are also likely to be the first candidates for redundancy because many of them will still be establishing themselves as vital to the operation and also, to be blunt, because they are cheaper to lay off.

In addition, school leavers with few or no qualifications are caught in a particularly savage pincer movement. Research from the Chartered Institute of Personnel and Development (CIPD) shows that “blue collar” unemployment has risen at three times the rate of white-collar and professional workers in this recession. The unskilled are being hit hardest.

This is the group that for years has faced the toughest competition from migrant workers. Though some migrant workers have returned home, the pool remains significantly larger than it was even a few years ago. Many traditional first jobs for unskilled school leavers — in hotels, catering or other low-skilled service or manufacturing occupations — have for some years been taken up by migrant workers, who have the advantage of experience.

This problem is particularly acute for school leavers. The CIPD’s most recent survey of employers showed that half intended to take on graduates this year, a third planned to recruit 18-year-old A-level school leavers but only a sixth intended to take on 16-year-olds.

Blanchflower, now watching Britain’s labour market from New England, where he holds a professorship at the Ivy League Dartmouth College, makes another point. In the 1980s unemployment among young people was swelled by 1960s-born baby boomers entering the job market. They are now in their forties and the mainstay of the economy.

There is, however, a second bulge now passing into the labour market, sometimes known in America as the echo boomers (children of the 1960s boomers). This bulge is not as big as in the 1980s, and will be followed by much weaker growth in numbers of young people entering the job market, but it is with us for a while. Currently, there are some 840,000 20-year-olds in Britain. In 10 years’ time, official projections show a drop to 750,000 people of that age, even in the context of a rising population.

That leaves the problem of today’s generation. Research cited by Blanchflower suggests that those who experience unemployment when young suffer from permanent job-market disadvantages, because they miss the chance to build up experience and because when things do turn up, their education is rustier than the next lot of youthful new entrants to the labour market. One study showed that lifetime wages for those who suffer unemployment when young are between 13% and 21% lower than for others.

It is not all gloom. When labour demand turns, young people benefit. The unemployment rate among 18 to 24-year-olds peaked at 18%, similar to the current rate, in the recession of the early 1990s before dropping steadily as the economy recovered.

But younger workers, probably more than other groups, need a hand. Government schemes, which invoke memories of the Youth Training Scheme of the 1980s, have something of a bad name. Used intelligently, however, active labour-market policies of this kind make a lot of sense. At least until the real jobs turn up.

PS: Two sets of figures in recent days, the GDP numbers nine days ago and the latest money-supply figures last week, were weak enough to argue for a policy response from the Bank of England. Since interest rates are as low as they are going to go, this means more quantitative easing: creating “money” by buying assets, mainly gilts.

The trouble is that the Bank, by signalling a short-term pause for this policy last month, has established an expectation in the markets that it has done enough for now. Rightly or wrongly, a resumption this week would be seen in the City as a u-turn.

This is not, however, the view of the “shadow” monetary policy committee (MPC), which meets under the auspices of the Institute of Economic Affairs. Most of its members, who pay close attention to the money-supply figures, believe it is far too soon to call a halt to the easing process.

They think that the Bank should complete the £150 billion of asset purchases it has permission for (so far it has done £125 billion) and then ask the Treasury, which has to indemnify the Bank for any losses, for permission to do more.

Shadow MPC member Roger Bootle suggests it should get permission for an extra £300 billion, though not necessarily expect to do that much, while Tim Congdon argues for another £50 billion to take the Bank through to the autumn. Will the Bank do more this week? It would be a significant surprise, but stranger things have happened.

Originally published at David Smith’s EconomicsUK and reproduced here with the author’s permission.