Q&A: Why is youth unemployment so high?

Youth unemployment rates are typically higher than for the rest of the working population. Nearly 4 people out of 10 who are unemployed are aged between 16 and 24. And as our chart shows over 100,000 young people have been out of work for over a year, a figure that has doubled since 2002 although it is much lower than it was when the UK economy was coming out of recession in the early 1990s.

The total number of young people out of work in Britain is now over 600,000 according to the latest labour force survey data. Unemployment for 18 to 24 year olds was 621,000 in the three months to January 2009

31% of 16-17 year olds are in full-time or part-time work
63% of 18-24 year olds are in full-time or part-time work

The unemployment rate for 16-17 year olds looking for work is 29%
The unemployment rate for 18-24 year olds looking for work is 15%

NEETs

You may have heard of the growing problem of the NEET generation – NEET stands for Not in Employment, Education or Training. There are now 1.1 million young people in this category in Britain, more than when Labour took power in 1997.

Youth unemployment may be higher because:

1. Human capital: A sizeable number of students leave school or college with few qualifications and therefore lack the human capital needed to find secure employment

2. Experience: Younger workers have less experience in the labour market and employers may decide to employ someone with a proven track record in work who is perceived to be more productive. In a recruitment freeze typical of a recession, younger workers often miss out because of the experience factor.

3. Training costs: Some employers may not want to cover the extra costs of training younger workers – preferring instead to take a free-ride on employees who have received training in their previous job

4. Apprenticeships: There has been a long-term decline in the number of apprenticeships available for people leaving school aged 16. High quality vocational education makes younger workers more employable.

5. Benefit reforms: Some economists believe that youth unemployment is partly the result of the benefits system and that claiming benefit should be made harder for those who have not taken paid work after leaving school or college. For example, unemployment benefits could rise according to how many years a person has been working and paying national insurance.

An OECD report into youth unemployment published last year made this telling observation

‘A lack of qualifications makes it hard to get a firm foothold in the labour market. In 2005, one year after leaving education, only 45% of young people who left school without an upper secondary qualification – A levels or five good GCSEs or the vocational equivalent – were employed compared with 67% of their higher-qualified counterparts. In the same year, 20% of young people without an upper secondary qualification were neither in employment nor in education or training, more than twice the share among their more educated counterparts.’

Youth unemployment is a major problem in the UK labour market and is likely to become much worse as the recession deepens. Some economists are calling for a huge rise in government spending on schools and colleges, whilst others want the government to lower employer national insurance contributions for businesses that take on and train younger workers. In the long run, such measures will pay dividends because of the economic and social costs if we suffer another generation of younger people with very limited employment opportunities.

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QA_Youth_Unemployment.doc