Peter Jones: Jobless young crying out for a future

Employers and society as a whole need to tackle the blight of youth unemployment as a matter of urgency, says Peter Jones

Employers and society as a whole need to tackle the blight of youth unemployment as a matter of urgency, says Peter Jones

TO BE young and unemployed is hard for anyone. And news that the number of 18-to-24-year-olds out of work for more than a year has risen from just 415 in December 2007 to 5,210 now, an increase of 1,155 per cent, is certainly shocking. But is the current extent of youth unemployment the national tragedy that some claim it to be?

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During an economic downturn, young people suffer some of the worst consequences. Those in work are the easiest for an employer to fire as they have relatively few of the skills acquired from years of work needed to help a company get through a recession, and those just joining the workforce find the job pickings slim.

A cynic might argue that unemployment is a lot tougher for older people. After all, young people do not usually have a family relying on them, do not have heavy household bills, and can often turn to mum and dad for help with money and a room to stay in.

They can also stay in education and acquire more skills to better equip themselves when the upturn comes. Unlike folk who get fired in their late 50s, they are not likely to be in the benefit queues for life. Nevertheless, there is plenty of evidence which shows that youth unemployment does not just damage the individuals concerned, but also costs society as a whole.

One of the reasons society, through taxpayer-funding, invests heavily in education is that a well-educated workforce will generally earn higher incomes and the companies they work for will be more profitable, generating more wealth and taxes to pay for things like health services and public pensions.

Youth unemployment, however, severely undermines this model. This is not simply because people out of work are not paying taxes but consume benefits for the duration of their unemployment. What is rather more surprising, and difficult to explain, is that anyone who is unemployed while young is likely to have a lower income for decades to come than those who have never been out of work.

Joblessness causes what economists call “wage-scarring” which appears to occur throughout the developed world. If you take people with broadly the same education, family backgrounds, place of residence, literacy, and numeracy, then a male who spends a year on the dole before the age of 23 will, on average, be earning 23 per cent less ten years later than one who has always been in work. For females, the difference is about 16 per cent.

This difference, while it reduces with time, remains into middle age. It is also true, to a lesser degree, for the lucky university graduates who get a job during a recession. This factor tends to suggest that it is not just depression and other emotional damage caused by lack of work which is so crippling.

One other possibility is that awareness of the horror of unemployment makes people risk-averse, so they are less likely to take the risks of seeking promotion and changing employers. One group of people which seem to avoid this wage-scarring are those who, unable to find a job, start their own business which, since that is a risky game, lends plausibility to the theory.

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But this does not help to explain why spells of previous unemployment are the best predictor of who, among those currently working, is most likely to be unemployed in the future. UK research has shown that someone who is out of work for three months before the age of 23 is likely to spend an extra 1.3 months on the dole between the ages of 28 and 33 compared to someone who has never been out of work.

Whatever the explanation, the statistical record is pretty clear. The more time you spend out of work while young, the less you are likely to earn throughout the rest of your working life which in turn means that you will contribute less to society through taxes.

These are just the immediate economic costs. There are other social costs which also increase the economic bill. Youth unemployment, to quote a report prepared by economic researchers for the Prince’s Trust, is “inextricably linked” to crime. Two-thirds of young offenders are unemployed when they commit crime compared to less than half of older offenders.

All too often, the victims of young criminals are other young people, reinforcing a circle of deprivation and adding to the costs borne by society in dealing with offenders and their victims. And a sad fact is that once a young person has offended, they are likely to re-offend. Various studies have suggested that a one percentage point increase in unemployment causes a one percentage point increase in crime. Unemployment is also associated with poorer health and life expectancy. The lesson is clear: getting the economy going again will not end the problems caused by this latest recession. On the contrary, they will be with us for at least a generation.

Yes, something can be done to at least reduce this problem. Skills training for the young is one obvious answer. But it has to be worthwhile training. The Wolf report, published by the UK government last year, said that between a quarter and a third of 16-18-year-olds nominally in training, or about 350,000 young people, were doing vocational courses which were of little value in getting a job.

Indeed, such courses can actually reduce eventual earnings unless, that is, they are combined with apprenticeships with employers. The Scottish and UK governments have recognised this and are offering schemes which seek to greatly increase apprenticeships.

The model for this is Germany, where a quarter of employers have apprenticeship schemes and nearly two-thirds of school-leavers undertake them. Costs are shared between government and employers, as with the schemes being introduced here. Placings very often turn into full-time jobs and as a result youth unemployment in Germany is just under 10 per cent, one of the lowest levels in the EU.

Tragedy is perhaps a too strongly emotive word to use for youth unemployment, but it is certainly a more serious blight than many realise, causing problems now and for decades to come. But if the cost to society is to be reduced, society cannot sit back and just demand government action. Society, particularly employers, has to play a part too.