Promoting social inclusion in the labour market

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22
Nov

Youth unemployment – a million reasons to act?

Posted in Employment by

Director of Policy, Tony Wilson, discusses youth unemployment

A million young people are unemployed. Given that bald, shocking truth, it’s not surprising that the more worrying number last week was missed: at 260,000, there are now more long-term unemployed young people than at any point since January 1994.

At that time, long-term youth unemployment was one of the most important issues of its day. The Labour Party made tackling it one of its five “pledge card” priorities, and the New Deal for Young People was one of its first acts in government. Back then long-term youth unemployment was falling after a short, shallow recession. And it continued to fall, dipping as low as 55,000 in 2002 (before rising steadily through the mid to late 2000s). Now, long-term youth unemployment is rising – and at a faster speed than at any point in at least two decades.

Many people will experience a spell of unemployment at some point in their early working life. But to spend a year looking for work in your late teens or early twenties is an altogether rarer – and more damaging – thing. Research tracking people from the 1970s has found a clear link between long-term unemployment and lower wages later in life, even when you control for other factors like qualifications. And these effects persist for as long as they can be measured. Long-term unemployment is also bad for the economy – making it harder for employers to fill the vacancies that they have, thus leading to greater pressure on wages (and/ or more low-wage migration).

Long-term unemployment has three main impacts on those looking for work, which reinforce each other and get worse over time:

  • It leads to lost confidence and motivation – and eventually to lost hope and complete withdrawal
  • It leads to skills becoming less relevant, and
  • It sends a signal to employers that someone is not employable.

Therefore support for the long-term unemployed needs to address these issues. We are seeing this already in the new Work Programme – with a focus on intensive adviser support and coaching, on support to develop skills, and on help to fill gaps in CVs through work experience, volunteering and internships.

However the Work Programme has been in place since June, and we have since seen long-term youth unemployment not only increase, but rise more quickly than at any recorded point, to a level not seen in twenty years. The Work Programme may be helping, but on its own it is not enough.

The Confederation of British Industry reached the same conclusion in October, in its Action for Jobs report. They argued for a general wage subsidy of £1,500 for each young person taken on who has been unemployed for more than six months. This is welcome – subsidies have been shown to have long-lasting benefits for recipients – but their overall impact does tend to be very small. For a start, they tend to have very low take-up –the most recent “Six Month Offer” subsidy paid out for just 8,400 long-term unemployed young people in the fifteen months of its life (it was ended by the coalition government in May 2010), while the New Deal Employment Option rarely paid out for more than 10,000 people a year. And even successful subsidy schemes pay for quite a lot of recruitment that would have happened anyway (typically between 50% and 85% of the total spend).

In our report, Youth unemployment: a million reasons to act?, Inclusion is therefore arguing for a specific, and much larger, subsidy for creating new jobs for long-term unemployed people. Our approach would build on, and learn from, the evidence from the US on similar “transitional jobs” and from previous subsidies in the UK. The jobs would be ring-fenced for those in the Work Programme, and could be delivered by the many specialist organisations already working with disadvantaged and unemployed young people – bringing in the private sector to ensure that this leads to long-term sustainable employment. The new subsidy would cover most, but not all, of the cost of creating the new job – around £2,000 to £3,000. The balance would be met through existing Work Programme funding, drawing on the outcome and sustainment payments for young people who move into sustained employment.

Long-term youth unemployment is one of the biggest labour market that we face, and we are facing it right now. Our proposal goes with the grain of the Work Programme. And critically, it addresses all three of the challenges of long-term unemployment – by building confidence, by improving skills, and by sending a clear signal that long-term unemployed young people can work and have the right to work.