UK youth employment challenge – A Report

By comparison to other European countries, youth unemployment in UK is just below average at around 22%, but it is rising and has been rising since 2005. This suggests structural causes beyond the current economic situation:

• The labour market has been changing in ways that impact negatively on young people
• Recruitment practices make it increasingly difficult for young people to get a foot on the ladder. Only 24% of employers have taken on a young person direct from education in last 2 to 3 years, but out of these, and contrary to popular belief, the majority find young people well prepared for work. Those who didn’t cite a lack of experience as the key factor. This puts young people in a Catch 22 situation: no job, no experience; no experience, no job.

The business case for recruiting young people needs to be made clear. There are a number of benefits young people can bring to an organisation: they help businesses enter new markets, reduce staff costs, improve retention, provide tailored skills and a talent pipeline, and support business growth as they tend to be flexible, innovative and full of new ideas.

Key points

Youth Unemployment is a major economic and social issue. Young people have suffered disproportionately in the current labour market downturn (as they always tend to do). The large number of young people unemployed and not in education, employment or training (NEET) is predominantly down to the recession, however youth unemployment was high and began rising in 2005, well before the recession. This suggests that there are structural causes that go beyond the current shortfall in demand for workers. We made this point in the Youth Inquiry published last year and it has been made by numerous others since.

This report updates the Youth Inquiry and presents the latest evidence from the UK Commission’s comprehensive survey of UK employers. We look in depth at the structural issues, in particular transitions from education into work and how they are changing for young people.

The way in which recruitment works in the UK is a significant part of the story for young people. Finding work through informal methods, such as recommendations from contacts, is still a major way for people to find work. These informal connections tend to be built up over time and through experience of work, so young people are far less likely to have them. 

Recruiters place significant emphasis on experience when recruiting, with 29% citing it as ‘critical’. But despite the importance of experience of work young people are leaving education increasingly less experienced. The share of learners who combine work with their studies has been declining for around 15 years or so. The emphasis on experience results in the ‘Catch-22’ situation for young people: they can’t get work because they haven’t got experience and they can’t gain experience because they can’t get work.

The rise in the number of graduates is another factor that has significantly changed the way that all young people are recruited. The number of recent graduates has increased from around 1m in 2002 to 1.5m in 2011. This has enabled
“credentialism” whereby employers seek graduates to fill jobs that don’t require that level of skill.

The Youth Inquiry noted the trend for underemployment whereby graduates and those with intermediate skills are taking lower skill jobs. The share of graduates in lower skill jobs has steadily increased over the last decade. This means that graduates are increasingly competing with nongraduates for these lower skill jobs. Furthermore as the chart below shows this is not just a recessionary feature, it is a long-term trend.

Young people’s work readiness is a persistent theme when discussing youth employment but there is a risk that it is overstated. The UK Commission’s comprehensive evidence shows that only a minority of employers have recruited from education in the last two to three years. Overall this minority tend to find their young recruits well or very well prepared and where they do not they put this down to lack of experience.

Added to this the labour market for young people is changing in several important respects. The first is what’s happening to the types of jobs that young people do. Young people tend to be employed in two particular occupations: sales and elementary occupations. These occupations have been in decline over the last ten years or so and hit hard by the recession. Furthermore, there is forecast to be little or no growth in these occupations up to 2020. By contrast the growth occupations are managers, professionals and associate professionals. These are the most highly skilled and highly paid occupations and are less likely to be filled by young people. Where they are, this is overwhelmingly by graduates. The second trend is the rise of small business.

Over 1998 to 2010 the share of private sector employment in the largest businesses (250+employees) fell from 50% to 40%. For the smallest (1 to 4 employees) it increased from 11% to 22%. Small companies are more likely to emphasise the importance of experience when recruiting as well as use informal recruitment
methods.

There is a widening gap in earnings between different age groups. In 2011 16-17 year olds were the lowest paid age group with median hourly earnings of £4.10, or just under a third of the overall median (£12.6). 18-21 year olds are paid slightly more at £7.0 per hour which is just over half the median.

The fact that younger age groups are paid less is nothing new and is to be expected given the strong returns to experience in the UK labour market. However, the gap between the younger age groups and the others is widening, particularly over the last two years. Over 2010 and 2011 16-17 year olds saw an actual decline in hourly earnings (from £4.70 to £4.10) while 18-21 year olds and 22-29 year olds have seen their earnings plateau.

By contrast the older age groups have seen their earnings continue to grow, albeit at a slower pace than previously. This means that there have been very different long-term growth rates for different age groups. Between 2004 and 2011 median hourly earnings across all workers grew by 22%, but for 16-17 year olds the increase was just 2%. The 18-21 and 22-29 year olds saw larger increases (17% and 13% espectively) but again these were smaller than for those in their 30s (23%), 40s (21%), 50s (26%) and 60s and above (33%).

The conclusion from all of the above is that the labour market has changed for young people and it will continue to do so for the foreseeable future. This matters, because if youth unemployment continues at current rates, by 2022, costs to the exchequer and lost output to the economy are estimated at £28 billion on top of the human and social costs.

Transitions into work for young people, particularly non-graduates, need to be reinvented. Work experience in its broadest sense is one of the key elements in successful transitions. It has a significant impact on young people’s employment chances. But we need to move beyond thinking of work experience as a one or two-week spell at age 14-16 to a broad and varied series of engagements. These can include workplace visits, mentoring, mock interviews, competitions, project activity and careers advice.

Some employers have responded to the changing youth labour market and are reflecting this in recruitment practices and job design but this is not widespread. To achieve a step change will require nothing less than every UK employer to adopt a ‘youth policy’ – embedding the development of young talent into our business culture.

There is a clear economic and social case for businesses to take responsibility for creating more entry points and progression routes for young people. For employers, this means changing recruitment practices to be more inclusive of nongraduates and relying less on informal or word of mouth recruitment. It also means building in to business planning some form of commitment to support young people into work – from offering apprenticeships to providing quality work experience or some other form of engagement activity, no matter how small.

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Source:  The youth employment challenge | Publications | UKCES.