Covid and Youth Unemployment in UK – Delivering an ‘opportunity guarantee’

We are facing the worst jobs crisis in a generation – with young people (18–24) set to be hit particularly hard. Covid-19 is first and foremost a health crisis, but it has increasingly morphed into an economic one as well. However, this will be fundamentally different to the 2008–9 crisis. In particular, it will result in a much larger employment effect, with the Office for Budget Responsibility forecasting 3.4 million people out of work this year (up from 1.3 million).
Young people will be particularly affected. We estimate that without further government action there will be an extra 620,000 young people unemployed by the end of the year (with 380,000 new claims to benefit between April and the end of the year expected to last for six months or more).

There is a strong case for bold policy interventions to prevent youth unemployment. Becoming NEET results in a ‘scarring effect’ that lowers long-term employment prospects and earning potential (Gregg and Tominey 2004). Furthermore, those from the poorest backgrounds and with the lowest qualifications are likely to be the worst affected.

This report argues for the government to ‘aim higher’ in its response to the coming unemployment crisis. There are already more than 400,000 young people in this country who are unemployed (and an even larger number not in employment, education or training. This is evidence of a broken school-to-work transition. This is why the measures we have described in this paper are not just responses to current crisis but permanent shifts in our welfare system.

This is the first in a series of papers that will examine pathways for reform to ‘future proof’ our welfare state for the decades ahead.

There is a strong case for bold policy interventions to prevent youth unemployment. Becoming NEET results in a ‘scarring effect’ that lowers long-term employment prospects and earning potential (Gregg and Tominey 2004). Furthermore, those from the poorest backgrounds and with the lowest qualifications are likely to be the worst affected (Henehan 2020). Each person that is out of work and education for six months or more costs on average £65,000 in direct lifetime costs to public finances and £120,000 in wider lifetime costs to the economy and community (Coles et al 2010). But ultimately becoming unemployed is a deep personal crisis with impacts on health, self- worth, identity and status.
• We recommend the creation of a new ‘Opportunity Guarantee’ for young people: the government should ensure that every young person is either in education or work. The government’s main aim in the short term should be to prevent a rise in youth unemployment as a result of the Covid-19 crisis. But, looking beyond the crisis, they should be aiming even higher: to eliminate
all but the most temporary experience of being NEET amongst all young people. This will require government to keep young people in education for longer – but more radically, it also demands a fundamental rethink of labour market policy in the UK (the focus of this paper). This programme should be spearheaded by the prime minster as part of a campaign to inspire businesses to ‘do their bit’, by hiring young people during the crisis as part of an ‘investment in the future of our nation’.
• Fulfilling this promise will require a new, more active, approach to labour market policy. In recent decades, the UK has embraced a liberal welfare regime, meaning a flexible labour market with limited government intervention, and a welfare system designed to promote ‘work first’ through low replacement rates, conditionality and sanctions. This approach is always questionable, but it is particularly problematic in an environment of high
and persistent unemployment. We must now take a more empathetic and interventionist approach, drawing on the Active Labour Market Policies (ALMPs) used more extensively elsewhere. If the UK spent the same proportion of GDP on these policies as other advanced European countries, we would invest £8.5 billion more a year in preventing unemployment. Some of these measures are outlined in this paper but government must also take action for older people as well, for example, through reforming and extending the Coronavirus Job Retention Scheme.

WE RECOMMEND THAT THE GOVERNMENT IMPLEMENT THREE BOLD MEASURES NOW TO DELIVER THIS NEW APPROACH FOR YOUNG PEOPLE:

Work with young people to reform welfare support in England to help them remain in (or return to) education and training, or enter employment.
• Use Risk of NEET indicators (RoNI’s), support schools to identify young people at risk of becoming unemployed.
• Provide additional funding to schools and colleges for careers advice and guidance, to help prevent these young people from becoming unemployed.
• Replace the ‘work first’ approach for young people under universal credit (UC) to allow them to pursue education and training for career development.
• Extend existing employment contracts and tender out for new services, to quickly address the shortage of 7,000 work coaches.
• Extend maintenance support, and reform UC entitlements, to create a financial incentive for people to access further education.
Reform the apprenticeship levy to create 200,000 new apprenticeships for young people in England.
• Provide an additional £400 million to the apprenticeship levy budget to fully fund the training component of apprenticeships for small and medium-sized enterprises (SMEs).
• Create a £1.5 billion Youth Apprenticeship Fund (YAF) to subsidise the wages of new apprentices during the Covid-19 crisis.
• Make access to YAF funding conditional on the basis of age (below 25 years) and on the job created being genuinely new (rather than replacing existing staff).
• Introduce business support units for employers, based on IPPR’s London Progression Collaboration (LPC) model to ensure scale up at pace.
Create a Right Start Fund (RSF), to provide up to 140,000 subsidised transitional jobs for those who are not ‘labour market or apprenticeship ready’ across the UK.
• This would cost at least £1.1 billion to create 140,000 new jobs but could be scaled up over time to support all long-term unemployed young people (eg the existing cohort and all new young people claiming benefit for six months or more) at a total cost of circa £3 billion. The jobs created by this programme should be:
– six months in duration with a focus on getting young people apprenticeship ready
– fully subsidised by the state
– additional roles (new jobs)
– linked to sectors where there is economic or social benefit (eg environmental, care, digital, construction)
– available to those who have been unemployed and on benefit for six months or most at risk of becoming long-term NEET.
• Ensure the bidding process is demand led, funded through grants and avoids largescale outsourcing where possible.
• Give local government a central role in delivering the RSF, including full devolution to combined authorities.
• Devolve the relevant proportion of total funding for the scheme to Scotland, Wales and Northern Ireland, to set up their own interventions.

Chosen excerpts by Job Market Monitor. Read the whole story @  Guaranteeing the right start: Preventing youth unemployment after Covid-19 | IPPR