Youth unemployment has surged across Europe since the 2008‑09

global financial crisis, in what the German chancellor, Angela

Merkel, has described as “perhaps the most pressing problem

facing Europe at the present time.” In the UK, nearly 1m young people

(aged between 16 and 24)—or one-fifth of the youth population—are

jobless. The crisis is not just affecting individuals and society today,

but it also threatens the long-term growth and competitiveness of the

British economy.

“Young people are the future generation,” says Lena Levy, head of la‑

bour market policy at the Confederation of British Industry, a business

lobbying group. “If they disengage, businesses eventually will have

problems recruiting. The economic costs to the country are there.”

Youth unemployment is a “time-bomb under the nation’s finances”,

concludes a 2012 report by the Association of Chief Executives of

Voluntary Organisations Commission on Youth Unemployment. It esti‑

mated that, at current levels, the “scarring effects of youth unemploy‑

ment”, including higher welfare benefits paid out and lost potential

tax revenue, would cost the exchequer £2.9bn (US$4.8bn) per year

and result in annual lost output to the economy of £6.3bn. “The net

present value of the cost to the Treasury, even looking only a decade

ahead, is approximately £28bn,” the report said.

Meanwhile, a UK-based youth charity, the Prince’s Trust, has put the

cost of lost productivity to the UK at as much as £133m (US$220m)

per week, and for youth crime at £1.2bn a year.

Other costs are harder to quantify. Studies have shown that young

people who have been long-term unemployed experience more ill

health later in life and become more susceptible to committing crime.

Widening inequality can increase social tension and instability.

Furthermore, given the greying of Britain’s workforce, the presence of

a large group of unemployed in the new generation could undermine

the financial health of government welfare programmes and weaken

the talent pool for businesses.

“Being unemployed at a young age tends to have a big effect later

on,” says Glenda Quintini, a senior economist at the Paris-based OECD,

a club of rich countries. “Skills unused can deteriorate. [Unemployed

youths] can drift into inactivity and become disengaged. This is a very

big problem for business, because human capital is the no. 1 input.”

Youth unemployment is not a problem only in the UK. A recent report

by a global consulting firm, McKinsey & Company, notes that 75m

young people are currently unemployed around the world, and that, if

estimates for the number of underemployed were included, the total

would triple. In countries such as Greece and Spain, youth jobless

rates exceeded 50% in 2013. Poor economic prospects do not trans‑

late only into high unemployment rates, but can also become reasons

to emigrate. In Ireland, where the economy has stagnated for most of

the past five years, well-educated young people are leaving in large

numbers. A study by University College Cork found that up to 62% of

emigrants aged between 24 and 34 have completed tertiary educa‑

tion, compared with 47% for the rest of the same age group.

Even when the UK economy was booming before the crash, a growing

number of young people struggled to find work. Terence Tse, an

MIND THE EMPLOYMENT GAPHigh youth unemployment threatens long-term competitiveness in the UK Written by The Economist Intelligence Unit

SUPPORTED BY

associate professor of finance at the London campus of the ESCP

Europe business school, says that one reason for this trend was

that youths lacked the basic skills that employers sought. “But the

economy was growing fast enough to absorb whomever,” he says.

This situation changed in the wake of the 2008-09 global financial

crisis. As companies scaled back and cut jobs, first-time jobseekers,

still lacking basic skills, struggled even more to find work. Young

people who were already employed often became the first to be made

redundant, as they had less experience and the least seniority. The

number of jobless youths and NEETs—a term first coined in the UK

in the 1980s, referring to young people who are “not in education,

employment or training”—surged.

Recently, the UK economy has started to grow again, expanding by

an estimated 1.9% in 2013, and The Economist Intelligence Unit

forecasts that growth will accelerate to 2.5% this year. The overall

jobless rate has also improved, falling to 7.1% for the three months

ending November 2013, the lowest level in more than three years

(compared with 8.4% in 2011). The effects of the economic rebound

have been slower to accrue to those in the 16-24 age category, with

the unemployment rate for this group easing by 0.5 of a percentage

point to 20% compared with the previous year. This compares with an

unemployment rate among 25-34 year olds of 6.7% between Septem‑

ber to November 2013, down from 7.5% for the same period in 2012.

Tony Dolphin, the associate director for economic policy at the Insti‑

tute for Public Policy Research, a London-based think-tank, says that

there is likely to be a mix of reasons for this, but he believes that the

main factor is the shifting structure of the workforce. “Due to globali‑

sation and technological changes, jobs that young people would be

recruited for have disappeared,” he says. These include manufacturing

jobs that have become mechanised or shipped overseas.

The government has introduced a number of policies and programmes

to address youth unemployment, but—say critics—with mixed success.

The administration has gradually raised the age for full‑time compul‑

sory education to 18 by 2015. Jobcentre Plus, a service offered by the

UK Department for Work and Pensions, provides assistance with job

searches and building curricula vitae (CVs). However, “more intensive

support is needed for young people” says Sue Maguire, a professor at

the University of Warwick.

In addition, the government has made significant funding cuts which

have affected many programmes, including one that tracks under-18

NEETs, notes Professor Maguire. In January 2014 the prime minis‑

ter, David Cameron, suggested that he favoured reforms that would

require those under 25 to take up work, education or training, or face

losing their housing benefits and jobseeker’s allowance.

Companies are also stepping in to tackle the youth unemployment

problem, inspired by Germany’s youth apprenticeship programmes.

Close collaboration among businesses, educational institutions and

the government has resulted in Germany enjoying the lowest youth

unemployment rate in Europe. Barclays, a London-based financial

services company, has established its own apprenticeship programme

to recruit and train underprivileged youths. Other companies are

working with schools or the government to review curricula, and ex‑

plore how they might better arm graduates and apprentices with the

skills needed in the current labour market.

Business in the Community, a non-profit organisation that promotes

corporate responsibility among multinationals in the UK, has helped

to mobilise the hospitality sector to create 130,000 apprenticeships,

work-experience placements or job opportunities for young people,

backed by government funding.

Multinationals, in any case, tend to have their pick among top gradu‑

ates when recruiting, as well as the manpower and budget to provide

on‑the‑job training. Economists say that small‑ and medium‑sized

enterprises are more likely to be hurt by the country’s high youth

unemployment rate; these companies are more likely to hire from the

pool of youths who do not continue into higher education.

Ultimately, however, everyone loses. Professor John Van Reenen, the

director of the Centre for Economic Performance at the London School

of Economics, says that companies might temporarily benefit from

high youth unemployment rates, as wages decline. But, in the long

term, “if fewer people are looking for jobs, wages go up.”

About the sponsorlearndirect is one of the largest integrated providers of Apprentice‑

ships, training, e-assessment and employment services in the UK.

It has helped around 4.5 million people get the skills they need for

work and more than 75,000 organisations improve the skills of their

workforce.

www.learndirect.com/business