Reasons for Youth Unemployment

A look at the economics reasons for high youth unemployment (16-25) in many western economies.

It is not just unemployment, but also the impact of leaving the labour market

In the UK, youth unemployment has averaged higher than the main unemployment rate. This is a similar situation to the US and European economies.

The reasons for youth unemployment include

1. Lack of qualifications. Young people without any skills are much more likely to be unemployed (structural unemployment) A report by Centre for Cities suggest there is a correlation between youth unemployment and poor GCSE results in Maths and English. To some extent, the service sector has offered more unskilled jobs such as bar work, supermarket checkout and waiters. However, the nature of the labour market is that many young people lack the necessary skills and training to impress employers.
2. Geographical Unemployment. Youth unemployment is often focused in certain areas – often inner cities where there is a cycle of low achievement and low expectations. For example, the employment rate for 16-24 year-olds is only 64% in the North East compared to a national average of 70%
3. Real Wage Unemployment. You could argue unemployment is caused by labour market rigidities and wages being above the equilibrium rate. Traditionally young workers have been paid lower ‘apprentice wages.’ In the UK, there is a minimum wage of £10.00 for those aged 18-20 (2015). For those aged over 21 the minimum wage is £12.21 – However, nominal wage growth has been muted leading to falls in real wages. This has increased potential for real wage unemployment, especially amongst younger workers.
   The Minimum wage has increased faster than average wages. This particularly affects young workers, who traditionally received lower pay in return for on the job training. The increase in minimum wage is blamed for firms becoming more reluctant to take on young workers.
4. Lack of graduate jobs. Many young people leave college with a degree but then find graduate jobs are in short supply. Some find they can be over-qualified for the job market they enter.
5. Cyclical Unemployment. The biggest cause of unemployment in the UK is often cyclical/demand-deficient unemployment. This is unemployment caused by the falling output which occurs during the recession. During the 2008 recession, youth unemployment increased at a faster rate than the actual unemployment rate. It is often young workers who are more likely to experience unemployment; this is because with the least experience they are the easiest to remove from the labour market. Also, firms often don’t sack workers, but they do stop taking on new (young) workers.
6. Frictional unemployment. School leavers may just take time to find the right work.
7. Cultural/social factors. Youth unemployment is often highest amongst deprived areas where there is pessimism over job prospects. Youth unemployment is often higher among people who have a history of broken families, drug use or criminal record. Youth unemployment is also higher amongst ethnic minority groups. In 2016, the unemployment rate for young Bangladeshi and Pakistani people aged 16-24 was 28%. This compared to youth unemployment rates of 12% for the White ethnic group (the lowest) and 25% for people from a black ethnic background. (ONS)

8. Underground economy. Official unemployment may occur in areas where there is a thriving underground economy. i.e. there are unofficial jobs for people to take. These jobs may be illegal such as dealing in soft drugs. However, it is hard to ascertain the extent of these unofficial jobs and it is easy to make sweeping generalisations about deprived areas.
9. Hysteresis. Hysteresis is the idea that past unemployment trends are likely to cause future unemployment. If young people have been unemployed in the past, it becomes increasingly difficult to get a job. This is because
   • Lack of jobs may cause young workers to become demotivated
   • A lack of past employment may cause firms to be unwilling to hire in the first place.
   • Unemployment means workers don’t have the opportunity to learn skills and on the job training.

• Artificial Intelligence. Artificial intelligence is leading to less job creation amongst young people. AI can be effectively used for many of the simple entry level jobs like admin tasks, that traditionally were being undertaken by young workers.
• Over-supply of Graduates. There used to be a belief that a degree was a passport to a job, but many graduates are now struggling. There has been a large increase in supply of graduates, but firms are cutting back from hiring graduates because of the feeling a degree doesn’t particularly offer value to a company

• Lazy worker theory. Another reason put forward is that young people are less attractive to hire because a generation affected by smartphones have become less ambitious and willing to work hard. It is argued Gen Z value other aspects of life more than a 9 to 5 job. Covid lockdowns also affected people’s attitudes to work.

NEET Inactivity rates amongst the young

NEET – not in education, employment or training.

Inactivity rates include people who are classed as unemployed, but also includes people who are not economically active, people in education or not actively seeking work. Thus inactivity includes people in education and training, but also those discouraged to leave the labour market.

A big factor has been rise in inactivity due to ill health, especially since covid.

Why is youth unemployment rate higher than average?

• The official unemployment rate for youths is influenced by the high number in education.
• When we say the youth unemployment rate is 18% – it doesn’t mean 18% of people 16-25 are unemployed.
• It means 18% of those 16-25 year olds who are looking for work are unemployed.

• Young workers least qualified with lowest levels of relevant skills. Therefore, less employable.
• Some young workers leave university with degrees but find graduate jobs are in short supply.
• Young workers may be perceived as less reliable by employers.
• Young people who are unemployed – find it hard to break the cycle of no job – therefore no experience – therefore hard to get a job.

Global youth unemployment

Source: OECD

Related

• Unemployment Statistics
• Causes of Unemployment
• Spanish Youth Unemployment
• Costs of unemployment
• NEET – levels of young people Not in Employment, Education and Training
• Case Studies on Youth Unemployment at FT

• Unemployment statistics at ONS

About The Author

Tejvan Pettinger

Tejvan Pettinger. Author of “Cracking Economics” “What Would Keynes Do?” – studied PPE Oxford University (1995-99) and works as an economics teacher and writer.

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