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Mitigating the scarring effects of youth unemployment caused by Covid-19

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The long-term implications of youth unemployment

Numerous studies have identified the long-term scarring effects of unemployment on young people. Experiencing unemployment early in a career has negative impacts on lifelong prospects and prosperity.

The proven tangible impacts of youth unemployment include decreased earning potential. Gianni De Fraja, Sara Lemos and James Rockey found that “unemployment shocks affect young workers for the rest of their lives” and that “an additional month of unemployment between ages 18 and 20 permanently lowers earnings by around 1.2% per year” in their report, The Wounds that do not Heal: the Life-time Scar of Unemployment. This report also found that high-ability individuals are better able to weather the experience of unemployment than low-ability individuals, which means raised levels of youth unemployment have the potential to deepen the social divide.

The mental health impacts of unemployment have also been well documented. Karsten I. Paul and Klaus Moser found that “the average number of persons with psychological problems among the unemployed was 34%, compared to 16% among employed individuals” and that “unemployment is not only correlated to distress but also causes it.” This is particularly problematic for young people as the transition to adulthood is a formative period in which depression and distress can have a deeper and longer-lasting effect. A study conducted in the US also found that “longer durations of unemployment predict higher levels of depressive symptoms among young adults”, highlighting the need to act swiftly once a young person is out of a job. And not only does unemployment trigger depression, but it can also affect mindset. Scarring effects can include a fear of the future, lowered career expectations and anticipated future unemployment, leading to a reduction in job satisfaction and wellbeing.

Unemployment has a greater impact on young people from deprived backgrounds than those from wealthier backgrounds. This can partly be explained by their more pressing need to find work. Young people from deprived backgrounds will be under pressure to accept “deskilling jobs” – jobs beneath their level of skills and qualifications – and insecure or low-paid work. Not only has the move from unemployment to a poor-quality job been found to trigger a deterioration in mental health, but recruiters also “penalise job applicants with extensive work experience in deskilling jobs”, and look upon job hopping as less desirable than unemployment. Therefore, the economic necessity to move into work – any work, quickly – can further exacerbate inequality.

Youth unemployment: learning from the 1980s

The problem of youth unemployment is not a new one. In the 1980s, while Margaret Thatcher’s government was in power, youth unemployment skyrocketed. According to the Office for National Statistics, in spring 1984 there were 1.2 million unemployed 16- to 24-year-olds and an unemployment rate of 19.6%. Thankfully, this level of youth unemployment has not been seen since.

The high level of youth unemployment in the 1980s can in part be linked to the privatisation of the railways and utilities, as well as the decline of industry. These sectors had previously offered young people secure jobs, training and opportunities to progress. Instead, Britain’s increasing reliance on the service sector has put young people into jobs that are less secure, less well paid and offer fewer opportunities for career development. Furthermore, the service industry is more polarising, offering a small number of high-paid jobs and larger numbers of low-paid and low-skill jobs.

Another contributing factor to the high levels of youth unemployment in the 1980s was the way government support programmes were targeted. Programmes were – and largely still are – divided into those that focus on employment and those that focus on education. There was little support in place to cover the transition and overlap between the two. Pre-1980s, all young people over 16 were included in the scope of employment programmes run by the Department for Employment. From the late 1980s, under-18s became ineligible for unemployment-related benefits. Instead, they were provided with a guarantee of training and a paid allowance, managed by the careers services. This is the approach that we have inherited today. Support for under-18s focused on education and training, while over-18s were offered employment-focused support. Touchstone, in its Generation Lost report, identified that “the stubbornly high level of workless 16-18s even in the best years of the last government owes a great deal to the limitations of the support and services that were available to this group” in a “a policy error going back to the 1980s”. If 16- to 18-year-olds were able to rely on their parents for cash, there was little that could be done to engage them with the support mechanisms designed to help them.

Youth unemployment today

The Resolution Foundation’s (RF) report anticipates that the number of 16- to 24-year-olds who have been unemployed for six months or more will peak in mid-2021 at between 244,000 and 378,000 people. Although a rise in participation in full-time education has helped to prevent these numbers reaching expected highs, there has been “a sharp rise in worklessness outside of education.” What’s more, the RF reported that “the proportion of adults experiencing poor mental health had increased by 80% among 18- to 29-year-olds compared to a year ago, the biggest increase of any age group.”

Given the likelihood of their holding insecure and low-wage jobs in service industries, alongside employer prioritisation of more highly skilled (and therefore older) workers, young people will always be one of the groups hit hardest by a recession. However, while unemployment among young people is a bigger problem today because of coronavirus, legacy issues from the 1980s can also be seen at the root of the problem.

Effectiveness of past programmes

One way to understand how best to solve today’s youth unemployment problem is to look at the effectiveness of past programmes.

The Future Jobs Fund (FJF), offered 18- to 24-year-olds who had been claiming Jobseeker’s Allowance for six months a fully subsidised job. Government funding was set at £1 billion, and between October 2009 and March 2011 a total of 105,230 participants were placed in funded jobs. Programmes of this type are difficult to evaluate, in part because of the impossibility of knowing what would have happened to participants had they not taken part. However, analysis suggests that the programme was effective. While the FJF had its faults, including slow administration and a lack of support for participants in planning their career beyond the programme, it also had a net benefit to society of roughly £7,750 per participant and an estimated job outcome rate of 43%. Employers reported greater willingness to create job roles for young people following participation in the programme, giving the FJF a greater legacy. However, the FJF was terminated early when there was a change of government, because it was believed that the temporary nature of the jobs offered to participants “provided a poor return compared with other less expensive employment schemes.”

Thorough evaluations of the FJF have set out recommendations for building upon its successes and shortcomings, providing valuable insights that should inform the response to youth unemployment today.

Kickstarting the job market: tackling youth unemployment today

The government’s Kickstart Scheme launched in September 2020, offering subsidised six-month work placements for 16- 24-year-olds on Universal Credit and at risk of long-term unemployment. The £2 billion fund is set to create roughly 250,000 placements. However, criticism is already being levelled at the scheme.

The Alliance for Full Employment, a coalition of the Welsh First Minister and England’s metro mayors, has launched a petition in parliament to demand an extension of the Scheme, currently set to close in December 2021. As Touchstone has reported, levels of youth unemployment are expected to peak in December. This suggests that, to have a meaningful impact on youth unemployment, the Kickstart Scheme will have to be extended. The alliance’s demands include the extension of furlough, a rescue plan for the high street and tourism sectors, and a fully funded youth jobs guarantee to include recent education-leavers. The petition also calls for “training geared to new jobs, like in the care sector, IT and logistics” and “help with job searches – a vital element of getting into work, as demonstrated by the 2009 Future Jobs Fund”. It is not surprising that a Labour-led movement would call to reinstate successful aspects of a Labour initiative, but given the outcomes provided by the FJF, it also seems to be a sensible approach. With delays in starting and the certainty that unemployment will continue to rise this year, the extension of the Kickstart Scheme and the inclusion of those on long-term furlough in the programme has also been recommended by the RF.

Mitigating the negative impacts of youth unemployment: further recommendations

Aside from amendments to the existing Kickstart Scheme, reports and studies into the effects of unemployment on young people have several valuable recommendations for limiting the damage.

Long-term unemployment has well-documented negative effects. Long-term furlough, however, is a new phenomenon. The RF has called on the government to pay attention to the potentially harmful effects of this state of suspended animation, which signifies loss of earnings as well as an opportunity cost in the loss of skills and progression that would have been gained by young people if they were in employment.

Responding to the gap identified between programmes supporting education and employment, Touchstone’s reportacknowledges that “young people are increasingly engaged in both education and employment and are also likely to move between the two over their early years in the jobs market”. They suggest the development of a “cohesive service that supports all young people to boost both their learning and employment prospects”. This is echoed by the RF which advises: “Government should draw a clear link between the youth employment and education policies that exist across the Department for Work and Pensions and the Department for Education so that work coaches and young people are able to clearly navigate and access them, in line with the Prime Minister’s promise for an “opportunity guarantee” for young people.” Similarly, a briefing paper for the UK Commission for Employment and Skills reports that the combined focus on employment and skills plays an important role in maintaining low levels of youth unemployment in other northern European countries, noting that in the UK, “there has been a sustained decline in the number of British young people combining study and employment.”

Touchstone has proposed that, to increase engagement in study and employment, services for under-25s are separated from the core Jobcentre Plus services. The separated services would aim to support young people to move into education or employment or both, giving them access to careers advice and enabling caseworkers to better track progress and participation. The same report suggested the benefits of looking again at the role of FE colleges in supporting young people to stay in education and training. Channelling more funding into extending the scope of services that have historically supported young people needing a “second chance”, could help to minimise youth unemployment.

Finally, the study by Gianni De Fraja, Sara Lemos and James Rockey found that “measures intended to assuage youth unemployment are likely to be more effective in the long term when they are specifically targeted at new entrants into the labour market.” This backs a focus on supporting new graduates to find secure work or to remain in education, thereby minimising the damaging impact of early unemployment.

Thankfully, it is not all doom and gloom. Youth employment trends show us that while young people will always be hard hit during a recession, employment of this group tends to rise quite rapidly once the economy and labour market recover. In 2010, two-thirds of recruits to new jobs were aged under 25, according to the Chartered Institute of Personnel and Development. With the right measures in place to support young people at risk of long-term unemployment, and to aid those newly entering a devastated jobs market to start their careers, the negative impacts of youth unemployment can be mitigated.

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