Youth unemployment to cost UK economy £7bn next year, report warns

Analysis by The Prince’s Trust and Learning and Work Institute also reveals younger workers will miss out on more than £14bn in lost earnings over the next seven years

Youth unemployment will cost the UK nearly £7bn next year, according to a new report, which warns that it will remain high despite the economy starting to recover from the pandemic.

Analysis from the Learning and Work Institute and The Prince’s Trust has forecast that the economic cost of youth unemployment in terms of lost national output would increase to £6.9bn in 2022.

On top of this, the report said the cost to the Treasury of lower tax revenues and higher benefits spending would amount to another £2.9bn next year, while over the next seven years young people themselves will miss out on £14.4bn through lost earnings and lower employment prospects.

The report found that while some areas of the economy might begin on the road to recovery, young workers are underrepresented in these sectors, and the industries that typically employ young people will be hardest hit in the long term.

Stephen Evans, chief executive of the Learning and Work Institute, said young people had been at the forefront of the coronavirus jobs crisis. “While we are hopefully slowly emerging from the worst of the pandemic, the legacy will be with us for years to come in the form of higher youth unemployment,” he said.

“This is not just bad for young people. It will have a huge hit on our economy and our public finances, and it risks a long-lasting scarring impact on those affected.”

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David Hearne, researcher at the Centre for Brexit Studies, said the estimated earning loss of £14.4bn over seven years could be an underestimation: “We know from previous recessions that unemployment can have a lasting ‘scarring’ effect and that this is particularly pronounced for the young.

“In 2017, my generation, who were in our 20s when the [2008] financial crisis hit, were still suffering double the hit to our earnings that those cohorts who preceded us and those who followed have. As someone who graduated into the storm of 2008, I have enormous sympathy for those struggling to start a career today.”

There were things employers could do to help, said Hearne, including taking on more younger talent through apprenticeship schemes, graduate employment or other routes. “Even temporary roles can help,” he said. But “big-hitting interventions will probably have to come from the government”.

Although the government has made some headway on this with the Kickstart scheme – launched last year to create job placements for young people – Lizzie Crowley, skills policy adviser at the CIPD, said more support was needed. 

“Any programme that seeks to provide some protective benefits for young people, whether it’s trying to improve access and opportunities or trying to connect with the labour market, is welcome, but we do need to go further,” she said.

“It’s difficult to create jobs when there’s no demand in the labour market. There’s a real need to find ways to support employers to create more employment opportunities. Measures like Kickstart will only be able to achieve so much in a period of depressed demand. Focusing on how to boost job creation is the nut we have to crack.” 

The report, based on new labour market analysis and surveys with employers and young people, also found inequalities among different groups of young people during the pandemic.  The decline in working hours for young people with no qualifications (34 per cent) is five times higher than those with a degree-level qualification, and the report projected demand for employees with lower-level qualifications would fall.

This inequality was a pattern seen in other downturns, said Crowley. “Individuals who’ve come out of university with a degree end up taking employment opportunities that don’t match their skills and qualification levels, which makes it much more difficult for young people with lower-level qualifications with disadvantaged backgrounds to get a foot on the ladder,” she explained. 

“We saw this in the last recession, too. From an employer’s perspective, they need to look at how to help those with disadvantaged backgrounds rather than cherry-picking graduates.”