Having millions of intelligent and jobless young people sparked revolts in the Middle East and risks trouble nearer to home
The past month has provided a stark illustration of the unrest caused by having millions of young, intelligent and frustrated people on the dole. In Tunisia and Egypt, high levels of youth unemployment helped create the conditions for political change.
But it is not just countries in north Africa and the Middle East that are concerned about the high incidence of joblessness among the young. In Spain, the youth unemployment rate is 40%; in Ireland there are fears of a new brain drain and in Britain the latest trend suggests that there will be more than 1 million people under 25 without a job this spring.
Why is this happening? The short answer is that demand for labour is weak, with jobs being lost in the public sector and a virtual hiring freeze in the private sector. The employment minister, Chris Grayling, took comfort from the 40,000 increase in job vacancies in the three months to January; what he failed to mention was that this figure included openings for those taken on temporarily to conduct the 2011 census. Excluding those vacancies, the actual increase was a meagre 8,000.
This does not bode well for later this year when the big shakeout of jobs in the public sector begins in earnest. The government believes that the private sector will create 2.5m jobs during this parliament, more than enough to compensate for those lost as a result of public spending curbs. As things stand, this looks a forlorn hope. Some economists believe that unemployment could hit 3 million over the next year to 18 months, and if so unemployment will become the hottest of political issues.
Much of this debate will focus on the young, where the latest figures are a cause for concern. While unemployment for everybody aged 16 and over increased by 44,000 in the three months to December, unemployment for the 16-24 age group was up by 66,000. Total employment dropped by 68,000; for those under 25 it was down by 93,000.
What seems to be happening is that jobs for new entrants into the labour market are down on pre-recession levels. Firms have hoarded labour, so have not needed to take on more staff even when demand for their goods and services has picked up.
They have also become choosier about who they hire, preferring to employ people with job experience rather than a school-leaver or graduate with a blank CV. That has meant people over the age of 25 taking jobs that in normal times would have gone to those aged 16-24. It is not hard to see why university applications have risen by a third since the start of the recession.
The government’s argument is that the rise in youth unemployment pre-dates the coalition, pointing out that the jobless rate for the under-25s has been rising for the past decade. But David Blanchflower, a former member of the Bank of England’s monetary policy committee, says that for most of that period rising youth unemployment was caused by demographic change; the percentage of under-25s in the population started to rise at the turn of the millennium.
Gordon Brown, though, did act when youth unemployment rose in the early days of the recession: young people were encouraged to stay on at school, extra places were created at university and the Future Jobs Fund was created to help young people into work. By last year’s election, the jobless rate for the under-25s was coming down, but it has since started to climb. Labour says the scrapping of the fund and the Educational Maintenance Allowance, designed to encourage full-time education, means the jobs outlook for young people is grimmer than for the rest of the population.
The slack in the labour market explains why earnings growth – outside the City – remains sluggish. Most pay bargainers use the retail prices index as the benchmark for pay negotiations, and this measure of inflation currently stands at just over 5%. The Office for National Statistics said that average earnings in the three months to December were up 2.3% on a year earlier – a substantial cut in living standards.
There is little prospect of wage bargainers securing pay deals that match let alone beat inflation. If they do, however, they were warned by Mervyn King that there would be retribution from the Bank of England in the form of higher interest rates, which would prevent a wage-price spiral by creating even more unemployment. It was King who said the late 1990s and early 2000s were a time of non-inflationary consistent expansion, or the Nice decade for short. The governor has yet to come up with a new mnemonic; one suggestion might be High Inflation Depressed Earnings Or Unemployment Soars.