Youth unemployment in the UK has skyrocketed to staggering heights. The unemployment rate for young people 16-24 year-olds is 15.3%, the highest level in 10 years. This disturbing pattern comes on the heels of an official national living wage increase and recent changes to tax laws. Consequently, clearer emissions standards are chasing a wave of young workers out of productive employment. Over 1 in 4 young people in this age group are NEET—not in education, employment or training. This tragic number has more than doubled since 2005.
From April, the national living wage will increase by 6.7%, to £12.21 per hour. While needed, this change does little to support workers. Economists worry that it could have the opposite effect on employment, particularly for younger workers seeking to make their first foray into the labor market during a time of considerable economic strife.
Economic Context and Youth Employment Challenges
The long-term economic recession has taken a huge toll on the availability and accessibility of jobs for young people. Recent changes including the increase in the headline rate of national insurance contributions have further muddied waters. It had increased from 13.8% to 15%. The chancellor has made the unusual move of cutting the earnings threshold for this tax from £9,100 to £5,000. This latest step only increases the financial burdens placed on young workers and employers alike.
Sanjay Raja, chief UK economist at Deutsche Bank, said that the situation was complicated given how difficult it is to hire in today’s climate.
“I don’t think a higher minimum wage is a bad thing. But given the payroll cost increases we’ve had in the past year, this could have deterred employers from hiring.” – Sanjay Raja
As youth unemployment rises, it becomes clear that many young people face multiple barriers to entering the workforce. Reducing the learning loss Covid lockdowns inflicted on millions of children will be a multiyear effort. As a consequence, millions are now unprepared for jobs that are available.
Impact of National Insurance Contributions on Employment
Yet last month Rachel Reeves increased the burden of employer national insurance contributions by £25 billion. Youth advocates have charged that this change has deepened the crisis of youth unemployment. The Bank of England has now recognised that this increase in unemployment for young people is an unintended consequence of this hike.
The labor market for those 16 to 24 is still precarious. The experts cautioned that increased costs could make it less attractive for businesses to hire this age group. The employer NICs carve-outs on annual earnings under £50,270 do provide relief for workers aged under 21 and apprentices under 25. Thousands of people never get a shot at consistent work.
Certainly economic factors are the primary concern. Moreover, there is a deepening mental health crisis among youth who are joining the workforce during these challenging and uncertain times. As Transportation for America Director Ben Harrison noted, there are deep societal implications to rising unemployment rates, particularly in how they might impact mental well-being.
“The higher up you go, the bigger the opportunity cost to replace workers who firms have put more investment and training into, and who are more difficult to replace.” – Sanjay Raja
The Role of Automation and Mental Health Considerations
Industry experts warn that any kind of automation as well as AI technologies are just starting to change the kinds of jobs younger workers traditionally filled. As Raja noted, AI might not be ready to completely change labor markets just now. Nonetheless, the increasing deployment of automation is creating an unmistakable story.
“All of those factors taken together, it’s not necessarily too surprising you’ve seen this rise in mental health issues since the mid 2010s.” – Ben Harrison
As young people navigate these hurdles and more, having meaningful support is essential. Policymakers need to focus on strategies that prepare them to adapt and thrive in the changing economy.
“You’re in the perfect space where doing menial tasks – spreadsheets, etc – is being disrupted.” – Sanjay Raja
As young individuals navigate these challenges, policymakers must consider how best to support their entry into a changing job market.