Britain's relative problem with youth unemployment has been growing for a while

October 13, 2011 6:51 PM

It is a real tragedy that so many young people aren't able to find work. According to the Office for National Statistics, 721,000 16 to 24 year olds were unemployed in the three months to August this year, excluding full-time students. Lots of young school leavers and graduates are facing pretty grim prospects with a slow recovery from the economic crisis across the developed world.

But it is important that we are clear about the source of our particular relative problem. The graph below uses OECD data to show how the percentage of young people not in education, employment or training (NEETs) rose in Britain between 1997 and 2007 - before the recession - while falling in the rest of of the developed world:



So why did that happen?

Young people with less experience tend to be less valuable to their employers. That's why we tend to earn more as we get older. If the Government takes action that makes it more expensive to employ people the first to be priced out of employment, as it costs more to employ them than it is worth an employer paying, are often young (or female, or from an ethnic minority).

Politicians have done a series of things that have made it more expensive to employ people, particularly on low incomes:

  • Increased employers' national insurance.

  • Implemented domestic regulations like the National Minimum Wage.

  • Implemented European Union regulations like the Agency Worker Directive.


By contrast, back in 2002 then German Chancellor Gerhard Schröder confronted the country's economic malaise by cutting non-wage labour costs. He took on opposition from the haves who liked the expensive entitlements that those policies provided. Along with an education system preparing people for the world of work, which hopefully reforms like free schools can start to build here, the action he took then has been critical to Germany's strong economic performance now.

Other taxes like Corporation Tax are also important. If they deter investment and enterprise then that means fewer employers looking to hire people in the first place. And we need to reform a benefit system that seriously undermines the incentive for some people to work.

But the critical thing now is that we stop driving a wedge between what employers' are able to pay and what employees receive that leaves many sitting at home on benefits who should be in work. Cutting non-wage labour costs is vital to help the most vulnerable people in the labour market.It is a real tragedy that so many young people aren't able to find work. According to the Office for National Statistics, 721,000 16 to 24 year olds were unemployed in the three months to August this year, excluding full-time students. Lots of young school leavers and graduates are facing pretty grim prospects with a slow recovery from the economic crisis across the developed world.

But it is important that we are clear about the source of our particular relative problem. The graph below uses OECD data to show how the percentage of young people not in education, employment or training (NEETs) rose in Britain between 1997 and 2007 - before the recession - while falling in the rest of of the developed world:



So why did that happen?

Young people with less experience tend to be less valuable to their employers. That's why we tend to earn more as we get older. If the Government takes action that makes it more expensive to employ people the first to be priced out of employment, as it costs more to employ them than it is worth an employer paying, are often young (or female, or from an ethnic minority).

Politicians have done a series of things that have made it more expensive to employ people, particularly on low incomes:

  • Increased employers' national insurance.

  • Implemented domestic regulations like the National Minimum Wage.

  • Implemented European Union regulations like the Agency Worker Directive.


By contrast, back in 2002 then German Chancellor Gerhard Schröder confronted the country's economic malaise by cutting non-wage labour costs. He took on opposition from the haves who liked the expensive entitlements that those policies provided. Along with an education system preparing people for the world of work, which hopefully reforms like free schools can start to build here, the action he took then has been critical to Germany's strong economic performance now.

Other taxes like Corporation Tax are also important. If they deter investment and enterprise then that means fewer employers looking to hire people in the first place. And we need to reform a benefit system that seriously undermines the incentive for some people to work.

But the critical thing now is that we stop driving a wedge between what employers' are able to pay and what employees receive that leaves many sitting at home on benefits who should be in work. Cutting non-wage labour costs is vital to help the most vulnerable people in the labour market.

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