George Kerevan: The clock is ticking on youth unemployment

THE Chancellor and his allies need to create better incentives to tackle this social blight which stretches back decades, writes George Kerevan ROCKETING youth unemployment signals more than economic failure. It is fast becoming the litmus test of political competence. Last month David Cameron and Nick Clegg were was forced to modify the government’s work experience scheme for the young jobless following a noisy protest campaign against employers led by the Trotskyist SWP. Ultimately the SWP is irrelevant, but the government’s inability to convince employers of the scheme says it all. The rising political temperature can be seen in yesterday’s National Convention on Youth Employment in Dundee. This lined up a stellar array of speakers, including the feisty Angela Constance, Holyrood’s first minister for youth employment, to address the thorny problem of creating jobs for the under-25s. The issue will also be central to next week’s Budget. Chancellor Osborne is still convincing most voters of the need for austerity but he is loosing ground rapidly – especially among the middle class - over the prospect of a whole generation of young people being thrown on the scrap heap. Before I offer some solutions, we need to put the problem into perspective. First, the headline youth unemployment figure tends to exaggerate the numbers actually out of work. For instance, we count fulltime students looking for part-time work in the unemployment figures, on the grounds they influence demand and wages. So a third of the young “unemployed” in Scotland are actually attending university or college. I don’t mention this to minimise the problem but rather to argue it is soluble, with a bit of application. Beware those who use youth unemployment for their own political ends. The second point to note is that youth unemployment varies considerably between advanced industrial countries. In Spain it is over 40 per cent, though I suspect there is a large black economy. It is much lower in Holland (8.7 per cent) and Germany (9.9). Nor is there always a correlation between economic growth and youth joblessness. Sweden has grown robustly in recent years yet youth unemployment stands at 24.2 per cent – higher than in the UK. This seemingly random pattern suggests that we cannot pin youth unemployment only to the current downturn and lack of consumer demand. Boosting demand (as in the US) would certainly create jobs and bring down youth unemployment, but it will not make the problem go away. In fact, youth unemployment among those with no or limited qualifications began rising in the UK circa 2003, – so Labour can’t blame the Tories and Lib Dems. In particular, unemployment among those aged 16-17 has been climbing since the mid 1990s. This suggests we have two separate problems to deal with: first, low growth which inhibits employers from hiring, and second a deeper structural youth unemployment that is permanent. In most years, youth unemployment in the UK seems to be higher than the European average, while adult unemployment is lower. In other words, though we have a more flexible labour market for adults, Britain has a particular problem in the youth labour market. Why is this the case? It is relatively easy to hire and fire in the UK, so it is not down to employers avoiding taking on young folk they can’t get rid of. Nor is there evidence that the national minimum wage for young people – £4.98 for 18-20 year olds and a mere £3.68 for 16-17 year olds – is pricing them out of a job. (More likely, low wages act as a disincentive for some young people to look for a job.) Another proffered explanation is immigrants taking jobs from our young folk, but there is no statistical correlation between immigration and youth unemployment. Which, by a process of elimination, suggests that structural youth unemployment in the UK has to do with skills, or the lack of them. In Germany nearly two-thirds of young people undertake paid, part-time apprenticeships while continuing to attend vocational secondary schools. As a result, Germany has fewer graduates in the workforce compared to Britain, but overall the population is more employable. And (arguably) German schoolchildren are more engaged at school because apprenticeships are the norm, not the exception. Is the German model replicable? Surely Germany, with its focus on manufacturing, is better suited to this vocational approach. However, on closer inspection, German vocational schools are oriented to service jobs as well as manufacturing. There are schools devoted to teaching health care skills – perhaps the biggest source of new jobs in future decades. In Britain, a new system of state-funded apprenticeships was launched nearly 20 years ago but this has failed to match the universal scale of the German model. The SNP Government, despite budget cuts from Westminster, has boosted the annual number of apprenticeships it funds to 25,000 – 60 per cent up since 2007, a heroic effort. But this is still not enough to deal with the rising number of young jobless who have no qualifications at all. Besides, this core group also lack literacy and personal skills, and so are the least likely to take up apprenticeships. The German school system, on the other hand, prepares pupils for their apprenticeships then carefully integrates vocational training and work. Apprenticeships in Britain are more a way of coping with a skills gap after the fact and are seen as second best to a degree. We need to make apprenticeships the front end of skills creation, and keep up their numbers when the economy returns to strong growth. Finally, a few ideas to implement immediately. In next week’s Budget, the Chancellor should introduce a holiday for employer national insurance contributions when hiring young workers. Many companies are cash rich but remain risk averse, so they need a fiscal incentive to expand. Second, make secondary pupils clock in and out at school – just as they will have to do at work.