Stark variations in youth unemployment levels across the UK could impact local economic growth

29 August 2016

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  • North East has the highest youth unemployment rate amongst UK regions (18.3%) compared to the lowest rate of 11.2% in the East of England
  • Bradford, Middlesbrough, Swansea and Wolverhampton have the highest youth unemployment rates in the country (in excess of 25%)
  • Distribution, hotels & restaurants sectors offer most employment opportunities, as biggest employers of young people by 2030

There is a huge disparity in the numbers of young people being employed across the UK’s regions and cities, with Bradford, Middlesbrough, Swansea and Wolverhampton identified as having the highest rates of youth unemployment in the country, in excess of 25%. According to the report by EY in association with the EY Foundation (an independent UK charity), this could have an impact on the UK’s aspiration to achieve ‘inclusive growth’, particularly in a Brexit environment.

The report revealed youth unemployment rates ranging from 18.3% in the North East to 11.2% in the East of England. Coventry had one of the lowest youth unemployment rates out of the 48 UK cities reviewed, at 8.2%. This comes at a time when the UK’s future supply of labour and skills is at the forefront of many employers’ minds since the vote to leave the EU in June.

The report revealed an excess in the UK unemployment rate for 16-24 year olds. Between March and May 2016, youth unemployment rates were 28.7% for 16-17 year olds and 11.6% for 18-24 year olds in the UK.

However, the rate of youth unemployment in the UK compares relatively well to that in most other countries in Europe. Although the UK rate is almost double that in Germany, it is significantly lower than the youth unemployment rates seen in France, Italy and Spain – with rates reaching almost 50% in these countries.

Mark Gregory, EY’s Chief Economist, says: “Youth unemployment rates have fallen from the peaks we saw during the recession, when 40% of the UK’s 16-17 year olds were facing unemployment. However, a stubbornly high number of young people remain excluded from the labour market, which could be further exacerbated by a period of weaker economic growth in these uncertain times ahead. History has shown us that young people are more exposed to economic volatility and industry restructuring than the population as a whole.

“The skills agenda is fast becoming one of the biggest priorities for UK business, with Brexit also likely to impose some restrictions to the free movement of labour in the future. It has never been more important to ensure the UK has the right mix of skills and talent, both nationally and locally, and young people are core to this.

“The latest annual education and skills survey by the CBI and Pearson showed that 77% of employers expect to need more staff with higher skills in the years ahead. It’s therefore vital that coordinated action is taken by business and government to invest in the development of young people to avoid a widening of the UK’s skills gap, particularly as the demand for low-skilled workers starts to decline in some sectors.”

Regional disparities could be damaging to economic growth

According to the report, in 2015 the North East has the highest youth unemployment rate amongst UK regions (18.3%), which partly reflects the region having the highest total unemployment rate: 8% versus the UK’s 5.3%.

Between 2004 and 2015, youth employment rose only in London and (marginally) in the South West, falling in the other seven English regions, as well in Scotland and Wales. London’s youth unemployment rate is high compared to other regions (17.9%), but on a positive note it also has the highest proportion of the population aged 18-24 who are in full-time education (39%). The East and the South West have the lowest proportion in full-time education (26% and 29.4%) and the lowest unemployment rates for young people.

UK cities are ‘hot spots’ for youth unemployment

The report reveals there are even greater variations in youth unemployment rates between cities and their regional economies. The majority of the 48 cities examined had youth unemployment rates higher than the regional or national average. The largest gap was seen in the East Midlands, where Leicester’s 23.6% youth unemployment rate was 11.9 percentage points above the regional average of 11.7% (with the East Midlands being one of the lowest in the UK).

Mark Gregory, EY’s Chief Economist, says:The wide variations in youth unemployment rates between the UK’s cities and regions underlines the importance of locally devised policy interventions, albeit coordinated nationally. This could potentially be accompanied by more devolution of skills and education to areas like the Northern Powerhouse and the Midlands Engine. However, the task of tackling all these issues cannot be left to Government alone.

“A coordinated response from Government and business is needed to close the skills gap and secure the future prospects of young people, and the UK’s economic prosperity and growth. At root level, employers have an important role to play by providing young people with the vital skills, experience and opportunities necessary to secure work in the 21st century.”

Sharp falls seen in number of young people employed in manufacturing

According to the report, youth employment levels declined by 166,000 from 2004 to 2015, with the biggest fall seen in the manufacturing sector, with a decline of 109,000 (28%) over the same period. In the last decade, construction (25%) and financial & business services (4%) have also reduced their employment of young people, along with transport & communications (26%), distribution, hotels & restaurants (4%). 

In most cases, these declines have been greater than the total fall in employment across the sectors, meaning that young people have been hit disproportionally hard. The only two exceptions are agriculture and public services, where employment of young people grew faster than total employment. Public services saw an increase of 117,000 in the employment of young people over the same period, while other services (such as entertainment, sports and culture) have seen a 40,000 rise.

An analysis of youth employment by industry sector reveals that young people are being recruited in relatively smaller numbers than older workers into higher-pay sectors. This suggests that some of the traditional routes to work and skills have become harder to access. Given the announcement made by the new Prime Minister to fund an industrial strategy, it’s important that future skills development should be delivered against those target industries that support access to employment for young people. 

Employment growth expected in distribution, hotels & restaurants

However, the two sectors that currently employ the highest proportions of young people – relative to their total employment – are set to grow. The report forecasts that between 2015 and 2030 the UK’s employment in distribution, hotels and restaurants will grow by an average of 0.4% a year, matching the forecast growth of the UK’s total employment. Over the same period, the report forecasts employment growth in other services by 0.9%, strongly outpacing the average across UK sectors.

Conversely, the sectors young people are most likely to have difficulty finding employment opportunities in are mining & utilities and manufacturing. Both sectors are expected to see a fall in employment levels up to 2030 and already tend to employ fewer than average young people (9% for mining & utilities and 9.6% for manufacturing, compared to all sectors 12.8%).

Giving young people better working prospects

Maryanne Matthews, Chief Executive of EY Foundation, an independent UK charity set up to help young people who face barriers in the labour market to find pathways into work, says: “Maturing workforces, demands for new skills in a knowledge economy, and a projected growth in the number of high-skilled jobs over the next few years, means that the need for employers to diversify talent has become a business imperative. Flexible and dynamic businesses rely on continuously attracting new skills and experience and yet youth unemployment remains a significant problem in the UK.”

According to the charity’s chief executive, all employers have an active role to play in ensuring young people from disadvantaged groups can make a successful transition from school into work. Yet she believes employers are missing out on the opportunity to work with and employ local talented young people either because they are not recruiting from a diverse enough talent pool or because they perceive that young people do not have the skills required for entry-level roles.

Maryanne concludes: “It is imperative that UK employers open their doors to invest in developing the skills of young people. By offering paid work experience opportunities to young people, this could lead to jobs in the future, reduce unemployment rates and help to address the UK skills gap. The more that employers play an active role in developing young people, the more we can help every young person to have better working prospects now and in the future.”