New data confirm that youth unemployment in the UK has risen during the pandemic, but some regions have been worse affected than others. Preventing long-term ‘scarring’ effects on younger generations must be a key policy focus for the recovery.
This week’s UK labour market data provide an update on increases in youth unemployment in 2020 across different parts of the country.
Unlike data for the UK as a whole, youth unemployment data for the nations and regions are released on a rolling annual basis, rather than quarterly, in order to produce a more robust estimate at the local level. This means that the latest data we have are for 2020 as a whole, and they can only be compared with the data for all of 2019.
These data should be considered alongside a number of articles on the Economics Observatory that have highlighted the ways in which the pandemic is likely to have had particularly damaging effects on younger workers (see the links on the right).
What do the new data tell us?
First, unemployment among 16-24 year olds in the UK has increased, as has been widely expected given public health restrictions and the economic impact of the pandemic.
Figure 1 highlights this, but also sets recent movements in youth unemployment in a historic context. In particular, it shows that despite the recent rise, youth unemployment remains below the levels seen following the global financial crisis of 2007-09.
Figure 1: UK unemployment rate, 16-24 year olds
Source: Office for National Statistics (ONS)
Like changes in unemployment for the population as a whole, it is likely that the continued existence of the furlough support scheme is preventing more substantial increases in unemployment. This is likely to change when the scheme finally ends – currently scheduled for the end of September 2021.
Across the nations and regions of the UK, we can see a broadly similar picture, with youth unemployment rising after the global financial crisis across all parts of the UK, but falling back in recent years – see Figure 2.
Figure 2: Youth unemployment in the nations and regions of the UK
There is now quite a large gap between the region with the highest youth unemployment rate (North East England) and the lowest (Northern Ireland), reflecting regional labour market and economic characteristics – see Figure 3.
For example, Northern Ireland has relatively high rates of economic inactivity among young people. This is a broad category encompassing different reasons (good and bad) for which people may be economically inactive. It includes people who are not working because they are sick, undertaking family caring responsibilities or in full-time education. These individuals will not be categorised as unemployed, which may offer some explanation for lower rates in Northern Ireland.
Figure 3: Youth unemployment rate, 2020
To understand the effect that the pandemic has had on these numbers, it is useful to look at changes in headline youth unemployment in 2020 relative to 2019. This flags some interesting regional differences, as Figure 4 shows.
Figure 4: Percentage point change in 16-24 unemployment rate
In particular, it seems that youth unemployment may actually have fallen in some parts of the UK during the pandemic, while rising significantly in others. It is not entirely clear what is driving these differences, but local labour market characteristics, including the sectors in which people are employed and local competition for jobs, are likely to be playing a role.
One issue, mentioned earlier, which means that we should be cautious about reading too much into one update of these data – rather than looking to longer-term trends – is that youth unemployment at the regional level is measured with greater uncertainty than at the national level.
The way this is reported is with confidence intervals, denoting the range in which the ‘true’ value is likely to lie. To highlight this issue, Figure 5 plots the UK and Scottish youth unemployment rate over time alongside their confidence intervals.
Figure 5: UK and Scottish youth unemployment rate and confidence intervals
This illustrates that UK youth unemployment is measured more precisely than that of Scotland (as shown by the proximity of the confidence lines, which are paler, on the chart), reflecting the large sample of respondents to the Labour Force Survey (LFS) on which it is based.
Thus, some of the smaller variations that we see in Figure 4 may be reflective of ‘noise’ in the data – uncertainty based on smaller sample sizes. But for the larger movements, it is more likely that these reflect true changes in youth unemployment.
The ONS has published updates on the effect that Covid-19 has had on the reliability of the LFS, in particular by moving from some in-person surveys to all surveys being completed remotely.
The latest data document that youth unemployment is on the rise again in the UK. Given the sustained closure of large parts of the economy where young people tend to find work – for example, in retail, cafes and restaurants – this is not that surprising.
While the data suggest that there have been some clear regional differences in how youth unemployment has evolved through 2020, it is important not to read too much into some of these smaller movements in this one data update. Nevertheless, this is certainly something that we need to monitor through the coming months.
As set out in a series of Economics Observatory articles, periods of unemployment can have significant, persistent and negative effects on the labour market experience of young people – these ‘scarring’ effects should be a key focus of policy as the UK seeks to recover from the pandemic.