Creative thinking needed to prevent repeat of the 1980s
In 1958, Great Britain embarked on a unique statistical experiment. It established the Perinatal Mortality Study to track the lives of all children born in Great Britain during one week in March of that year. This group, now well into their fifties, have been regularly surveyed to find out how their lives have changed over the years, most recently in 2008- 09.
One of the surveys was carried out in 1981, just as the UK economy was in deep recession and youth unemployment had ballooned. Many of the 1958 cohort found it difficult to find any job, far less a well-paying job.
Subsequent surveys found that those who had difficulty finding a job in the early 1980s carried the negative effects of that experience with them. They subsequently reported that they were more likely to be unemployed, have lower wages and be generally less satisfied with their lives, compared to their peers who had not experienced unemployment when young.
Though the statistical reasoning involved in establishing this result is quite tricky, this study has provided the most convincing evidence of the "scarring" effects of youth unemployment.
The lessons of the early 1980s are now being reconsidered. Many economists are wondering whether another generation of young people will find it difficult to realise their lifetime potential due to the weak state of the labour market. At present the unemployment rate of those aged 16-19 in Scotland is 25.7 per cent - around more than three times the overall adult rate of 7.6 per cent.
Young people have real difficulties in finding a job, particularly those who leave school without qualifications. This covers most of those in the 16-19 age group, because those with SQA qualifications are mostly in further or higher education and are much less likely to report themselves unemployed. The 16 to 17-year-olds have a particular problem of transition. They lost their eligibility for means-tested benefits in 1988. More recently, their level of support from job centres has declined. In 2000, 70 per cent of this age group was in work; 10 years later it is 40 per cent.
The present recession makes it extremely difficult for the young unqualified to access work. They tend to have very low self-esteem and may come from a background where working is very much the exception, rather than the rule. So looking for a job is not a behaviour to which they can easily relate. And in the more deprived parts of Scotland, many unemployed young people are very unwilling to travel even moderate distances to find work.
Clearly, some of the problems of this age group start while they are still at school and perhaps even before they have reached school age. But the lack of support in the jobs market and the general bias towards "academic" study does them no favours.
The Coalition Government is looking at giving them some support through the Job Centre Plus network and for that support to carry on through the Work Programme. There will probably be increased expectations that they will be mentored before and after the school-to-work transition.
The experience of the young during the recession contrasts strongly with older workers. The recession has not been too bad for the more mature. The unemployment rate among 50 to 64-year-olds in Scotland is only 4.1 per cent. Right across Europe, older workers are staying employed longer. This may be making it more difficult for young workers to access jobs. On the supply side, older workers are staying on to enhance their pensions, which may have been damaged by the financial crisis. On the demand side, employers may increasingly be looking to the reliability of older workers.
The young unqualified also compete with migrants from other parts of Europe. Again, employers will hire from this group if they believe them to be, pound for pound, more skilled and reliable than native workers. And often they make the choice in favour of the migrant worker, even though hourly wages for the young are very low. From the employer's perspective, hiring someone is a risk, particularly for small businesses where making the wrong staffing decision can have a marked impact on viability. If they feel that the young person is not selling themselves particularly well, they may well opt for the older worker or the migrant.
Contrast the youth labour market in Scotland with that in Germany, where technical education has a much higher status. The German youth unemployment rate is only 30 per cent above the adult rate, while in the UK it is 2.5 times higher. Why? Because in Germany the education system is not so focused on academic outcomes, and employers, technical colleges and schools work much more closely together to find a route that helps young people make the transition between school and work successfully.
Education and training systems take a very long time to change. The German system has developed over decades. Achieving better outcomes for unqualified young people in Scotland will be a long and painful process, especially with the economy likely to remain in a depressed state even over the medium term. But the education system and employers working together can start to make a difference if they have the right incentives. For education, this may mean focusing more on external reference points, such as arranging work placements, rather than on academic outcomes.
The trick will be for the Scottish Government to design policies to provide relevant incentives and so prevent another "lost generation" of young Scots.
David Bell is professor of economics at Stirling University.