There is wide debate about divergence in monetary policies. However, another divergence is in place, albeit, less commented: unemployment. It is clear that British youngsters are penalised in terms of employment with respect to the rest of the population. But why does this happen?

table
Source: ONS, data refers to October-December 2015.

There are several issues affecting the youth labour market. To start with, there seems to be an apparent skills mismatch. The Futuretrack Stage 4 Report (FS4R) from the Warwick Institute For Employment Research concluded that, in winter 2011-2012, 32% of graduates had jobs that did not require the graduate skills they had gained. 12% were unemployed and another 12% had experienced at least one unemployment spell since graduating. Art graduates are more likely to suffer from skills mismatch than those looking to become doctors, dentists, teachers and engineers.

chart 1
Source: Futuretrack Survey Stage 4 Report

Another barrier is nepotism. A recent research study by the Social Mobility and Child Poverty Commission found that less able but more affluent children were 35% more likely to become high earners than their smarter but poorer peers. Another study from Debrett’s Foundaton shows that rich families are able to get their sons prestigious work experience, valuable when looking for a job later. The study said this fact was due to well-off families helping their children overachieve by using their social networks to find jobs. Indeed, word of mouth or recommendations are still the most common channel to fill junior roles (23% of cases in 2014), as shows the Catch 16-24 report from UKCES (UK Commission for Employment and Skills).

chart 2
Source: Catch 16-24 report, UKCES

Moreover, there are also problems on the demand side: companies value work experience yet many do not even offer it  – the so-called Catch 22 situation. The Catch 16-24 report estimates that 66% of employers say work experience is a critical or significant factor in their recruitment, but, only 30% of them offered work experience placements.

As a consequence, youngsters are willing to accept unpaid internships or to be underemployed. The first Annual Internships Survey from graduate-jobs.com states that over 60% of respondents would still apply for an unpaid internship and 76% would apply for an Internship that only paid expenses. The survey also revealed that students do not have particularly high expectations about how much they should be paid. They indicated £16,000 as the most suitable salary for an internship and less than 1% thought that salaries for internships were too low. The FS4R estimates that 41% of graduates undertake unpaid work during course or after graduation.

chart 3
Source: Futuretrack Survey Stage 4

The generation gap, in terms of job opportunities, also affects income and house ownership.

Recent research by the Institute for Fiscal Studies (IFS) affirms that young people risk becoming less wealthy than previous generations unless the rate at which they are accumulating wealth picks up. This could be the reason why, among households aged 25–34, nearly one-quarter (24%) do not expect to receive any income from the state pension in retirement, while nearly half (44%) do not expect to receive any income from a private pension. This pessimistic expectation is true: unstable jobs and long unemployment spells negatively affect your future pension, as underlined by the OECD.

In the short-term, over 50s own most of the British asset wealth, including housing. Generational differences in wealth, together with the housing bubble and the credit crunch due to Great Recession, have resulted in the rise of Generation Rent. Generation Rent is the name given to the generation of young adults who cannot afford to buy a home. A housing market analysis from PwC states that 75% of those aged 25-34 will live in private rented homes by 2025, compared with 48% in 2013. On the opposite side, 75% of over 55 own their home now and the same trend will continue in 2025. According to the Council of Mortgage Lenders, 71% of people born in 1970 were homeowners by the time they were 40, but among those born in 1990 the figure is likely to be just 47%. Campaign group Generation Rent predicted that, by 2021, renters could outnumber homeowners 104 out of 650 UK constituencies.

Last but not least, there is little political participation of British youngsters. Youth participation in demonstrations itself is misleading: the vast majority of young people in Britain have little or no contact with political bodies or political activities and only about 40% turn out to vote, says a research by Ipsos-Mori.

In a nutshell, the UK is no country for young men. What should the nation do to stop this vicious cycle?

Since the main cause of this situation is the labour market, we should start from there. Schools, the government and companies should team up to ease the transition from school to work by mixing more formal education and in-company training. Some interesting lessons regarding the topic can be drawn from the German education model.

A company culture change is also needed: businesses should understand that more accurate recruitment, based more on candidate screening and job posting, can result in better candidates than word of mouth-based hiring. This new type of recruitment would require more time, but not necessarily more financial resources. Job board platforms or professional networking sites like LinkedIn make an easier and cheaper option for head hunting and CV screening.

The housing bubble solution is no less complicated. The upward trend of housing prices is partly due to an accommodative monetary policy in the UK, designed to spur growth. At the same time, low-interest rates push up the value of property because they make it cheaper for people to borrow money to buy a house. Despite the fact interest rates could keep rising throughout 2017, housing prices will also continue to rise. Indeed, low rates are not the only responsible of the housing market bubble in the UK. The prices are under pressure due to housing supply shortfall, says a study from the Royal Institute of Chartered Surveyors (RICS). The research reveals a “dramatic fall in inventory on the books of estate agents”, since “there simply has not been enough properties coming back to the market to replenish the stock sold”, despite the increase in the volume of homes completed after the recession.

Finally, we need more political participation by youngsters, who need to stand up for their own beliefs and interests. 

More By This Author:

Douglas Linares Flinto: “Why and How I am Fighting Corruption in Business”

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