No neat solution for NEETs

The New Year turned with range of data illustrating that more young people in the UK are now in the ‘NEET’ category – not in employment, education or training. It’s a source of concern both in the Treasury, and in households up and down the country. Why is it happening, and what is to be done?

The standard response to these questions has been to point to the meaningful nature of work, and to the cold, hard economic cost to the taxpayer, of supporting workless people. But signs are, that the terms of engagement have changed. The reasons for arriving in the NEET group are varied, and not amenable to a single quick fix.

By the end of last year, 13% - roughly 1:8 – of 16-24 year olds were NEET: 40% looking for work, 60% ‘economically inactive’. In years gone by, a fair tranche would have been young parents, but the decline in teenage pregnancies – generally regarded as a policy success story – means that this is rarer now. Today, young men are more likely to be NEET than young women: around 15% compared to about 11%. For some time, the majority of university students have been women – probably a significant factor in this trend.

One big driver for lower rates of labour market activity, is the rise in mental health problems. Around a third of young people report such disorders now, up from a quarter 20 years ago. And those with mental health issues are more likely to be out-of-work: 21%, compared to 13% of people without health issues. As the NHS mental health care system is vastly overstretched, this issue is unlikely to diminish in the near future. Those with the least resources are likely to suffer most, through long waiting lists or lack of access to appropriate treatment.

For those with long-term health conditions – mental or physical – the UK system carries disincentives for maintaining a toehold in the labour market. As Sarah O’Connor addresses here, we have among the least generous sick pay regimes of more prosperous countries. We don’t pay people at all for the first few days of illness, and thereafter the level of sick pay is so low, that it is economically punitive for people with chronic conditions who find themselves needing time off repeatedly.

Outside of health issues, the outlook for young people in education and work is often bleaker than for many of their parents. For graduates, student loans and wage stagnation mean that the returns on graduate jobs are lower than they used to be.While those who study STEM or economics may prosper in the worlds of tech and finance, many others see how jobs such as teaching or administration no longer guarantee a financially secure future.Even medicine and law no longer deliver the blanket professional security they once did, and the service sector, in which the UK excels, is often precarious or lower-paid for many. Add in the high cost of housing and rising taxation, and it is easy to see why making ends meet is particularly difficult for the emerging generation.

The Resolution Foundation think tank has recently shown how graduate wage advantage, compared to minimum wage, has declined recently, with median salaries in a ‘graduate job’ standing at 1.6 times the minimum wage, compared to 2.5 times the minimum wage, 20 years ago. Arguably, this climate makes higher education less attractive - although, of course, it continues to offer many intangible benefits, outside of economic reward. And it is a good thing that the least well-paid have seen their position improve, as the minimum wage has increased. What this evidence does not illustrate, is the extent to which the highest earners have pulled away from the rest. If you are one of the graduates in a top tech, finance or ‘Magic Circle’ law firm, you may very well be insulated from mass trends in earning and lifestyle for your generation. It is the ‘middle middle-classes’ whose relative position has likely been squeezed the most.

So, what’s in store for NEETs? The 40% seeking work need the much-promised economic growth to expand options and increase pay, and they may hope that increased investment in public services leads to more decent public sector jobs. The government’s upcoming industrial strategy includes a focus on creative industries which could improve prospects for arts and humanities students, and raise regional employment rates. Young people with health issues will want to see improvements in the NHS, and better sick pay in employment. Labour is planning to make sick pay a day one right, and to extend eligibility amongst lower earners, in its Employment Rights bill. Overall, better working conditions and higher pay may offer the best incentives for exiting the NEET group. A more flexible, personable management style is also a regular ask among the younger potential workforce. The immediate prospects do not look brilliant, but without improving opportunities for young people, things could well get messier.