The Institute for Public Policy Research found that the traditional link between youth

unemployment and economic growth has been broken (The Independent, 2013). Unemployment
is defined as the existence of a section of the labour force able and willing to work but unable to
find gainful employment(Bannock and Baxter, 2011: 391). The ONS uses the International
Labour Organisation (ILO) definition for unemployment. Under ILO guidelines, anybody who is
aged 16 and over without work, available for work and seeking work is unemployed
(Detini.gov.uk, 2014). Youth unemployment in the UK is the level of unemployment among
young people, defined as those aged 1624 (Ons.gov.uk, 2014). The unemployment rate for
people aged 16-24 was 17.7% in November 2013 to January while UK unemployment rate
remained steady at 7.2% (McGuinness, 2014; Ons.gov.uk, 2014). The purpose of this essay is to
assess why youth unemployment was so high in 2013 and the eventual consequences for the
government. After first reviewing the methods of measuring unemployment it examines the
causes of unemployment. Then the reasons for the sharp rise in youth unemployment will be
provided. Finally the consequences of high youth unemployment and the policies adopted by the
government will be evaluated in order to lead to a conclusion.
There are two different methods of measuring unemployment. The traditional measure is the
claimant count. This includes as unemployed, those who are eligible to claim the Job Seeker's
Allowance (JSA) (Pettinger, 2010). The main measure of unemployment in the UK is the
International Labour Organisation count. This is taken from a wider survey of employment
called the Labour Force Survey. To be counted as unemployed, an individual has to be without a
paid job, be available to work within a fortnight and has actively searched for work in the
previous four weeks (Anderton, 2008). Of the two measures, the ILO unemployment is likely to
be above the claimant count hence there are various regulations limiting the availability of the
JSA (Gillespie, 2011).
Unemployment has a variety of causes which fall into two broad categories: equilibrium
unemployment and disequilibrium unemployment. The diagram (a) below illustrates the
equilibrium unemployment. Equilibrium unemployment L1L2is the difference between those
who would like employment at the current wage and those willing and able to take a
job(Sloman, 2006: 401). The DL curve shows the aggregate demand for labour. The job
acceptance curve (JA) shows the aggregate supply curve of labour consisting of those who are

willing and able to accept a job at a given real wage. The labour force curve (LF) shows the
number of people in work or looking for work at each real wage (Stanlake et al., 2000).
According to Gillespie(2011: 428) the level of unemployment at a wage rate of W 1 is known as
natural level of unemployment.
The natural rate of unemployment.
(a)
JA=SL

Real Wage

LF

W1

DL

L1

L2

Quantity of labour

Source: Based on Gillespie (2011: 428)

There are three types of equilibrium unemployment. One is structural unemployment. This
occurs when the demand for labour is less than its supply in an individual labour market in the
economy (Anderton, 2008: 194). A key factor is immobility of labour, both geographical and
occupational. A particular reason is the fact that youth workers lack the necessary skills or
qualifications and this exacerbates the lack of aggregate demand for them (Grant et al., 2003).
According to Ons.gov.uk(2014) by the age of 24 the proportion of those who were unemployed
in 2013 was lower for degree holders at 8% compared with 12% for those with GCSEs. As the
Centre for Cities (Pettinger, 2009)has reported there is a correlation between youth
unemployment and poor GCSE results in Mathematics and English.
80

Disequilibrium unemployment

A second is frictional unemployment. According to Sloman (2006: 403) it occurs as a result of

imperfect information in the labour market. It takes time for workers to find jobs and in the
meantime they are unemployed. This includes young people seeking for their first job (Grant et
Number
of workersin 2013 was 22%
al., 2003). The proportion of 21 year olds with a degree who
were unemployed
Source:Based on Sloman (2006: 401)

and for those with GCSEs as their highest qualification it was 18% (Ons.gov.uk, 2014). By
analogy with the statistics regarding the age of 24 from above, it can be noted that for those with
the higher qualification, the likelihood of being unemployed has fallen more sharply. A third is
SL

seasonal unemployment. Sloman (2006: 404) associates it with industries or regions where the
demand for labour is lower at certain times of the year. For example, seasonal industries such as
staffing ski resorts and summer camps for extreme sports create a fluctuation in youth
unemployment.
The diagram (b) below illustrates disequilibrium unemployment. The same notations as in the
diagram (a) are used for curves. Sloman (2006: 401) defines disequilibrium unemployment as a
result from real wage rates in the economy being above the equilibrium level.In this case
disequilibrium unemployment is caused by an excess supply of labour of A-B at a wage rate of
W1 (Sloman, 2006). For this to occur, there must be a stickiness in wages, so that the real wage
does not immediately fall to the equilibrium level We (Sloman, 2006).
DL

W1
W2

B
(b)

Average (real) wage rate

There are three possible causes of disequilibrium unemployment. Firstly, classical

unemployment arises when real wage remains too high for equilibrium (Gillespie, 2011: 424).
Sloman (2006: 401) notes that this could also be caused by the government setting the national
minimum wage too high or by trade unions which drive the wages above the market clearing
level. Regarding youth unemployment, it can be argued that an important role is played by labour
market rigidities and wages being above the equilibrium rate. The UK has the special
introductory national minimum wage rate of 3.72 for the for 16-18 old (Gov.uk, 2014).
However, nominal wage growth has been muted leading to falls in real wages which in turn has
increased the potential for real wage unemployment (Pettinger, 2009).Two demand side policies
have been introduced by the Youth Contract which particularly deal with this issue. One is a
funding of 160,000 wage incentives worth up to 2,275 for each 18-24 year old an employer
recruits. The second policy offers 20,000 additional incentive payments to encourage employers
to take on 16-24 year old as apprentices (Lee et al., 2014). However, The Social Mobility
Commission has questioned the value of the contract when it was discovered that only 21,000
applications were made, and only 2,070 payments made for young people completing the
scheme. This means that the contract is not completely successful. As Milburn (The Independent,
2013) has put it, this not enough to make a meaningful dent in appallingly high levels of youth
unemployment.
Secondly, demand-deficient unemployment is associated with economic recessions. It is defined
as the unemployment caused by a fall in aggregate demand with no corresponding fall in the
real wage rate(Sloman, 2006: 402). It is sometimes referred to as cyclical unemployment
because it fluctuates with the business cycle (Sloman, 2006: 402). According to Pettinger (2009)
this is the biggest cause of unemployment in the UK. During the 2008 recession, youth
unemployment increased at a faster rate than the actual unemployment rate because with the least
experience young workers were easiest to remove (Pettinger, 2009).In early 2008, the youth
unemployment rate was 14 per cent. This number rose sharply through 2008 and reached a peak
of 22% in 2011 due to the re-entry in the technical recession (Lee et al. 2014). The recession
caused youth unemployment to reach crisis levels. However, it was a problem before the
recession. As it can be seen in the diagram below, there was a gradual rise in both the 16-17 and
18-24 age groups since 2004 and then the much faster rise since 2008.

Source: Lee et al.(2014: 11)

However, provided that since the early 2000s the total number unemployed for 16-17 year olds
has remained relatively steady at about 190,000 while the total number unemployed for people
aged 18-24 has risen with about a half reaching a peak of almost 800,000, it can be argued that
the former age group is not affected by the economic cycle as much as the latter due to the
persistent problem of a difficulty in finding employment at that age stage that resides in their
lack of skills (McGuinness, 2014). In other words their unemployment is mostly structural. This
particular situation is sought to be counterbalanced by a supply-side policy which provides
126 million to specifically help 55,000 16-17 year old NEETs into education, apprenticeships,
or jobs with training (Lee et al., 2014).
Youth unemployment has serious implications for government. The main scarring effects of
periods of joblessness are an increased likelihood of unemployment at a later age (Lee et al.,
2014: 16). Secondly, the mental and physical health of young people can be adversely affected.
According to the Princes Trust, a quarter of young NEETs revealed that their unemployment

was the source of arguments with family, and also played a part in driving them to drugs or
alcohol(Princes-trust.org.uk, 2014). The host of issues arising from the problem of youth
unemployment are in turn a burden on the NHS and law enforcement agencies, straining
resources and imposing high costs (Lee et al., 2014).Thirdly, unemployment involves a loss of
potential national output because the economy is productively inefficient. In other words, the
governments budget position worsens due to loss of income from taxation and higher spending
on benefits (Gillespie, 2011). Lastly, Inman (2011) has claimed that Britain's worsening
economic situation is in danger of creating a lost generation of youngsters. To clarify, hysteresis
effect may occur, leading to long-term unemployment (Tutor2u.net, 2011).
To summarize, there is a crisis in youth employment in the UK. Transitions into good work have
been getting harder for young people across a broad range of skills and qualifications levels.
Transitions for young people into the labour market have become longer and more insecure.
While the introduction of the Youth Contract is a positive step, government policy for long-term
youth unemployment remains inadequate to the scale of the challenge. A conclusion can be
drawn that since the crisis of 2008, it is clear that the worst effects of changes in the labour
market have been felt by young people. Youth unemployment in the UK has jumped dramatically
and is remaining stubbornly high. As has been evaluated throughout the essay for 16-18 years old
unemployment is mostly structural and frictional while for those with the age between 18-24
demand-deficiency unemployment is the prime cause.

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