First published in the Telegraph on 29 October 2009
One of my favourite moments from the television series The Wire comes towards the end of the first season. Two of the police officers who have been monitoring drug dealers arrive one morning to find that the area is deserted: no one is selling drugs, no one lounging on the street corners. “Maybe we won,” suggests one cop.
The reality, of course, is that this is only an interlude: the dealers have been lured away to an inter-gang basketball game. But I was reminded of that sense of false optimism this week, at a Royal Society of Arts discussion on youth unemployment. Someone asked Stephen Timms, Financial Secretary to the Treasury, why, when her organisation tried to provide a job centre with opportunities for young people, those working there insisted they didn’t have enough applicants of the appropriate age. “Maybe,” said Mr Timms, “you have to see that as a good sign.”
It was little wonder that his comment provoked gasps of disbelief. When it comes to youth unemployment, there is precious little good news. The number of people aged under 25 and out of work is now just below a million – around one in five. This is up by 184,000 in the past year, and still climbing. As everyone apart from the minister could see, the absence of youngsters from a job centre reflects not a let-up in the problem, but shortcomings in the bureaucracy intended to combat it. According to Professor David Blanchflower, a labour market expert and former Bank of England policy-maker, it is highly likely that overall unemployment – currently just under 2.5 million, or 7.9 per cent of the working population – will climb to 3.4 million within a couple of years.
That would be higher than in the early 1980s, when the unemployment crisis was seen as just that – a social challenge of paramount importance, a cause for protests and riots. Yet so far, there has been far less handwringing, let alone any bold policies to deal with the issue.
This perplexing state of affairs owes something to three factors. First, unemployment lags behind the rest of the economy, so we are not aware of how bad the picture will get, convincing ourselves that the flexibility of the labour market – the ability of firms to cut hours and pay – will save us. Second, most of those losing their jobs are not those who find it easy to get their voices across – they are the young, the lower-paid, in the Midlands or the North. Third, economic policy before the 1980s had been explicitly aimed at fostering near-full employment; today’s focus on inflation means unemployment is regarded as less of an issue.
Yet this is an issue of paramount importance. The labour market is facing two crises: an immediate spike in unemployment, and a longer-term sclerosis after the slump is over. The first is primarily an economic issue, the second a social one, but both are due to government failure.
First things first: we must brace ourselves for further deterioration in the labour market. The most recent figures suggest that the picture is improving: by some measures, unemployment has actually stopped rising. But don’t be fooled. For a start, many “discouraged workers” who would previously have been categorised as unemployed have been labelled “economically inactive”. Include them, plus those forced to shift to part-time work, and the true jobless total is 5.6 million, or just under 15 per cent of the working population: not far below the 17 per cent level in the US.
But there could be worse to come. The best way to work out what will happen to unemployment in a recession is to look at productivity – economic output per worker. Given there are fewer people in work, you’d expect that productivity would have risen, as those still in work took up the slack for absent colleagues. But in fact, productivity has fallen by almost 5 per cent, implying that firms have kept workers on despite there being less for them to do.
Andrew Lilico of the think-tank Policy Exchange estimates that if employment shrinks to match the real level of demand in the economy, another two million will be on the dole. That would be a nasty enough prospect even if things had been hunky-dory before the crisis. But youth unemployment had been rising over the course of a decade: whether due to age discrimination laws, or the failings of the education system, employers have been luring old workers out of retirement rather than taking on youngsters. This problem – massively exacerbated by the recession – will burn a hole in the core of our economy and society if unchecked. Study after study has shown that youngsters who cannot find work are far more likely to enter permanent joblessness than someone who has already been in the labour market.
The Government must find ways of encouraging companies to take on youngsters rather than grandparents. It must also – as Prof Blanchflower has suggested on these pages – find the money to keep more children in school, perhaps by immediately raising the leaving age to 18, or to create a system of national community or civic service. Extreme ideas, yes. But we still haven’t yet absorbed how extreme this unemployment crisis will be.