The latest labour market data from the Office for National Statistics should trouble even the most sanguine observer. The employment rate for 16-24 year olds has fallen to 52.3%, the lowest since records began. Meanwhile, the number of young people classed as NEET (not in education, employment or training) has risen by 11% quarter-on-quarter. One young jobseeker, quoted as having submitted over 400 applications without success, encapsulates the grim reality.
This is not simply a story of pandemic hangover. The structural shift in the economy, accelerated by high inflation and rising interest rates, is weeding out the weak. Employers, facing higher costs and uncertain demand, are hoarding cash rather than hiring. The hospitality and retail sectors, traditional entry points for the young, are particularly subdued. Gilt yields have risen sharply, reflecting market expectations that the Bank of England will hold rates higher for longer. That tightening cycle is now crushing demand.
The government's flagship 'Back to Work' plan is admirable in intent but flawed in execution. It targets the over-50s and the long-term sick, but the young are falling through the cracks. The apprenticeship levy is a dud, trapping funds in corporate bureaucracy. What we need is a payroll tax cut for the under-25s, a policy that would directly lower the cost of taking a punt on a young worker.
The widening employment gap is a canary in the coal mine for the broader economy. If the youth cannot find a foothold, we risk a lost generation. That has implications for housing demand, consumer spending, and long-term productivity. The market will not reward sentimentality. It rewards efficiency. The government must act to lower the cost of labour, or we will see capital flight to more youthful economies.
The human cost is already visible. The young man with 400 rejections is not a statistic. He is a symptom of a labour market that has lost its flexibility. We need to cut red tape, reduce employer National Insurance for young workers, and scrap the rigidity of the Apprenticeship Levy. The Treasury must understand that spending on youth employment is an investment, not a cost. The alternative is a decade of stagflation and social decay.
The Bank of England's rate setters should take note: there is more slack in the labour market than the headline data suggests. Wage growth is being held up by public sector settlements, not private sector dynamism. The youth unemployment data argues for a softer monetary stance. But the MPC is fixated on services inflation. They risk overtightening, breaking the labour market entirely.
I have seen markets panic, and I have seen governments dither. This is one of those moments. The cries of the young jobseeker are the early warnings of a systemic failure. The question is whether policymakers will listen before the numbers force their hand.
