COVID-19 and the Youth Labour Market. The Kids are (Probably) Alright

Last week's labour market statistics drew some discussion about rising youth unemployment. It is certainly true that the youth (16-24) unemployment rate is rising faster and further than the unemployment rate for others after Autumn stuttering in the furlough scheme which then unleashed a wave of layoffs focussed on young people (see earlier post ). And yet and yet.... it has been a lot worse before and is unlikely to get very much worse going forward as the beginning of the end of lockdown looks to be approaching and movement - the key to this particular downturn - resumes.

Youth labour market statistics are complicated by the relatively recent rapid growth in the numbers of young people still in education, (since levelled off). The unemployment rate is a measure of the unemployed in the labour force = unemployed/(unemployed+employed). Rising staying on rates will tend to reduce numbers in the labour force and so inflate the unemployment rate for a given number of unemployed.¹ This makes measuring youth unemployment relative to something that will vary less with policy or labour force participation trends a better metric for comparing performance over time. If instead we measure unemployment relative to the entire youth population, we get the u-pop rate. This should be much less susceptible to changes in labour force participation,² and is another useful indicator of youth labour market performance.

In short, it is probably best to look at a range of youth labour market indicators rather than focus on one.

Figure 1 plots both the youth unemployment (left panel) and NEET rates (right panel) in each week throughout 2020 relative to the average of the last 5 years. Anything outside the light grey is a significant departure from recent norms.³ The unemployment and NEET rates are, coincidentally, very similar at around 15% right now. However, even with the latest rise in redundancies, there is not much in either the unemployment or the NEET rate for weeks during October and November and early December (weeks 40 to 49 on the graphs) that we haven't seen in the last 5 years before the COVID downturn.
Figure 1. Youth Unemployment and NEET Rates 2020 relative to 2015-2019 average

Unemployment Rate	NEET Rate

and when we go back further in time, we can see that the youth labour market has been much worse in each of the previous 3 recessions, whether measured by the unemployment rate, the unemployment-to-population rate or the NEET rate - though using the unemployment rate makes the current downturn in the youth labour market look closer to previous downturns. This is not the case with the other two metrics - which suggest now is not as bad as in the past. Rising staying on rates at school, shrinking the labour force and inflating the unemployment rate, also makes the 2010 downturn look the worst of the recent downturns when using the unemployment rate to compare things. Whereas deflating by the population (the u-pop ratio) or using the NEET rate, suggests that the 1980s and 1990 downturns were as bad.
Figure 2. The UK Youth Labour Market Through the Ages

So we have to be careful when trying to assess the state of the youth labour market. The unemployment rate is probably not the best metric to judge things, certainly not by itself. While every unemployment spell is a worry and things aren't brilliant in the youth labour market right now, it is important to recognise that they have been a whole lot worse in the past. And that, the furlough scheme,despite all its faults and blemishes, is probably helping to keep the majority of (young) people in work.

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1 ^↩ 10 unemployed, 90 employed 50 inactive (education) = unemployment rate =10/(10+90)= 10%, but 10 unemployed, 50 employed 90 inactive = unemployment rate =10/(10+50) = 16.6% .
2 ^↩ Not in EmploymEnt or Training measured as a percentage of the 16-24 year old population.
3 ^↩ More details on how these graphs are worked out can be found here