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What can we do about the graduate unemployment crisis that’s coming?

This article is more than 1 year old

This is a briefing for Wonkhe SUs subscribers.

The current economic crisis risks pushing an additional 600,000 18-24-year-olds into unemployment in the coming year – and causing long-term damage to their pay and job prospects unless major new support is provided ­- according to new Resolution Foundation research.

With evidence from previous recessions showing that young people who’ve just left full-time education are hit harder than other age groups, the report assesses the labour market prospects of the “corona class of 2020”.

It calls on policy makers to improve these poor job prospects, and help young people avoid them, by spending longer in education. Recommendations include a job guarantee to reduce youth unemployment and flexible arrangements to help young people stay on in education for a further six months.

Headline findings

Class of 2020 – Education leavers in the current crisis, finds:

  • 800,000 18-24-year-olds are expected to leave education this year, when – according to the Office for Budget Responsibility (OBR) scenario – unemployment is forecast to rise by 6 percentage points. This would be twice as large as the increase following the financial crisis.
  • Education leavers are most exposed to this surge in unemployment.
  • 600,000 18-24-year-olds (including those who left education in recent years) risk being unemployed this year.
  • Those leaving education this year are likely to face reduced pay and employment prospects even after the economy has recovered.
  • The employment rates of graduates entering the labour market during this crisis are projected to be 13 per cent lower, three years down the line, than they would have been absent the crisis.
  • Employment rates for mid- and low-skilled workers risk falling even further (by 27 per cent and 37 per cent respectively).

Those who are working are likely to face reduced pay too. The report finds that, one year after leaving education, the pay of graduates is projected to be 7 per cent lower, and 9 per cent and 19 per cent lower for mid- and low-skilled workers.

The nature of the current crisis poses particular challenges for young people. Over the past decade, one-in-three non-graduates, and one-in-five graduates, have got their first employment experience after education in sectors such as retail, hospitality, travel and leisure.

However, there are currently huge questions over work for existing furloughed staff in these sectors, let alone for those wanting to join the workforce.

Given the acute challenges facing the corona class of 2020, the report says that the Government should prioritise support in two areas: helping more young people to stay in education for longer, and targeting job support at those who are entering the labour market for the first time.

Recessionary impacts

The emerging recession has already driven up the number of people who are out of work, and cut the number of vacancies available to them. Whilst recessions are likely to affect most workers in one way or another, their most pernicious consequences will disproportionately be felt by the most vulnerable: the lowest paid, the lowest qualified and the least experienced.

Past experience tells us, for instance, that while recessions drive up unemployment across the labour market, the effects are larger for those who have only recently left full-time education, in particular those with lower-level qualifications. This shows the unemployment rate from 1992-2019 for all adults, all younger (18-29-year-old) adults, and those who left full-time education within the previous two years, according to the highest qualification that they have achieved.

Britain’s recovery from the financial crisis was characterised by a ‘jobs boom’, but the cohorts that left education during the recession continued to suffer from lower employment rates compared to their counterparts who left education with similar qualifications during more auspicious times.

Pay

What appears to have happened is that graduates leaving education during the 2008-2009 recession ‘traded down’ into lower-paying occupations. Five years after having left education, the proportion of 2009 graduates working in a lower-paid role was 3.8 points (30 per cent) greater than the proportion of 2013 graduates working in these roles at the same point after leaving education. For those with mid- and lower level qualifications, these figures are 7.1 points (16 per cent) and 7 points (13 per cent) higher, respectively.

This outcome had the dual effect of helping to reduce graduates’ own levels of pay (compared to those graduating outside a recession) and of crowding out non-graduates from many of the roles they would have otherwise entered into upon leaving full-time education.

What could happen this time?

Unlike previous recessions, the most-affected sectors are those that attract a large proportion of those leaving education.

Many of the lower-paying roles that education leavers have tended to enter into during their first years in the labour market are in sectors like travel, non-food retail and hospitality that are largely shut down at present, and unlikely to reach full capacity again in the near future.

In other words, the first rung of the employment ladder looks to be broken, and it is unclear when, and if, it will be mended back to recent conditions.

So what can be done?

The RF says that the Government should do two things – consider policies that help young people to stay on in study, as well as helping leavers navigate a treacherous labour market.

What’s interesting is that even if the Government doesn’t do these two things, individual universities might be persuaded (by SUs or by others) to do similar things off their own back:

Staying on

The economic fallout from the coronavirus will bring substantial challenges to young people who would otherwise be getting a start in the labour market. Although some of these challenges, like high unemployment and a scarcity of job openings, were prominent features in past recessions, other challenges – ranging from school, college and university closures to near-shutdowns of certain sectors – are unique to the crisis at hand.

In terms of those progressing onto a Master’s course, RF notes a worrying socioeconomic divide in the young graduates who are able to do so: those who do go on to attain a Master’s at a young age overwhelmingly come from higher socioeconomic backgrounds.

It says that Government may want to consider alleviating the disparity in young people’s take-up of Master’s degrees by increasing loans on a means-tested basis to help recent graduates from disadvantaged backgrounds gain additional education and take shelter from the current economic storm.

Of course universities themselves could consider the pricing and wider costs of postgraduate study to make sure it is affordable for those graduating this year.

Innovating

The amount and quality of remote learning currently happening appears very unevenly distributed: many young people from disadvantaged backgrounds and education providers in deprived areas do not have the required resources.

So RF also proposes an education leaver innovation fund. Universities could put forward proposals for programmes in their areas to help their own leavers, lasting roughly six months. Government would not specify absolute requirements, but identify preferences for programmes that offer learning and have links to employers or work-readiness at their core.

Policy makers might also signal preferences designed to help students from disadvantaged backgrounds and deprived areas who have been least able to keep in contact with their schools and colleges. RF also proposes temporary job-creation schemes in collaboration with local employers and funders.

Again we could envisage individual universities – or groups of universities – doing something similar, not least for example with some of its own recruitment.

Read more:

Class of 2020 – Education leavers in the current crisis

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