Britain's young workers are quietly exiting the labor market at a pace not seen since the outbreak of the pandemic, and economists at the Institute for Fiscal Studies warn that ministers can no longer treat the slide as a passing thing.
New analysis from IFS, published ahead of the National Labor Market Outreach Office, shows that the share of 16- to 24-year-olds in UK wages has fallen by 4.3 per cent since December 2022, a drop of around 330,000 young people. Paid employment in the age group now stands at 50.6 percent, down from 54.9 percent three years ago.
To put this estimate in context, the Covid-19 shock reduced youth employment by 6.5 points, while the 2008 financial crisis reduced it by 5.4 points compared to the pre-crisis situation. The current downturn, in other words, is no longer a cyclical error, it is approaching the point of the labor market crisis, but without an obvious starting point to hold the title corresponding to the last two.
The results are already visible in the so-called Neet scores, which are not in education, employment or training. The group has grown from 760,000 by the end of 2022 to about 960,000 late last year, closing in on the million mark that policymakers have long considered a symbolic red line.
The impact of scarring goes beyond degeneration
Jed Michael, the author of the IFS report, did not mince his words. “The drop in youth employment across the UK is likely to be a concern for ministers, not least because we know that early career unemployment can have long-lasting negative consequences,” he said.
The so-called “harm effect” is well documented. Graduates and school leavers who enter the workforce during a recession often earn less, change jobs more often and reach higher pay grades later than peers who started in less favorable circumstances. The blow is not personal: lost productivity, weaker tax receipts and higher benefits bills follow young people into their working lives.
However, Michael's warning is one of the ministers to focus on. “Although it doesn't appear to be down in the short-term recession, more evidence is needed to understand the roles of minimum wages, youth mental health, AI and other factors,” he added. “Without this evidence, expensive policies to lower the Neet standard are shot in the dark, if not in the dark.”
A shock of unusual structure
The UK has historically been a top performer in the Organization for Economic Co-operation and Development league tables for youth employment. That advantage is eroding, and the data suggests that there is more than a general deterioration at work.
The pain is sharpest among 22- to 24-year-olds, often graduates and college dropouts entering the first tier of careers. Employment in that group dropped 4.8 percentage points over three years. 18 to 21-year-olds fared better, falling by just 1.1 points, while 16- and 17-year-olds saw a slide of 7.3 points which the IFS attributes mainly to the disappearance of regular or part-time work outside of studies.
Geographically, the decline is widespread rather than concentrated. Paid employment among young people has fallen by at least three points in two-thirds of the UK's regions and nations, while the share of 18 to 24-year-olds claiming out-of-work benefits has risen sharply. Cyclical declines often fall unevenly; this one hits almost everywhere.
The IFS flags two structural culprits to watch: the rapid adoption of artificial intelligence in white entry-level work, and the well-documented decline in youth mental health. Business Matters has previously reported how AI and rising employer costs have already wiped out around a third of entry-level vacancies in the UK since the launch of ChatGPT, a move that unfairly closes the door to early careers.
On the issue of minimum wages, a long-standing battleground in the youth employment debate, the IFS is very cautious. Its average estimates do not indicate a “significant impact” from recent wage increases, suggesting that broader structural factors are the main drivers.
A call to action, not advice to despair
Jonathan Townsend, UK chief executive at The King's Trust, which co-sponsored the report, said the findings should sharpen minds in Whitehall and across the board.
“This discovery should affect anyone who cares about the future of young people,” he said. “Too many young people are already out of work, education or training, and this analysis suggests that we can't just assume that the problem will fix itself as economic conditions improve.”
“This challenge is not easy to fix. The message is that reversing the increase in youth unemployment or education will take collective action, a better understanding of what drives it, and the right support for young people at the right time.”
Townsend added: “For an organization with a vision to help end youth unemployment, that's a clarion call to action.
The Government has started to move in that direction, most recently with £3,000 grants for employers willing to hire young unemployed people who have spent at least six months on benefits. Whether such targeted funding is enough to cover what looks like structural change, driven by automation, wage costs and the fragile mental health of a generation, is a question the IFS has now put squarely on ministers' desks.
For Britain's SMEs, which employ a large proportion of young workers, the message is grim. A generation locked out of the labor market today will be a less talented, less productive, less confident generation tomorrow. The costs of unemployment, IFS suggests, will be paid in one Budget cycle but during the working life of the whole group.
