Guest blog: Scotland’s 100,000 challenge

One of the clearest impacts of the pandemic so far has been rising levels of unemployment, with young people being particularly affected by labour market disruption. Rachel Statham, Senior Research Fellow at IPPR, writes on the looming youth unemployment crisis in Scotland and the steps we can take to prevent long-term damage to a generation’s prospects.

The Covid-19 pandemic and the resulting economic crisis threaten the jobs and income security of people across Scotland, as across the UK. Six months into the Covid crisis, we are entering a period of high unemployment with stifled job creation – with considerable uncertainty ahead. As the UK Government’s Job Retention scheme is set to wind up at the end of October, and the announcement of its successor, the Job Support Scheme, offers cold comfort for many: for those whose jobs lie in industries or areas facing ongoing restrictions a return to work may not yet be possible while government support is being withdrawn. Meanwhile, there are widespread concerns about whether the scheme goes far enough to incentivise employers facing difficult winter months ahead to share work around, by keeping more of their employees in work on a reduced-hours basis.

The employment outlook over the coming months is grim. The latest Office of Budget Responsibility forecasts UK-wide unemployment at 11.9 per cent at the end of 2020, which would see 3.4 million people out of work by the end of the year. How Scotland will fare relative to rest of the UK remains unclear, but there are particular risks associated with the dominance of our hospitality and tourism sectors, and some concerning early indicators: official figures for June 2020 saw Scotland’s unemployment rate rise to the highest in the UK, at 4.6 per cent. While ongoing restrictions and a delayed budget at Westminster leave significant questions unresolved over the coming months, it’s clear that the Scottish Government will have to use all the powers at its disposal to hold back the tide of rising unemployment over the coming months.

The cost of youth unemployment

In the face of an unprecedented jobs crisis, there will be difficult choices to make in the months ahead — not least when it comes to targeting support. While the impact of rising unemployment will be widespread, there are clear and identifiable threats to the prospects of young people in Scotland in the coming months, and over the longer term. Evidence from previous recessions tells us that young people (aged 16-24) are particularly exposed to ‘scarring effects’ from falling out of employment, education, or training, which can harm their employment and earnings prospects far into their futures. With less employment experience to fall back on, young people are also often more likely to be let go and less likely to be hired during a recession. These scarring effects can last for decades in the form of pay and employment gaps that follow young people throughout their working lives. This harms the health, wellbeing and security of young people now, but it also stands to hold back Scotland’s economic recovery and weaken our future workforce as a generation of young people are held back.

This autumn, tens of thousands of young people in Scotland are leaving education and entering the workforce, whether from school, college or university. These young people will be faced with some of the most difficult labour market conditions in memory, and competing with those who already have some workplace experience for a shrinking pool of jobs as vacancies fall and unemployment rises.

Which young people are most exposed?

These effects will not be felt equally, and without action they threaten to widen existing inequalities further. Evidence from the financial crisis and recovery that followed shows us that young people with fewer qualifications experience more severe and longer lasting scarring following a period of unemployment. Young people with degree-level qualifications, meanwhile, tended to fair relatively better than their peers in the years following the financial crash. Young disabled people, who were already three times more likely not to be in education, employment or training (NEET) than their non-disabled peers, are likely to be more exposed to both health and financial risks in the months ahead.  Young parents and young carers could see the multiple barriers they already face to getting into, and getting on in good quality work rise higher still.

Economists have warned that those in low paid and insecure work – who are disproportionately young workers – are among those most likely to face redundancy. Analysis from the Resolution Foundation has shown that across the UK, young people are more likely to have faced a drop in earnings already, with 35 per cent earning less than they did at the beginning of the crisis. Meanwhile, the Standard Life Foundation’s Financial Impact Tracker shows that young people (aged under 30) are the age group most likely to have missed multiple payments, and least likely to be in receipt of government support. The spread of young workers across Scotland’s workforce is additional concern, with the sectors most affected by the lockdown – hospitality and tourism – employing a disproportionate number of young workers (Fraser of Allander 2020).

While the UK Government’s Jobs Retention Scheme has no doubt provided a lifeline to working people across Scotland, the profound questions that remain about its successor, the Job Support Scheme, have particular implications for young people: if it does not hold back a wave of redundancies, there may be particular pressures on young workers who are likely to be less experienced than their older co-workers.

Youth unemployment in the months ahead: Scotland’s 100,000 challenge

Economic indicators paint a grim picture for the economic prospects of young people over the coming months. Our analysis at IPPR Scotland has laid out a range of plausible scenarios for youth unemployment in Scotland, based of official forecasts from the UK Office of Budget Responsibility (OBR). In a ‘central scenario’, youth unemployment in Scotland could surge past 100,000 young people later this year as Scotland – along with the rest of the UK – enters a jobs crisis.  This would see over one in three of Scotland’s young workforce (16-24 year olds looking for work) facing unemployment – the highest level since records began. In a reasonable worst-case scenario, youth unemployment rates could be considerably higher – resulting in over 140,000 young people unemployed by the end of 2020. Even in our projected ‘upside’ scenario, youth unemployment increases significantly, but stays around 80,000 and beneath the level seen following the 2008/09 financial crash. While these estimates do not model the potential impact of recent policy interventions targeted towards young people, or the as-yet-unmeasured impact of the UK government’s Job Support Scheme, they make clear the scale of the challenge ahead. We urgently need to create opportunities for 100,000 young people across Scotland, to see them through the difficult winter months and to lay strong foundations for their working lives.

What action do we need to see to stem the tide of rising youth unemployment?

In July, the UK Government announced a £2 billion UK-wide ‘kickstart’ scheme aimed at supporting employers to create employment six-month-long opportunities for 16-24 year olds. While action to prevent youth unemployment is much needed, a blanket UK-wide approach risks the flexibility needed to create high-quality work and learning opportunities that reflect the Scottish Government’s commitment to Fair Work, including payment of the real living wage, and are well linked into local employers and providers. Now urgent action is needed to organise sectors and employers to maximise take up of the scheme.

In September, The Scottish Government has announced £60 million of further investment in a ‘youth guarantee’ that aims to ensure every young person aged 16-24 has the opportunity of work, education or training. The Scottish Government funding will go towards local employability support for young people, college places and apprenticeship pathways, and work with employers to create employment opportunities for young people. While this is a welcome first step, it is clear we will need to raise our ambitions to meet the scale of the challenge ahead. First, there is need for significant investment in college and university places, and particularly in January college-starts, across Scotland to create high quality learning and training opportunities for young people. Secondly, there is a clear for follow-up funding for young people who complete their six-month placement, to support in-work progression and follow-on opportunities, and transitions into apprenticeships.

The scheme would be further enhanced with the addition of a formal learning component alongside a work placement, and by stronger commitments that government support will be subject to payment of the real Living Wage. Finally, flexibility and targeted support will be key to ensuring the offer does not reinforce existing inequalities: for young people with fewer qualification, young parents and carers and young disabled people, the stakes may be even higher in the months ahead.

Setting our sights on a fair work recovery

Now is not the time for Scotland to set aside its Fair Work commitments in pursuit of an ‘any job’ recovery. Good work – paid at least the real living wage, with decent conditions and progression opportunities – must be a cornerstone of Scotland’s recovery from Covid-19. There is a long road ahead. Far from the short, sharp recession and a ‘V-shaped’ recovery some predicted in the early days of lockdown, Scottish Government forecasts suggest it will take more than 3 years for output across Scotland to return to pre-Covid levels. Creating high quality employment, learning and training opportunities for every young person will not just provide a lifeline in the months ahead, but lay the foundations for Scotland’s longer-term recovery.

By working closely with young people, employers, and across the skills system, the UK and Scottish governments must find ways to find 100,000 new opportunities for young people in Scotland in order to prevent a jobs crisis from damaging the prospects of a generation of young people. As we set our sights on rebuilding Scotland’s economy, there is a clear need for a targeted fiscal stimulus that creates good quality, green jobs, and accessible routes into those jobs for the young people, who cannot afford to pay the high price of inaction.