Economic inactivity in the UK - Causes and Solutions

November 1, 2023

Andrea Barry, Principal Economist from Youth Futures Foundation discusses economic inactivity for young people in the UK. Andrea shares insights about what is driving the current numbers, regional and gender disparities, what programmes have worked and her ideas for the future.

Everything we do is finding what works to get young people into good jobs forever.

Welcome to “Employability Chats” Andrea. Can you tell us about the Youth Futures Foundation and share with us the work it is doing to improve employment outcomes for young people? 

Youth Futures Foundation is a relatively new organisation. We were set up in December 2019 and it largely came out of quite a few reports showing the huge disparity in employment outcomes for certain ethnic groups. Then we expanded it out to all marginalised groups, and marginalisation can be for any reason. It's not just a particular characteristic, it's other things. And it actually includes things like poverty, for example. So we were set up to do that.

I think within the last almost four years, we've expanded to not only do research, we also fund interventions in a way in certain areas to get more evidence on what we think as well, but also to improve local outcomes. We're incredibly local focused, we are England only, but we really do focus quite keenly by area. So we have quite a few funding programs like Connected Futures Fund that is looking at local partnerships in chosen areas based on a really set criteria to first research the problem in each local area and the partnerships do that research themselves. We also support on giving data evidence that they need economic advice and we work with a few partners on that and then they put together what they think the problem is and then they start to research or put together options for an intervention. And then once we choose a few, we'll also run evaluations. So our evaluation team is quite large, we run multiple evaluations and we've just set up a randomised control trial as well, which for us was a huge feat. It's really exciting. We're also the what works centre for Youth Employment. 

So, everything we do is in finding what works to get young people into good jobs forever.

Economic inactivity is an area you have researched in your role and is a major theme and focus for the employability sector. What are the main factors contributing to the high levels of economic inactivity among young people in the UK today?

I'm going to focus on one aspect of economic inactivity, specifically focusing on those not in full-time education, which forms the basis of what we call NEET - not in education, employment, or training. Unfortunately, the figures for this group continue to rise, posing a significant problem. Historically, the UK has had a relatively high number of young people who are not in education, employment, or training, with a significant portion being economically inactive. For a while, this inactivity rate has hovered around a certain level, and currently, there are over 790,000 young people categorised as NEET.

It's essential to recognise that the UK's economy and labour market have undergone significant changes over the last 15 years. These changes have deepened inequalities in the labour market and how certain young people can interact with it. Regrettably, the pandemic worsened this situation. Young people, especially those in low-paid and insecure work, found themselves out of work without options for furlough or support due to the nature of their employment during the pandemic.

This situation has had a severe and lasting impact, not only on their current and future employment prospects but also on their mental health. Since the pandemic, there has been a significant increase in the number of young people experiencing long-term sickness leading to economic inactivity, with mental health issues such as depression, anxiety, and bad nerves being the primary contributors.

According to the Office for National Statistics (ONS), there was a 24% increase in long-term sickness due to mental health among our age group. Remarkably, this is the only age group that witnessed an increase in economic inactivity due to mental health issues. Over 100,000 individuals aged 16-34 were inactive due to poor mental health, and an additional 100,000 were inactive due to bad nerves or depression.

There has been extensive discussion about the mental health crisis in the news, with many people taking time off work. This issue is particularly pronounced among young people. To add to the challenge, some of these young individuals completed A-levels or GCSEs at home and attempted to start full-time education during the pandemic, as work opportunities were scarce. However, the type of work they typically engage in required in-person interaction, and many industries, such as retail and hospitality, were shut down. For some, returning to these jobs was not only impossible but also dangerous, as they may have had pre-existing health conditions or disabilities.

Furthermore, these young people emerged from the pandemic only to find that the opportunities they once had access to before turning 18 or reaching the age of 21 were no longer available. The system expected them to have work experience they couldn't gain due to the lack of available opportunities. Additionally, a significant cost of living crisis has affected many young people long before the recent surge in food prices, exacerbated by the Ukraine crisis. This crisis has taken a toll on their finances over the past three to four years, contributing to the rise in economic inactivity.

Lastly, regarding the cost of living crisis, during the initial stages of the pandemic, there was attention on young people returning to work. However, data shows that these were primarily young people in full-time education, as they increased their employment and hours. Meanwhile, for those not in full-time education, hours declined, leading to rising levels of inactivity and unemployment. This isn't about pitting one young person against another, but it's clear that there are distinct patterns in workforce participation, with certain groups faring better than others. These disparities have contributed to the higher levels of inactivity among young people not in full-time education.

Are there specific regions or communities in the UK where economic inactivity in the UK is particularly pronounced? What factors contribute to these disparities?

The UK is quite varied. I'm going to stick largely to England because again, that's who we usually talk about, but within England you have such differing trends for young people. For example, London, although they have a higher unemployment rate, they have a really high education enrollment rate, so a lot of their young people are usually in education around this age. However, in the North East, they have a higher NEET rate, unemployment rate, inactivity rate, and a very low or lower enrollment education rate - so the young people are less likely to be in education and I think that is part of the reason their inactivity rates are higher. So for some reason, their young people are simply not as likely to go into full time education. 

I think part of that is due to the particular local labour market as well. So if you're in London, I think the local councils might be likely to push it more. And we actually know a bit of this because of our Connected Futures Fund, that even within schools they are trying to connect you more to further education, A levels onto university or some type of degree. Even the apprenticeships by area are very different. So the apprenticeships in London are very marketing and hospitality focused, whereas outside in the North East they're more manufacturing and engineering focused. And I think, again, that reflects your local labour market.  

Because of that it does then reflect why your rates of inactivity will be higher. It looks like the local labour market for some of these areas are so varied for young people. So if I just take an example again from our Connected Futures Fund, we have an area like Hull, where they have a lot of manufacturing jobs, but not a lot of young people do them. They're not in those jobs, even though they have a lot of apprenticeships in those jobs. But then when you look at the demographics of the young people who are inactive or unemployed, I think half who are unemployed or inactive have no qualifications. But then if you look at some of the more London areas, it's not nearly as high. So again, there's just something going on where some young people are unable to transition very well through education. 

They might leave school to have children or for other caring responsibilities. If they have a disabled parent and they're not finishing school or they might have been in care themselves and therefore transitioning through that is really difficult. It's actually reflected in a piece of research I lead on called the Data Overlaps Project, where we find that certain experiences, overlapping experiences make you more likely to be NEET. And that is, again, related to mental health and having a learning disability. We know that those two groups with special educational needs and learning disabilities or even a plan related to that and having no qualifications, it's the majority of those young people who are inactive and NEET in the country - it’s those 4 areas. 

So it's clear that there's some areas where that transition for those young people is harder than others and I think that's driving the NEET rates. We saw a relatively high number in parts of the North East. And in fact, for those two groups, the North East had more young people with that combination of limiting disability and mental health who were NEET than any other region of the country. 

Are there any disparities in trends between economically inactive young men and young women and if so, what is driving this?

For young women, unfortunately, it matches overall trends for women of all ages. Women of all ages are more likely to be inactive. They're more likely to have caring responsibilities. They're more likely to be at home. We see the same with young women. Young women are less likely to be in work - they're actually more likely to be in full time education. For some ethnic groups, they have significantly higher education rates. But, for the ones who are not in full time education, they're just not likely to be in work. Unemployment is lower for women. But for the first time, for men, unemployment is higher than inactivity and it hasn't been that way for a while. Inactivity has declined as unemployment has risen so some of these men are trying to find work, whereas for women it's inactivity as it keeps increasing. Again, they're just much more likely to be inactive. 

I think, unfortunately, as I was saying before, it is simply due to perceived gender roles in an economy. They continue to flourish even across young women. I guess one positive thing is that they are more likely to be in full time education, but even post education they're less likely to be in full time work. They have lower employment rates, they have lower employment outcomes as you go further along. I think for me it's the idea that it starts early. These disparities between men and women start early on and it seems even at the age of from 16 to 24, they're expected to be off work to help care, to care for family members. I guess it's not surprising post COVID that given we have a lot of older people who might be off sick long term illness, that you're finding a lot of young women who are currently inactive because of caring responsibilities.

What are the current stats telling us about the success or otherwise of current programmes or initiatives to tackle and improve economic inactivity? 

I guess this is an unfortunate bit because our evaluation team has been really keen to improve the evaluation of really good programs, really robust evaluation of programs. Unfortunately the Kickstart Programme evaluation from the government is not complete yet. But the initial finding that I've seen is that Kickstart was actually relatively successful. Kickstart did a really good job but it didn't go far enough, not enough young people were on it. It needed to be spread past contact with the Jobcentre, because we know some groups are more likely not to have contact with the Jobcentre so the programme needed to have more funding. 

But I think beyond that, the Youth Employment Toolkit, which is our toolkit that looks at what works to help young people get into full time employment has quite a bit of really good evidence in there. And it's international evidence, not just from the UK, that shows that certain schemes are better than others on their own. 

So things like apprenticeships have a relatively good impact, but are quite expensive. Even some other research shows that apprenticeships are actually quite good in getting young people into sustained employment because you train and earn at the same time. There are problems with the apprenticeship program as a whole. Part of it is the wage. The wage for some young people is simply too low. And then also the implications for the employer. There is some suggestion that the apprenticeship levy is quite burdensome for the employers and so it means they're less likely to offer an apprenticeship. But then there's also quite a bit of data, including recent data, that shows apprenticeships take-up from young people is down. So there's just something going on with that scheme. But it's relatively good in helping young people get into sustained employment. 

There are other innovations that work well when not in isolation. Mentoring is good with other schemes. Mentoring on its own is not the way to get young people into good employment but mentoring with other things can be quite good for young people, because we do see that, especially in some of our qualitative data when we talk to young people, that they struggle with confidence, but then also knowing where to go to find things. So knowing how to write a professional email, how to fill out a CV, those types of things. We find that sometimes mentoring or coaching can be really helpful for that. It just helps build their confidence, especially if they don't have someone, if family or friends or their local social group isn't going into the same type of employment as them. And we see this especially for certain ethnic groups, they're just so much more likely to follow the footsteps of their parents or their grandparents or people around them into certain sectors. 

We find that for young people seeking alternative pathways, mentoring can be immensely valuable in helping them explore their options. However, it's important to note that mentoring alone won't secure a job for them. There are additional elements that need addressing. The initiatives that have shown the most promise are those providing tailored support, with a strong emphasis on understanding the individual young person's needs. Successful programs engage with the young person to identify their interests and collaborate effectively with local employers and opportunities.

These programs, through open communication with the young person, assess whether a return to full-time education is necessary. If it is, they help identify suitable programs. Furthermore, these initiatives work directly with the young person to ensure they not only secure employment but also sustain it. 

For instance, at a recent Connected Futures Fund conference, I had the opportunity to hear from a young person with special educational needs and a learning disability. He shared his experience with a program in his area that guided him through education and supported his transition into work, including an apprenticeship. This program collaborated closely with his employer, helping them understand his specific learning disability and what he excelled at, focusing on his abilities rather than limitations. This approach fostered a strong relationship between the service provider, employer, and the young person, ensuring his needs remained at the centre of the process.

While I don't have official statistics for this particular example, it serves as a shining illustration of what can be done to provide additional support for young people in the workplace. Finding work is one aspect, but helping them stay employed is equally crucial, especially when accommodations are needed. This example demonstrates the potential of programs like the Connected Futures Fund, where partnerships are actively seeking ways to better assist specific groups in their local areas. Addressing these specific local challenges is pivotal, as different regions face distinct issues with particular groups of young people. This, in my opinion, represents a significant step forward in addressing these complex issues.

How do the current UK stats around economic inactivity compare to other similar countries? What are the reasons for these differences? 

In 2022, Youth Futures worked with PwC to put together a youth employment index. It looks at certain statistics from each country in the OECD including employment rate, rates of 20 to 24 year olds who are NEET, unemployment, long term unemployment, and enrollment rates for 15 to 19 year olds, and then the prevalence of part time work.

It puts it all together, weighs certain things, and then it spits out a nice number and it ranks these countries with a number between one and 100. Not surprisingly, the best country in the OECD was Switzerland. They had some of the best outcomes when it came to low unemployment, low rate of NEET, high employment rate, and also a high enrollment rate. The UK was ranked 18th out of 38. So above them were Iceland, Germany, the Netherlands, New Zealand, and for me, surprisingly, the United States were above the UK. Below them were countries you would kind of expect - Italy were below them as well, because Italy, Spain, Greece have had some of the really high unemployment rates for young people. 

So the UK ranked low on every measure, but especially on NEET rates and enrollments for 15 to 19 year olds. So we have low enrolment, comparatively, low enrolment rates for 15 to 19 year olds. And I think it does reflect just the way each system is set up. So we did some analysis as part of that. If we close the NEET gaps between us and Germany, who isn't even the best on NEET, it would put an additional 38 billion pounds back into the economy if we did something like that. And then the next step was to look at why the German economy works better on paper, for young people than it does in the UK. The UK has specific challenges and some of it is, as we were discussing before, a skills challenge. Another thing is there were again existing trends in the UK labour market that were exacerbated by COVID. So once again, you have certain groups that are just not doing well and we don't see as stark of a trend amongst other countries that rank really well in this. 

Non-standard work is still expanding in the UK. So zero hour contracts and young people are still more likely to work like this and it's only getting worse after the pandemic. There's been a decline in the working hours for young people without qualifications, it was five times higher than those with qualifications. That's still not seen in some of the countries on the list. So it shows just how the young people in those countries interact with their labour market very differently to how the UK does. 

People always mention Germany as the perfect country. It's not because they still rank lower than other countries, they still have some challenges. But I think the difference is, when you look at some of these economies, if you look at the way that the education system is set up you look at the way it's set up to transition young people. Yes they are smaller countries, some of them are smaller and smaller economies, but they also have different options. They also don't have similar regional disparities. Such huge differences between some areas of the country. And if you do, there's still opportunities for those young people who live there. There is not the expectation that you need to leave your area to find work in the same way that you can find in the UK.

I don't know if it's just a part of a needed cultural shift within the UK to see young people slightly differently. We do still see that some policy treats all young people the same and it treats them like they all have the same support at home. It treats them like currently they're quite middle class and that they're living at home. Their parents can help support them doing an apprenticeship. Their parents can help support them to find work, to find connections, to find through Uni. And we know that's not true. We know that young people, especially from a poor background, simply don't have that. When we look at the data, we find that they're significantly the worst off in unemployment outcomes. So it's just, again, the inequalities and the disparities means if you have more young people with setbacks immediately in their system, you're simply going to have worse outcomes when you compare to other countries that don’t.

Are there successful international models or best practices that the UK could learn from to combat economic inactivity among its young people? 

I admit that I'm not fully clued up in some of the way that the systems work other than relatively surface or what I've seen initially. I would need to probably find a bit more evidence. I would like to find an evaluation or two about how some of these interventions work. But I think I'm going to go back to the German example and if we look at their economy, if we look at what their economy is based on, I would consider it a relatively diversified economy. So their young people are not necessarily only trapped in certain types of work. That to me is an excellent model.

So it kind of gets back to what retail and hospitality used to be for some young people, which was a weekend job, something for them to do while they were studying or something for them that they could afford to do and then move up or move on. It was not necessarily something that they found themselves trapped in for a long time because that was the only available work.  Trapped in with low pay progression, no in work progression, expensive housing, expensive transport links. If they wanted to start a family then expensive childcare. 

So I think it's not only just the employment models that some of these countries have. I think it's the overall wraparound support and wraparound conditions that these young people live in. Where they're not starting uni off with high debt in some of these countries or they are not put off in going to Uni because it will put them in high debt. Or there's not such an emphasis on going to Uni because there are other well paid, well managed traineeships or apprenticeship options that still give them really good outcomes. And I think that's something we could definitely learn. 

That's what I mean about it being a slight cultural shift, that there might need to be better framing of young people's experiences and options in the UK -  what they could do and what could be possible for our economy. For some areas, especially London, when I was looking for some of the councils, something like 90% of their young people are in education. That's fine, that's fine if that's what they want to do. 

One of the partnerships we're working with in Tottenham doesn't think all of their young people want to go into full time education. Some of them actually want to go into work. But it shouldn't be that if they want to go into work at 18 or 19, they're just going to do really bad work forever because they choose not to get a further education or further qualification. It shouldn't be that. It should be that they choose to go into work. Here are some really good options for them to do such as on the job training, maybe an apprenticeship, or some other courses at the same time as working because they want to work. I think the economies that allow a young person to do that, to be flexible, to also recognise that some young people need a bit more time to find their way, to find what they want to do, allow them to retrain. 

I think further education will also be key. Because if a young person can see that their options for higher education is lost as soon as they get a certain age, if it isn't lost as soon as they hit a certain age, it means that they feel that they can make better options and different options when they're younger and they're not trapped into something. My husband went and did A levels in physics, sciences and maths. And I asked him, do you enjoy that? And he said, no, I did it because I knew I'd find a good course to find a good job. He chose engineering to find a good job, not because he likes it. And I asked him, what do you think he would have done at that age? Because he was picking it at 16. And he said, I really like software engineering, but I didn't know anything about it when I was 16. It didn't really exist in the same way it does now. And I would have loved to have had that option at that age. But now I'm too old. I'm almost 40, I'm too old to do that now. And I think if you're a young person with that mindset that I have to choose what I'm doing now and I can't change my mind in the future, it can be really overwhelming. 

I think a system that allows them to be flexible and allows them to choose things at different times and go into something else or retrain, it's really important we have that flexibility in our system because then it allows young people, and then when they get slightly older than young, to help plug skill steps in the economy. But at the moment we don't. 

What role do you think technology can play to help engage young people who are economically inactive and improve outcomes for programmes?

I've got to keep this short, but we have a bit of evidence that there was a bit of a digital divide among some young people. So some young people who are from poor backgrounds don't have internet at home. It's a framing of what we think a young person looks like and what they have. Maybe we think they all have iPhones and they're just stuck on Snapchat and TikTok all day. Some young people simply aren’t. They don't have an iPhone. Their parents couldn't afford it. They can't afford it. They can't afford the internet. So, they do not have access to certain technology to even find programs, to find things that they could do that could be different than what their school is telling them. I think that's key because some of what we saw during the pandemic where certain groups, certain ethnic groups were not getting information from the government simply due to technology. That will mean that their young people are not getting information because of technology, because of the way things work. 

So if that's the trend amongst some young people and amongst some groups, then there has to be better outreach. There has to be better options. And even if a young person is going to a college and the college knows that they have some information on poverty levels in their area, they could offer better career advice and allow students to access that information there. They could bring things into the college that can help them access some of these opportunities in a different way, because they know they can't get it at home. And I think it's if we all assume young people can get it at home, that's when young people don't find out about things and they don't know about other opportunities. 

We also have to be engaging with the parents because the parents do influence what young people want to do. But if the parents also can't access information, they don't know how the system works. They don't know how to do that. They didn't do well in education and therefore they're a bit removed from it. We still have to find a way to engage with them. I think technology is how we'll be able to do that as well.

What are 3 things you would implement tomorrow to see an improvement in economic inactivity for young people? 

If I had three options, I would firstly improve the data system. I say this because a lot of this is getting towards preventative needs and preventative economic connectivity so that it's almost like we can put in the work to make sure we don't have a large number in five years of needs and inactive young people. That preventative approach can happen by improving the data system.  It means statutory services, schools, Department for Education, DWP and Jobcentre can all talk to each other. They know their data is shared across and it means the schools are able to see that. They can then target young people early. So if they see a young person is falling behind, or it might suggest they have certain problems going on at home. If they're missing school, instead of treating them for missing school, you treat them for why they're missing school and you figure out what's going on at home. If the parents are sick, there's mental health struggles or poverty where they can't afford to get to school. Then you can target that and recognise that and it keeps them in school, keeps them engaged, and you can improve their outcomes and you can do some interventions based on that. So I think that would be the first big thing I would do, would improve the data system across the country. 

I think the second thing I would do is actually related to employers. I would probably start thinking of incentives to help employers make better decisions. I know Rishi Sunak announced the minimum wage was going to go up, but he didn't announce an increase in the minimum wage for young people. It's only for those over a certain age. I think it's 23 or 25. I would increase it for all young people, not just the over 25’s. I would also increase the apprenticeship wage because we have so much evidence that young people are avoiding apprenticeships simply due to the wage. Also, because of the implications for them to be in an apprenticeship.  due to child benefits if they're living at home. Their parents lose child benefit if they start an apprenticeship. But if they go into full time education, their parents don't lose child benefits. While we don't know precisely how many young people that problem impacts, that could be a deciding fact for some groups. So I think I would start plugging some of these systems gaps for young people who are born in poverty. 

The third thing I would do is I would make sure that the government had a way of consulting and acting on young people's opinions and choices every time they make a decision that involves them. So if every time they're making a huge national scheme when it comes to young people around inactivity or education, they have to involve young people in what they do, how they make decisions, how they write about young people. Because some of the discourse about young people and their decisions and who they are simply is not healthy. I think if I was a young person, it would completely turn me off engaging with the system. 

I think those would be my three things I would do fantastically well.

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