Business

Richard Ramsey: Millennial déjà vu as an unemployment crisis looms

As an unemployment crisis looms for young people, even the potential to take a gap year and travel or to work overseas has been removed given restrictions in place across the world

LAST year was one of the best ever to enter the labour market in Northern Ireland. Jobs were aplenty across a broad range of disciplines. It was arguably the case that anyone who wanted to engage in work could find an opportunity to do so.

Indeed there wasn’t the supply of labour to meet employers’ demand, making it a seller’s market. Employers increased salaries to address widespread skills shortages – particularly in ICT. Even lower and unskilled jobs saw significant pay growth with big increases in the National Living Wage.

Fast forward a few months, and the labour market landscape is unrecognisable, and 2020 will prove to be a contender for the worst year ever to enter the labour market here.

Whilst the younger generation are said to be the least impacted by Covid-19 on the health front, the opposite is true when it comes to the economics. People under the age of 30 will be in the front line when it comes to the financial impact of the pandemic and the resulting lockdown.

Most people are adversely impacted in a recession in some manner, but this is even more true for younger people. Economic research confirms that younger people get hit harder than other age groups in terms of both employment and earnings. In turn, this delays gaining a foothold on the property ladder and starting a pension.

Recessions hit younger people primarily because firms move into firing rather than hiring mode, which means it is more difficult to get a job and begin a career. Also if they get a job, wages will be lower than they otherwise would have been. Pay and career progression are also impacted as the effects of the recession last for several years. To highlight the point, median earnings in the UK for graduates in their late 20s fell by 20 per cent in real terms between 2008 and 2013.

In Northern Ireland, during the last recession, we saw youth unemployment (18-24 years of age) peak at 23.9 per cent in quarter four of 2010. Youth unemployment was still regularly above 20 per cent until the end of 2015. This was the only age group to see an unemployment rate in double digits.

Indeed, Northern Ireland’s overall peak unemployment rate in that period was 8.3 per cent. The 18-24 age-group, alongside the 25-34 bracket, bore the brunt of the recession in an employment sense and also saw the biggest squeeze in terms of earnings.

Median earnings (adjusted for inflation) for 18-24 year olds working in the private sector fell by almost one-third between 2008 and 2013. The 25-34 year age bracket saw a corresponding decline of over one-quarter. These falls also reflect a move towards part-time rather than full-time employment too.

Unsurprisingly this fed into the housing market and a lack of first-time buyer demand. Owner occupancy levels amongst the 25-34 age group plunged from 64 per cent in 2006 to 37 per cent in around 2017.

In 2020, we had finally seen the employment rate of 18-24 year olds return to their pre-recession levels and earnings had recovered too. But private sector earnings for people in their 30s are still 17 per cent below where they were before the recession.

The housing market has also recouped some of the ground with first-time buyer mortgages hitting a 16-year high in 2019 and owner occupancy levels back to around 48 per cent. Clearly the legacy of the last downturn is still with us within the younger age groups.

And it is this bracket that is being impacted significantly again. And overall, they are now being hit harder this time than the last time.

This time we have experienced an almost complete economic stop rather than a downturn. With the level of uncertainty there is, many companies simply aren’t and won’t be recruiting for graduates, school leavers and other new entrants to the labour market. Entire sectors are also not operating, and some of these – including retail and hospitality – employ a disproportionately high level of younger people.

Indeed, people under 25 in the UK are two-and-a-half times more likely to work in non-food retail or hospitality than other age groups. 40 per cent of 16-24-year olds work in sectors that have been shut down. This figure rises to 60 per cent for under 20s.

In the last recession, if you couldn’t find a job to match your skills, there was the possibility of opting for a lower skilled role. This time around, with the likes of retail and hospitality hit so hard, this opportunity doesn’t exist in the same way.

Even the potential to take a gap year and travel or to work overseas has been removed for young people. In the last recession, many young people went to Australia to travel or work and others opted for jobs in the Middle East and Asia.

This simply isn’t an option at present with the restrictions in place. Add to this the fact that the current crisis is global, unlike the financial crisis which was largely a European and North American phenomenon. Indeed, Australia is facing into its first recession in almost 30 years. Economies everywhere are being impacted hard and job opportunities around the global will be limited.

All of this adds up to a looming unemployment crisis here, and particularly for younger generations. The last recession was bad for the labour market, but arguably we didn’t have an unemployment crisis. And that’s one of the ways in which this time will be different.

Last week the National Institute for Economic and Social Research (NIESR) warned that the UK unemployment rate is set to peak at 10.5 per cent by the end of this year.

Northern Ireland is expected to see something similar which would mark the highest rate since the mid-1990s. And the unemployment rate amongst under-25s could exceed 25 per cent.

Other factors include the fact that people in their 20s and early 30s are more likely to be renters rather than home-owners and can’t avail of mortgage payment holidays, rates payment holidays and some of the other age-neutral measures than have been introduced in the current climate. And they are already at an income disadvantage relative to their counterparts in the past.

Those currently in their 30s have a median wage, after inflation, that is £4,000 per annum lower than people who were in their 30s in 2008. Those aged 25-44 had a higher income (after housing costs) than people aged over 65 prior to the last recession. The opposite is true today. Parents living in couples up to the age of 35 are more likely to be living in poverty than pensioners over 80.

All of this adds up to an urgent need for policy measures targeted at the younger generation. We have seen a move in that direction in recent years with the scrapping of stamp duty for first time buyers but we need to see dramatically more.

This should include ramping up further education places and training opportunities including apprenticeships to have people in training rather than on the dole and to prepare the skills that we will need whenever the economy comes back.

:: Richard Ramsey (richard.ramsey@ulsterbankcm.com) is Northern Ireland chief economist at Ulster Bank

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