What does Covid-19 mean for the labour market prospects of young people in Scotland?

As the Covid-19 pandemic and economic crisis deepens, initial indicators and projections paint a grim picture for the economic prospects of young people across the UK. With the sectors most affected by the lockdown – hospitality and tourism – employing a disproportionate number of young workers (Fraser of Allander 2020), under thirties are already among the most exposed to the economic fall-out in terms of furlough and job loss in Scotland. Many young people in work are likely to be already facing a very difficult time, and of course those young people who are out of work will be finding it difficult to secure jobs. But as we approach the end of the academic and school year, they will be joined by a cohort of education leavers entering one of the worst labour markets Scotland has ever seen.

This blog looks at how young people in Scotland are experiencing some of the economic effects of the Covid-19 crisis, as well as some early evidence of its social effects. It forms part of a series of outputs produced through our Rethinking Social Security programme.

How are young people likely to be affected?

As we approach the end of the academic year, tens of thousands of young people in Scotland will be leaving education, whether from school, college or university. As they will look for work and seek to begin their careers over the coming weeks and months, these young people will be entering the labour market under the most difficult conditions in at least a generation. One of the key policy questions for Scotland, and the UK as a whole, over the coming months will be how to avoid the potential ‘scarring’ effects of unemployment, which can result in long-term damage to peoples’ employment and earnings prospects. This is a particularly concerning prospect for young people starting their working lives, with less employment experience to fall back on. Young people who left education into the 2008 financial crisis experienced lower rates of employment for several years following, with non-graduates experiencing the most significant and longest-lasting scarring effects. Current forecasts suggest lower-qualified young people leaving education now may see their employment prospects reduced by more than a third several years from now.

So far, the economic effects of Covid-19 are hitting young workers hard. Young people in work are disproportionately concentrated in the sectors most affected by the economic shutdown, and so face heightened exposure to job loss or furlough. Research from the IFS has found that workers under the age of 25 are two and half times more likely than those aged 25 and older to work in sectors that have been shut down. Research from the Resolution Foundation suggests that young people will also be hardest hit as unemployment rates rise across the economy, with youth unemployment forecast to rise by 600,000 across the UK, affecting the least qualified the most.

Indeed, this is borne out in our new analysis of Understanding Society data from April 2020. We estimate that 41% of young people in work in Scotland were furloughed in April, compared to 22% of all workers in Scotland. While the UK Government’s Jobs Retention Scheme is no doubt providing a lifeline to working people across Scotland and the rest of the UK, profound questions remain about how firms in the worst-affected sectors will transition from government support as the scheme winds down between now and October (2020) – and what the prospects for their employees will look like when they do. In short, how many of those on furlough will have jobs to return to is unknown.

And, of course, there were already thousands of young unemployed people in Scotland. In 2018, there were an estimated 25,000 unemployed 16-24 year olds in Scotland (excluding those in full-time education). One of the big successes in Scotland following the 2007/08 financial crash was a significant and sustained fall in youth unemployment. The rate of youth unemployment in Scotland fell steeply over the proceeding decade, from 13.8% in 2008 to 9.1% in 2018. There was, however, a moderate increase from 2017-2018, suggesting this trend may have reversed prior to this crisis.

Rising youth unemployment is likely to have medium or long-term consequences too. Research from the Resolution Foundation has emphasised that school leavers who do not go onto further or higher education often begin their careers in sectors like hospitality and retail that are currently shut down and likely to suffer medium-to-long-term decline as a result of this shock. As unemployment increases, some groups will be more exposed to unemployment and scarring effects than others. Existing evidence suggests UK workers from black African, black Caribbean, Pakistani and Bangladeshi backgrounds are not just at higher risk of unemployment, but face longer-lasting scarring effects when they have been unemployed.

Scotland’s Covid-19 education leavers – the COVID-class of 2020

Our analysis of education leavers this year shows there will be just over 50,000 people in Scotland that will leave school, college or university and look for work - the vast majority of whom we can expect will be under 25.

Table 1: Estimated education leavers in Scotland in 2020

Notes: Numbers refer to the latest available data, but draw from different years. University leavers figures refer to 2016-17, colleges figures refer to 2017-18, and schools 2018-19.

In addition, there are those in education that rely on work to continue their learning. Most notably, this includes the Scottish Government’s apprenticeship programmes, which has a target of delivering 30,000 new apprenticeship starts in 2020. In Scotland, each apprenticeship requires a job to be in place, alongside the learning and training. This may present a larger and more important challenge as labour market conditions deteriorate. There are around 28,000 apprenticeship leavers each year for which jobs opportunities will also need to be protected. Without action to ensure the Scottish Government’s apprenticeship target is at least met – if not exceeded – and that opportunities are at least maintained for apprenticeship leavers, we could see even fewer opportunities for young people in Scotland this year.

Similarly, there are other parts of the education system where learners and students rely on income from work to get by financially, and to sustain their courses. Insights from CPAG Scotland’s Early Warning System show that some students are under particularly acute financial strain, with their regular employment out of reach as the shutdown continues, student support payments not due until August, and Universal Credit unavailable to them.

How are young people in Scotland faring so far?

Without question, many young people in Scotland will be concerned about their finances now, but many will be worried about their futures too.

Our analysis of new Understanding Society data from April 2020 suggests that more 18-29 year olds in Scotland are experiencing financial worries now than in previous years, with over 1 in 4 (27 per cent) reporting that they’re ‘just about getting by’ or experiencing financial difficulty. We also find that young people’s expectations for their financial futures are substantially less optimistic than they were prior to the crisis. While just 7 per cent of young people in Scotland surveyed from 2017-19 expected to be worse off in the future, Understanding Society data from April of this year suggests that figure has risen to around 18 per cent.

Lockdown and financial strain may also be contributing towards a marked decline in young people’s mental health. In 2017-19, 22 per cent of under 30s surveyed in Scotland reported symptoms of anxiety or depression. In April of this year, that figure had risen to 37 per cent of those surveyed -- approaching 2 in 5. With the end of this crisis far from sight, the impact of lockdown and the economic fallout from Covid-19 on young people’s wellbeing will demand sustained attention from service providers and government.

What can we do about it?

With just over 50,000 people in Scotland due to leave education this year to look for work, and with a further 25,000 young people already unemployed in Scotland, there is a clear need to protect and boost job opportunities going forward. Given projections for increasing unemployment, there may also be a need to expand education places for the coming years to delay young people’s exit from education into the labour market.

Firstly, the Scottish Government will need to consider increases in apprenticeship, college and university provision, together with moves to increase staying-on rates for S5 and S6 in school, expanding capacity in our education and skills system. The challenges of social distancing may mean that to expand capacity we will need to consider a greater mix of online and distance learning alongside traditional face to face and classroom-based learning. Urgent work is required now to ensure online provision is well thought through, and high quality. Consideration should also be given to new national provision through an Open Institute of Technology – something IPPR Scotland has recommended previously.

Secondly, we will need to consider a new jobs guarantee fund in Scotland – whether as a standalone Scotland programme, or as part of a UK-wide fund. A jobs guarantee fund would provide subsidies to employers to create job opportunities for young people, and others hardest hit by the economic effects of Covid-19.

Learning from evaluations of past funds, most notably the Future Jobs Fund and Community Jobs Scotland, which were in place following the financial crash, we believe some of the key elements of a new jobs guarantee fund should be:

• Formal learning – at least a 20/80 split between learning and working, with a mix of online and face-to-face learning provision
• Progression – 6 months placements with a further 6 months available to employers that offer progression in terms of pay or seniority
• Flexibility and inclusion – including part-time through to full-time opportunities and promote flexible working opportunities
• Mentoring – structured and supported mentoring should be a key aspect of funded roles.

A jobs fund would provide opportunities to unemployed young people, or young people at risk of unemployment, together with those from other population groups hardest hit by the economic effects of Covid-19. As with previous funds, jobs would have to be additional (rather than replacing existing roles), paid at least at the over-25s minimum wage rate, placed with voluntary sector employers but also some private sector employers that can evidence their social purpose (this could include, for example, those signed up to the Business Pledge and fair work principles).

As the UK and Scottish government fiscal responses become clear there would be potential opportunities to link increased skills provision, and a jobs guarantee fund, to any fiscal stimulus provided to boost the economy. For example, if we are to deliver a green recovery from Covid-19, increased education and skills provision, and any job guarantee fund, could link to the new skills and the green jobs needed to promote the sectors of the economy likely to deliver on social, economic and climate justice.

Young people looking for work this year are likely entering the worst labour market in living memory. The scarring effects of unemployment – particularly for young people -- are well known, harming individuals’ prospects now and into their futures, and weakening Scotland’s economy over the long-term. We must consider every possible option to expand our education system to increase opportunities to stay on in education, but we must also consider what can be done to boost job opportunities for the cohort of young people whose working lives may be shaped by this crisis.

Rachel Statham is a Senior Research Fellow at IPPR Scotland and tweets @rachelstatham_

Russell Gunson is Director of IPPR Scotland and tweets @russellgunson

Henry Parkes is Senior Economist at IPPR and tweets @Henry_J_Parkes

Notes

We analyse Understanding Society data to identify respondents with a General Health Questionnaire score of 4 or more, which has been shown to indicate that the individual has symptoms of mild to moderate mental illness such as anxiety or depression. For more detail see ONS.

Acknowledgements

We are grateful to the Standard Life Foundation for their support in funding IPPR Scotland’s Rethinking Social Security in Scotland programme. The Standard Life Foundation are an independent charitable foundation whose mission is to contribute towards strategic change which improves financial well-being in Scotland and across the UK. Their aim to work to see everyone to have a decent standard of living and have more control over their finances