“The UK economy grew by 0.9% in 2011, according to the first set of official estimates.
But in the last quarter economic activity actually shrank by 0.2%. It’s no surprise that the last quarter was weaker.
Several other indicators have been signalling the same thing. Not least the data from the labour market.
Overall UK unemployment has been creeping up. It rose from 2.46m, or a rate of 7.9%, in November 2010 to 2.68m, or 8.4%, by November 2011. This compares with 5.5% in Germany and 10% in France.
The rate in the US rate is 8.6%, but this is coming down.
But what’s worrying in the UK is the rapidly rising rate of unemployment among the young.
If it persists it stores up future problems for the economy, and for the housing market.
Teenagers are renowned for sleeping their days away, much to the chagrin of their working parents.
And with unemployment among 16 to 24 year olds rising above 1m for the first time since comparable records began, it might seem that many of them think they have little to get out of bed for.
Unemployment among this age group in the UK increased by 52,000 in the three months to November.
Now 39% of all of the unemployed are under 25.
The latest rise brought the unemployment rate among 16 to 24 year olds up to 22.3% compared with the overall rate for the UK of 8.4%.
Youth unemployment is higher than the general rate in all other major economies too. In Germany, the comparable unemployment rate for under 25s is 8.1% and in the France its 24% and in the US 16.8%.
The headline and internationally comparable figures do exaggerate the problem a little.
These data include students in full-time education who are looking for part-time work. But even taking account of this there were still 729,000 unemployed 16 to 24 year olds in November 2011, up 8,000 from August.
This translates to an unemployment rate of 20.7%.
Unemployment in general is a concern for economic growth. And it’s a worry for a government struggling to repay debt too because of rising welfare payments.
But a high level of youth unemployment is very bad news because it stores up problems for the future.
Just being in work, almost regardless of the occupation, gives young people skills which make them more productive.
And for those who are more highly qualified, the lack of opportunity to put their theory into practice means that their acquired knowledge also erodes.
A greater number of children staying on into higher education should provide the economy with a more highly skilled, and so more efficient and productive workforce.
But, if they can’t find work, the value of that education is reduced and the productive capacity of the whole economy suffers– especially if the best qualified ones take their skills abroad.
Youth unemployment isn’t just a problem for the macro economy though. It affects individuals badly too.
Academic studies suggest those who suffer unemployment in their youth can be “scarred” throughout their careers.
This means that they end up earning lower salaries than they might have otherwise, and progressing through their careers more slowly.
For the housing market too, persistent youth unemployment stores up problems.
If the economy isn’t growing, neither is household income and this is crucial for housing markets.
First-time buyers are already finding it difficult to enter the market, but if youth unemployment persists, their future prospects are certainly no better.
Youth unemployment is a sleeping problem because it takes some time for this ‘deskilling’ to actually hit economic growth.
As older, more skilled and experienced (and hence more productive) workers begin to leave the workforce, their replacements are less effective.
And because the ‘best’ of the younger workforce are more likely to migrate to find better jobs, the productive capacity of the whole workforce, and hence the potential growth rate of the economy could be reduced.
Governments are very keen to ensure that this doesn’t happen and it’s why we are likely to see measures in the Budget to address the rising levels of unemployment among the under 25s in spite of the cost.”
