While the furlough scheme has protected many jobs in the UK, recent data show an increase in unemployment. In particular, young people (aged 18-24) have been disproportionately likely to suffer from a reduction in employment during the pandemic.
In the UK, one of the key economic stories of Covid-19 and the lockdown response has been the effectiveness of the furlough scheme in preventing widespread unemployment (see Figure 1), but the aggregate data hide some important details.
The Office for National Statistics (ONS) publishes a monthly Labour Market Bulletin, which allows us to delve deeper into the data and look at who is being most affected.
Figure 1: Unemployment rate 1992 to present
Source: ONS
While the most recent releases of UK unemployment data have shown a significant increase in unemployment (to 4.9%, compared with 4.0% before the onset of the pandemic), unlike in other countries (such as the United States), the overall unemployment rate remains low, particularly by historic standards (in the last two recessions, unemployment hit 10.8% and 8.6%).
Yet the aggregate data conceal a clear disparity between age groups. Figure 2 illustrates the level of employment between January 2019 and the present, broken down by age group. To aid comparison, the data is rescaled so that the last measure of employment before Covid-19 significantly affected the UK (December-February 2020) is equal to 100 for all age groups.
Figure 2: Employment by age group
Source: ONS
Note: Figures rescaled so Dec-Feb 2020 is 100 for all age groups.
The key result is that while employment has remained fairly constant for those aged 25 and above, there have been significant falls in employment for those aged 16 to 24. Overall, there has been a 6.4% fall in employment for those aged 18-24 and a 22.2% fall in employment for those aged 16-17.
The disproportionate impact of Covid-19 on the employment of young people is particularly important, as there is evidence that periods of (prolonged) unemployment early in life may be associated with a higher probability of later periods of unemployment (Gregg, 2001), lower wages (Gregg and Tominey, 2005) and worse mental and physical health (Bell and Blanchflower, 2011).
Somewhat perversely, this reduction in employment for the youngest workers is not represented in the official unemployment statistics. When we look at the unemployment levels for young people aged 16-17, there is a fall in the numbers unemployed – see Figure 3.
Figure 3: Unemployment by age group
Source: ONS
Note: Figures rescaled so Dec-Feb 2020 is 100 for all age groups.
This apparent contradiction is explained by the way that unemployment is measured: an individual who is out of work is only formally defined as unemployed if they are part of the economically active group, and actively looking for work.
Between December 2019 and September 2020, while the employment level of 16-17 year olds fell by 75,000 (from 338,000 to 263,000), the economically active population fell by 89,000 (from 443,000 to 352,000). Since the economically active population fell by more than the reduction in employment, this accounts for the reduction in the unemployment level. In the same period, the economically active population of individuals between 25 and 64 remained stable at 28.7 million, with employment levels falling by only 0.7%.
Some of the fall in employment for 16-17 year olds may be explained by people returning to being full-time students, but the similar trends in employment observed for 18-24 year olds may have long-term impacts on individuals’ outcomes. While the furlough scheme in the UK has protected employment, young people have been disproportionately likely to suffer from a reduction in employment during the pandemic.
