Hiding in plain sight

NOT much happens in South Shields at nine o’clock on a weekday morning. The high street is mostly empty, with just a handful of commuters at the metro station. The exception is the job centre, bustling with men and women searching for work as forklift drivers, industrial painters and at call-centres. Many have been looking for months, if not years, for paid employment.

Compared with much of continental Europe, Britain is doing quite well. Last year its economy grew faster than that of any other G7 country. Unemployment is 5.6%, next to 10% in France. Although high at 16%, youth unemployment has fallen. The share of youths not in employment, education or training (NEET) is 12%, around the rich-world average. Crime and teenage pregnancies are at record lows.

But in one area Britain still does especially badly. According to the OECD club of mostly rich countries, using data from 2012 and 2013, one in seven British youngsters leaves school early. Those dropouts are also the most likely to be unemployed in the rich world (see chart 1). Britain has the third-highest share of youngsters with poor literacy and numeracy skills, and the fourth-highest share who are bad with technology. And British NEETS are the most illiterate and innumerate.

Britain has one of Europe’s most flexible labour markets, which creates lots of jobs for the relatively unskilled. But this may exacerbate differences between those who are employed and those who are not. In 2012 the literacy gap between young Britons in employment and those out of work was the highest in the OECD.

Such findings underline a worrying pattern among jobless, working-class youths. This group—once termed the “underclass”—is especially numerous in deindustrialised places like South Shields, which has the highest youth jobless claimant rate in England. But there are also many in Midland cities, seaside towns and parts of London. That the underclass does so badly points up some failures of welfare, employment and education policies.

In any recession, young people tend to suffer first. Moreover, unemployment among 16-24-year-olds was edging up even before the financial crisis. Youngsters have since faced a “double whammy” of scarcity of work and falling real wages, says Stephen Machin of the London School of Economics (LSE). Those who are unskilled, a group of which Britain has a larger share than most, were particularly badly hit.

Young Britons have worse literacy and numeracy rates than those aged between 30 and 54, a pattern not seen in any other country in the European Union. Some of this stems from high levels of immigration. But it also reflects the poor educational standards of many British youths. Native-born children are more likely to be unemployed than children of immigrants, another finding not matched in any other European country (see chart 2).

Many of those searching for jobs in South Shields did not complete their education. Tony Nesbitt, a 27-year-old industrial painter, wishes he had remained in college rather than dropping out to take on his summer job full-time. “They asked me to stick with it and I stuck with it,” he says. “And so I am stuck in what I am doing now.” Few teachers talk of apprenticeships or alternatives to university, say others.

Plenty of youngsters are stuck geographically as well. Partly this is because few want to move from where they grew up—although some talk wistfully of moving to such far-flung places as Australia. But it also reflects restrictive rules for social housing and shoddy transport links.

Entrenched poverty has knock-on effects. According to a paper by Professor Machin, Brian Bell and Anna Bindler, the average conviction rate for youths entering the labour market during a recession is 4% higher than for those joining it in better times. If they cannot find work, youngsters may seek other forms of occupation. “People I used to hang around with are now drug dealers,” says Jordan Smith, an unemployed 18-year-old in Wolverhampton who is trying to get a job as chef.

In all this Britain contrasts especially with Germany, where youth unemployment is only 7% and the NEET rate is 6%. Many point to apprenticeships offered in Germany as one reason why youths do better there: around one in four employers offer them, compared with just one in ten in Britain. European youths often begin earlier as well: in Austria children who take up an apprenticeship may choose their future occupation when they are just 14.

Such systems can seem overly restrictive. But apprenticeships in much of Europe are generally of higher quality, and many apprentices also go on to further education. In Britain, apprenticeships only have to last for a year and their quality is patchy. In Germany most last for around three years, and apprentices learn different skills, says Conor Ryan at the Sutton Trust, a charity. At one fridge company in Munich, for example, a three-year long apprenticeship involves six months in different parts of the firm, from marketing to manufacturing, he says. This makes the apprentices far more flexible.

The government is trying to improve things. Since 2013, under legislation passed by the Labour government, youngsters have had to stay in some form of education or training until they are 17; that will rise to 18 this year. This week Matt Hancock, the paymaster-general, announced that the government would start a “boot camp” in 2017 to teach youngsters how to write a CV and apply for jobs; benefits may be restricted to those who are neither in training nor in education. The government has also pledged to boost apprenticeships by 3m and improve their quality.

Although these measures may help a few of today’s most disadvantaged, most do not tackle the underlying causes. After riots in 2011, a £448m ($716m) scheme for “troubled families” was announced to try to help 120,000 of the very poorest. Last year it was expanded. But funding per child for some early education schemes has shrunk in real terms by a quarter under the 2010-15 government, according to academics at the LSE and the Universities of Manchester and York. A report from a social mobility quango last year warned that the government’s changes to tax credits and benefits will probably increase child poverty.

In effect, the government already has a backlog of unemployed, disillusioned youngsters to deal with. Some may be pushed into work by benefit cuts, but a lot will not. If this problem is to be tackled, politicians must start investing more in the next generation, notably in early education. Otherwise the underclass will grow—and so will the costs linked to it.