The Government's Youth Jobs Scheme Won't Stop Mass Unemployment

The Conservative Party has a massive problem with young people. If, in the last election, only 18 to 24-year-olds had voted, the Tories would not have won a single seat. Zero. Not one. Sunak knows that his party can’t rely on ageing pensioners to vote them back into office forever (especially given how badly the government has handled the pandemic), so now he's courting the youth vote.

The Chancellor has spent the last several weeks talking up how much his government is spending in response to the coronavirus pandemic, via Instagram posts that look like they’ve been crafted by a PR firm specialising in millennial relations.

His Instagram prowess – helped by the fact that, we must admit, he’s not bad looking – coupled with a jobs scheme for young people, funding to tackle climate breakdown and a £1.5 billion package to support the arts and culture industries all sound like vote winners for millennials and Gen Z.

But given the wild speculation among political journalists over the likely scale of Sunak’s budget promises, his so-called "mini-budget" has been pretty disappointing. Along with a £3 billion scheme to help people improve the energy efficiency of their homes, he’s promising £2 billion for a job creation scheme for under-25s, which he claims will find six-month job placements for 350,000 young people.

£5 billion might sound like a lot, but given the scale of the crisis we’re facing it’s fairly insignificant; as a point of comparison, the German government has pledged £36 billion worth of investment in the green economy to decarbonise and create jobs.

When it comes to the jobs creation scheme itself, the devil is in the detail. Young people are being offered six-month contracts on minimum wage – that’s just £4.55 for 16 to 18-year-olds, and £6.45 for 18 to 20-year-olds. This might help some young people avoid unemployment over the short-term, but unless the government supports the creation of new, better-paid jobs down the line, those who use the scheme will simply face financial hardship and uncertainty.

The big unspoken fact here is that even with Sunak’s announcement that firms who keep furloughed staff on until January will receive a £1,000 ‘bonus’, which means that unemployment is going to go up. A lot. Early modelling by the Office for Budgetary Responsibility suggested that unemployment could reach 3 million as a result of the economic contraction associated with the pandemic.

Sky-high potential unemployment is a big reason why the government decided to introduce the furlough scheme in the first place – the UK hasn’t faced unemployment of 3 million people since the recession of the early 1980s, when Thatcher went to war with the country’s unions and pushed millions out of their jobs, particularly in the north of the country. The Tories weren’t able to win back many of those seats until 40 years later.

So naturally, the Conservatives are concerned about the political implications of allowing unemployment to skyrocket. Given that young people are disproportionately likely to be using the furlough scheme, and given that we know recessions tend to lead to significant spikes in youth unemployment, the Chancellor’s under-25s jobs scheme should come as no surprise.

The big question is: will it work? Another thing we know about recessions is that they tend to be associated with an increase in the number of people in education – people either put off getting a job, or leave work to get some training, to avoid unemployment and make sure they’re able to get better jobs when things pick up. Lots of young people are likely to choose this option, even if it is very costly, rather than work in a minimum wage job that is only guaranteed for six months.

We don’t know what the take up for the jobs scheme will be like among employers. If you don’t have any jobs, you don’t have any jobs – support from the government to hire more people isn’t going to magic work out of thin air. Unless the government also finds a way to increase demand in the economy, the scheme may not end up creating the number of jobs the Chancellor says it will.

The question we should all be asking ourselves is: is the government going to be spending enough to counteract the massive drop in spending in the rest of the economy?

Confidence-driven contractions in spending are usually what drive a recession. In other words: If a business-owner expects orders to fall, they probably won’t build a new factory. The business that might have built that factory will then have to lay off workers. Those workers will then have less income, which means they’re able to spend less, which means other businesses suffer. These cycles of expectations and incomes are usually what drive the business cycle.

This time is slightly different – the government has deliberately stopped a lot of economic activity to halt the spread of the pandemic. But once lockdown is over, we might be facing another classic expectations-driven recession.

Highly-indebted businesses aren’t exactly going to be optimistic about their future incomes in the context of massive unemployment, a global recession and the potential for a second wave of the virus. Consumers are likely to be trying to pay down their debts rather than spending money on new stuff, especially given how high household debt was before the crisis.

With similar trends expected in most other parts of the world, we could be headed not just for another recession, but a global depression. An extra £5 billion isn’t going to be enough to counter the impact of what could become the biggest economic contraction since the 1930s – and we all know what came after the Great Depression.

The state needs to commit to picking up the slack that is likely to emerge in other sectors of the economy. The other option is to watch as incomes fall, insolvencies skyrocket and tax revenues plummet, pushing government debt even higher.

If the Tories committed to doing this, while tackling wealth and income inequality, decarbonising the economy and dealing with the housing crisis, they might just have a chance at winning back young people. Since it’s pretty unlikely we’ll see this kind of generosity from the government, Sunak’s plan might not work after all.

For now, it looks like young people – many of whom are already struggling to get by, given the costs of rent, transport and bills – have a choice: either sign up for a job that will barely pay them enough to survive, or sign up for £50,000 worth of debt to earn a degree that might not even help them get a job. Not much of a choice at all.

@graceblakeley