Britain’s young workers are quietly slipping out of the labour market at a pace not seen since the pandemic, and economists at the Institute for Fiscal Studies are warning that ministers can no longer treat the slide as a passing wobble.

Fresh analysis from the IFS, published ahead of the latest Office for National Statistics labour market release, shows the share of 16- to 24-year-olds on a UK payroll has fallen by 4.3 percentage points since December 2022, a drop of roughly 330,000 young people. Payrolled employment in the age group now stands at 50.6 per cent, down from 54.9 per cent three years earlier.

To put the scale in context, the Covid-19 shock pulled youth employment down by 6.5 points, and the 2008 financial crisis prised away 5.4 points relative to the pre-crisis trend. The current decline, in other words, is no longer a rounding error, it is approaching the territory of a full-blown labour market crisis, but without the obvious headline-grabbing trigger that accompanied the last two.

The consequences are already visible in the so-called Neet figures, those not in education, employment or training. The cohort has swelled from 760,000 at the end of 2022 to roughly 960,000 by the close of last year, closing in on the one-million mark that policymakers had long treated as a symbolic red line.

A scarring effect that outlasts the slump

Jed Michael, author of the IFS report, did not mince his words. “The fall in youth employment across the UK is likely to be setting off alarm bells among ministers, not least because we know that unemployment early in one’s career can have lasting negative consequences,” he said.

That so-called “scarring effect” is well documented. Graduates and school leavers who enter the workforce during a downturn typically earn less, change jobs more often and reach senior pay grades later than peers who began in benign conditions. The hit is not just personal: lost productivity, weaker tax receipts and higher benefits bills follow young people through their working lives.

Michael’s caveat, however, is one ministers ought to dwell on. “While it does not seem to be down solely to a temporary cyclical downturn in the economy, more evidence is needed to understand the roles of minimum wage, youth mental health, AI and other factors,” he added. “Without this evidence, expensive policies to reduce the Neet rate are shots in the dusk, if not the dark.”

An unusually structural shock

The UK has historically been a star performer in the Organisation for Economic Co-operation and Development league tables for youth employment. That advantage is eroding, and the data suggests something more than a standard cyclical slump is at work.

The pain is sharpest among 22- to 24-year-olds, typically graduates and college-leavers stepping onto the first rung of the career ladder. Employment in that group has dropped by 4.8 points in three years. The 18- to 21-year-olds have fared better, down only 1.1 points, while 16- and 17-year-olds have seen a 7.3-point slide that the IFS attributes largely to vanishing casual and part-time work alongside studies.

Geographically, the slump is broad rather than concentrated. Payrolled employment among the young has fallen by at least three points in two thirds of the UK’s regions and nations, and the share of 18- to 24-year-olds claiming out-of-work benefits has risen across the board. Cyclical downturns tend to land unevenly; this one is hitting almost everywhere.

The IFS flags two potential structural culprits worth watching: the rapid uptake of artificial intelligence in white-collar entry-level work, and the well-documented decline in youth mental health. Business Matters has previously reported on how AI and rising employer costs have already wiped out close to a third of UK entry-level vacancies since the launch of ChatGPT, a shift that disproportionately closes the door on first jobs.

On the minimum wage question, a long-standing battleground in the youth employment debate, the IFS is more cautious. Its central estimates do not point to a “sizeable effect” from recent wage floor increases, suggesting that broader structural factors are doing most of the heavy lifting.

A call to action, not a counsel of despair

Jonathan Townsend, UK chief executive at The King’s Trust, which co-funded the report, said the findings should sharpen minds in both Whitehall and the boardroom.

“These findings should concern anyone who cares about young people’s futures,” he said. “Too many young people are already out of work, education or training, and this analysis suggests we cannot simply assume the problem will correct itself as economic conditions improve.”

“This challenge is not impossible to fix. The message is that reversing the rise in young people out of work or education will take concerted action, a better understanding of what is driving it, and the right support for young people at the right time.”

Townsend added: “For an organisation whose vision is to help end youth unemployment, that is a clear call to action. We urgently need to understand what is pulling more young people away from work and education.”

The Government has begun moving in that direction, most recently with £3,000 grants for employers willing to hire unemployed young people who have spent at least six months on benefits. Whether such targeted subsidies are enough to offset what looks increasingly like a structural shift, driven by automation, wage costs and a generation’s fragile mental health, is the question the IFS has now put squarely on ministers’ desks.

For Britain’s SMEs, which collectively employ the lion’s share of young workers, the message is sobering. A generation locked out of the labour market today will be a smaller, less productive, less confident pool of talent tomorrow. The cost of inaction, the IFS suggests, will be paid not in a single Budget cycle but over the working lifetime of an entire cohort.

Read more:
Youth jobs in retreat: IFS warns Britain is sliding back to Covid-era lows