Friday 22 May 2015

Youth unemployment and education participation in the UK and Europe

Dr Stefan Speckesser is an empirical economist specialising in evaluation methodology, programme and policy impacts and the returns to investments in vocational education. He has been Principal Economist of the Institute for Employment Studies since 2010.

In this blog post, we focus on the situation of 15-19 year olds using the most recent EU micro-data available to independent researchers (from 2012). More recent data for selective indicators and a comparison of youth unemployment rates and youth unemployment ratios for the whole group of young people (15-24 year olds) can be found here.

An obvious and well-established measure for understanding the effectiveness of institutions facilitating young people’s transitions into work are youth unemployment rates[1], which relate unemployed jobseekers of a particular age range to this age group’s total labour force, that is, people either working or looking for a job. The top panel of Figure 1 shows this indicator for 15-19 year olds using consistent data from the EU Labour Force Survey. The the data reveals, the labour market for young people in the UK compares relatively favourably with most other EU Member States, although the UK’s unemployment rate is higher than in Germany, Austria or the Netherlands.

However, the comparison of unemployment rates is greatly affected by institutional differences because countries with large-scale apprenticeship systems, such as Germany and Austria, include apprentices in the total labour force. In contrast, unemployment rates are higher in many other countries, where vocational education and training (VET) is primarily college-based and these individuals are not counted as part of the labour force.

Therefore, comparing unemployment ratios, which relate total youth unemployment to the whole population of the 15-19 year olds - including those that are currently in school - , results in fewer measurement problems. Figure 1 (bottom panel) shows that the youth unemployment ratio in the UK is among the highest in Europe. In relation to the other big EU economies, Germany (unemployment ratio 2.6%), France (5.1%) and Italy (4.8%), the UK’s youth unemployment ratio is two to four times bigger. 

These findings are interesting as they suggest that countries with very different institutional designs can show similar youth unemployment ratios: Countries with employment-centred VET-systems like Germany and Austria achieve relatively low youth unemployment, but – at least for the youngest group in the labour market of the 15-19 year olds – so do countries with upper secondary vocational education in colleges like Poland and France.

Figure 1: Unemployment rates and ratios for 15-19 year olds in Europe
Notes: ** Countries with ‘Dual systems’ of vocational education and employment (incl. apprenticeships).

Source: European Labour Force Survey micro data, own calculations.

The common feature of these countries is that young people, including those not aiming for academic education, continue to participate in education for longer: In Germany, compulsory education participation ends when people turn eighteen (in most states), including apprentices’ participation in vocational education colleges. In Poland, where compulsory education also ends with eighteen years of age, young people outside general secondary schools participate in full-time (basic) vocational and technical schools for two years. In France, where mandatory schooling participation ends with sixteen years of age, post-16 participation is lower, but about 87 per cent of all 16-19 year olds participate in general and professional Lycées. Compared to this, young people aiming for a non-academic route in the UK make transitions out of the education system earlier in the life and are relatively more affected by youth unemployment. 

Education and Vocational Education & Training (VET) make the difference

Obviously, education expansion itself decreases youth unemployment because it postpones labour market entry, but there is more to it than a simple effect on unemployment statistics. A body of robust evidence on the substantial benefits of investment in post-compulsory education exists, with statistically significant estimates on the percentage point improvements of young people’s employment and earnings outcomes if they achieve general and vocational qualifications – compared to the counterfactual non-achievement. As suggested by Human Capital theory, knowledge and skills remain the crucial mechanism for improving the labour market position of young people.

Moreover, continued modernisation and technological change increase the demand for higher level skills and reduce opportunities for young people to move into traditional entry jobs. In such roles young people were able to gain practical experience, initially undertaking easier tasks in the workplace while firms trained their young employees up for their own benefit. The loss of this labour market segment has resulted in both a lack of opportunities for young people and an overall shortage of skills, which affects the UK’s growth prospects. As written in Sandra’s last blog post, policy in the UK aims to make a difference by increasing the age of compulsory education participation to 17 (from 2013) and further to 18 from autumn 2015.

Increasing education participation seems to be the crucial mechanism to improve the situation of young people. The comparison of EU Labour Force Survey data in Figure 2 (top panel) shows that the UK’s position in engaging 15-19 year olds in education is one of the lowest in EU, at 79%. Education participation is almost 10 percentage points higher in France (89.9%), more than 14 percentage points higher in Germany and more than 15 percentage points higher in Poland.

When considering that the UK’s tertiary education achievement rate is 40%+ of 30-34 year olds (ten percentage points higher than in Germany, see Target Tertiary Education of Europe 2020), the statistics are evidence that the UK education system delivers very successfully education at highest levels, but offers fewer opportunities for school leavers to acquire skills and recognition for professional roles at intermediate levels than other countries.

In recent years, an important element of improving such opportunities was the reform and extension of apprenticeships and traineeships, combining employment with formal education.[2] The comparison of the UK and other EU Member States supports this strategy. Figure 2 (bottom panel) show transition to VET rates - the share of pupils who leave full-time education and move on to combining work and education. As can be seen in the chart, there are large differences across countries in terms of how much employers are involved in vocational education. Countries with “Dual systems” combining apprenticeships in firms with state-run schools providing vocational education (Germany, Austria, Netherlands, Denmark)  have a very high VET transition rates. Those with mainly classroom based systems, like France, have very little employer involvement in vocational education and consequently have a low transition to VET rate. Recall from Figure 1 (top panel) that countries with dual systems are also the countries with relatively lower youth unemployment rates. 

Figure 2: Education and training participation indicators for 15-19 year olds in Europe
Notes: Transition to VET: Those combining education and work as a % of all in full-time education who left since the previous year (based on the retrospective question of the European Labour Force Survey on individual’s status a year ago.)

** Countries with ‘Dual systems’ of vocational education and employment (incl. apprenticeships).
Source: European Labour Force Survey micro data, own calculations.

Improvements the UK, but more has to be done

While the labour market situation for young people has been improving significantly over the last years in the UK, the European comparison shows that higher youth unemployment is associated with lower post-compulsory participation in education, in particular vocational education. However, it is crucial that the courses and routes offered to young learners are of high quality if the expansion of post-16 education is to reduce youth unemployment and increase skills among the population.
We can learn a lot from other countries about how to improve education for young people and prepare them for occupational roles. There are many elements from ‘Dual systems’ in Germany and Austria combining work in firms, high quality vocational education and clear educational standards, which can help to further develop UK vocational education. 

Similar to England’s vocational education system, the Dutch system offers both mainly school-based programmes and apprenticeships, with both resulting in the same qualifications, while producing much lower youth unemployment. Poland achieves high intermediate skills levels and relatively low youth unemployment with a primarily college-based system. 

In the medium term, the UK will not be able to move to a system where most of Vocational and Further Education consists in apprenticeships, even though the recent calls for more apprenticeships by all parties suggest a desire by policy makers for this to happen. We must ensure that the alternatives for those not able to get an apprenticeship are of a high standard and lead to similarly desirable qualifications. 

CVER’s aim is to produce robust evidence to further understand the impact of vocational education on students’ transition to jobs and earnings later in life. This research will help inform the policy debate on education and labour market integration of young people.

This analysis is part of a report on “Performance and Key Drivers of Youth Labour Markets in Europe” for research on “Strategic Transitions for Youth Labour in Europe (STYLE)”, funded by the European Union’s Seventh Framework Programme. The project aims to provide a comprehensive understanding of the causes of very high unemployment among young people and to assess the effectiveness of labour market policies designed to mitigate this phenomenon. The forthcoming research report will be published here.

[1] Unemployment is defined according to ILO convention and covers all young people, who are out of work, have been looking actively for work in the last four weeks and are available to start working in the two weeks or who found work and will start within the next two weeks. Unemployment rates express total number of unemployed as a percentage of the economically active population (i.e. people in employment or ILO-unemployed) of the age group in focus. Unemployment ratios relate total 15-19 ILO-unemployment to the whole population of the15-19 year olds.

[2] Since we do not have EU-wide data on apprenticeships, we focus in this description on 15-19 year olds leaving full-time education to start employment combined with education participation as a percentage of all young people leaving full-time education.

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