Understanding the cost of economic inactivity for young people

Youth unemployment and inactivity has a range of adverse consequences for individuals, the economy and society. Costs of youth unemployment and inactivity include higher benefit payments, lower health status and social inclusion and often has a longer-term legacy for those entering employment during periods of recession. Periods of youth unemployment can also have long-lasting impacts on young people’s future labour market outcomes.

Hull is the fourth most deprived place in the UK, according to 2019 IMD, with 45 per cent of the city falling within the most deprived 10 per cent of the country. Rates of worklessness in Hull are generally above average and evidence has shown the disproportionate impact the COVID-19 pandemic has had on disadvantaged young people living in these neighbourhoods.

By June 2020, 10,400 (32 per cent) of 16-24 year olds were estimated to have been on out of work benefits or furloughed as a result of the pandemic. Whilst the number of those furloughed has reduced over the life of the scheme, in April 2021, 3,100 (12 per cent) of young people were still claiming benefits and 8,400 were economically inactive (January to December 2020).

To develop a fuller understanding of the potential benefits of creating a young people support programme, Hull City Council wanted to understand the current costs to the public sector of young people not fully participating in the economy. This would look at the short to long term, along with the benefits that may be drawn through the delivery of support programme pilots.

In order to fully understand the scale of the issues, Hull City Council commissioned research to look at the numbers of young people that historically followed different career pathways.  This included looking at numbers going into apprenticeships, higher education, further education, employment, self-employment, unemployment, or becoming economically inactive.

The council was also interested in estimating the current costs of welfare benefits for young people who were economically inactive, through unemployment, in order to provide a baseline from which to evaluate the delivery of any programmes.

Partnering with a local research consultancy, Agencia, they were able to bring together a range of datasets to help in the development of a prototype model. This would support the council in understanding the costs and benefits for young people avoiding unemployment or economic inactivity.

Looking at potential data sources, it quickly became evident that accessing local data was limited, and with constrained time and resources they needed to focus on what was readily available. They therefore focussed on nationally available datasets that could be broken down to the local level, with most of these coming through the Office for National Statistics and Department of Work.

Analysis from the Learning and Work Institute and The Prince’s Trust forecast that the economic cost of youth unemployment in terms of lost national output would increase to £6.9 billion by 2022.  Furthermore, the report suggested that the cost to the Treasury of lower tax revenues and higher benefits spending would amount to another £2.9 billion next year, while over the next seven years young people themselves will miss out on £14.4 billion through lost earnings and lower employment prospects.

The research carried out by the agency produced a simple economic model which identified the numbers of young people in Hull aged 18-34 who were in education, employment, economically inactive, along with those in receipt of unemployment benefits.

The research carried out by the agency produced a simple economic model which confirmed of the 68,500 young people (18-34 year olds) those that were in education, employment, economically inactive, along with in receipt of unemployment benefits.

(Note: figures rounded to nearest hundred; individuals may be in multiple categories so do not sum to total population)

Using data and costs gained from the Stat Explore, NOMIS, and the ONS, it was possible to estimate that in 2020, the total cost of welfare for young people was £98 million rising to £189 million in 2021 as numbers of young people claiming benefits grew. It was also possible to see that while the average claim amount was similar, the number of claimants doubled over this time.

In a worst-case scenario, based on someone remaining economically inactive for the rest of their working life the average individual could potentially cost over £340,000 in direct welfare benefit costs over their life. This obviously discounts any other costs associated with health and well-being.

Looking forwards, the model developed will now help in determining the benefits of implementing programmes that would provide opportunities to support all young people. This could include pathways into employment, further or higher education, or self-employment and so avoiding the significant cost of economic inactivity.

The research findings have already been used to:

• support and inform the development of Hull’s economic strategy which was launched in August 2021
• shape future funding bids and partnership working
• bring together partners to consider the future offer for young people within Hull’s Training and Adult Education service.

The council is now developing the Economic Strategy’s delivery plan which includes a focus on young people, including support for youth enterprise, training and development.

They are also looking at completion of further research focused on the development of local datasets to increase its understanding of young people’s prospects of working with a range of stakeholders that are involved in training and employment activities.

• Development of monitoring and evaluation frameworks over the long-term
• Importance of local data, research, intelligence, and networks
• Long-term costs and impacts on society of young people remaining economically inactive
• Need for the development of programmes for young people that are flexible and responsive to meet their needs as well as taking advantage of the local area’s strengths and assets

Nathan Turner, Head of Strategy and Policy

[email protected]