The coming recession

Recessions always hit the young hardest.  Employers stop recruiting so those without qualifications and those without experience end up without work. Even those with qualifications find it harder to get that first job.  And if they can’t get work, they can’t get experience. 

Look at the how unemployment spiked during the global financial crisis (GFC) that hit in 2009.

Figure 1: Unemployment rate by age group, 2004 to 2019

Source: Statistics New Zealand, Infoshare. 

Unemployment began to rise slowly among the young in 2007 as the first effects of the GFC began to hit and then soared – the unemployment rate among those aged 15-19 hit nearly 25% in 2012. 

For those aged between 25 and 64, the GFC caused a bit of a bump – unemployment rose from a low of 2.3% in 2007 to a peak of 4.7% in 2012, before falling back to below 3% in 2019.  The GFC may not have been comfortable for those over 25.  But the hit taken by the over 25s was nothing like the impact on younger people.

Of course, many of the unemployed 15-19 year-olds shown in Figure 1 were still in education, marking time while waiting, watching for work opportunities They weren’t all “on the couch”.  But in every year between 2009 and 2012, more than 9% of 15-19 year-olds were not in employment or education or training (NEET), while among 20-24 year-olds, the NEET rate hovered around 18%. 

Figure 2: Young people not in employment, education or training (NEET) by age group, 2004 to 2019

Source: Statistics New Zealand, Infoshare

I’ll have more to say about the reliability of NEET as a measure later on.  But, the NEET rate has become the standard measure of the state of the youth labour market over the last 20 years.

The data in Figures 1 and 2 clearly show the effects of the GFC of 2009 to 2014 on the young.

The situation is especially difficult for those who didn’t get a school qualification.  Around 10% leave school without NCEA Level 1.  Ministry of Education research shows that, for those who left school without NCEA at level 1 in 2009, as the GFC hit, the employment rate seven years later was only just above 40%.  And the average annual earnings seven years after leaving school for those who were successful in gaining work was around $40 000 – 10% less than workers who had left school at the same time with NCEA Level 1 as their highest qualification.

Even for young people with high qualifications, the GFC hurt.  Having a tertiary education qualification gave some protection against unemployment, but from 2010, starting salaries for young graduates fell. It’s hard to cut the wage of those already in work, but employers can easily recruit at lower pay rates.

Recessions can have lasting repercussions for the young

Recessions can damage young people for yearsResearch shows that those who enter the workforce during a recession can experience ongoing problems – with employment rates and earnings lower than would be expected given the experience of older cohorts in the same market. Evidence suggests that annual earnings effects recovered for those entering the labour market after 2012, but that negative effects on the earnings of the 2009 labour market entrants have persisted.

In other words, those who enter the workforce during a severe recession can sometimes be “scarred”; they can carry the effects for years, even after the recession has subsided.

The Youth Guarantee

In a recent article on Newsroom, I looked at the plight of the young during the GFC, how the government responded then and whether we have the tools to soften the impact of the coming deeper, more acute recession. I focused in particular on the Youth Guarantee (YG) fees-free programme that was rushed into place in 2009 by the incoming government as a means of softening the impact of the GFC on the young, providing an alternative for those who couldn’t fit into school and who had struggled to gain a qualification. 

In 2009, YG looked like a great initiative, well-timed to create an option for the young just as the need grew.

But, as I pointed out in that earlier article, the monitoring reports on that programme showed that, while YG had education benefits, the employment outcomes were problematic.  Those who took part in the programme had worse results employment outcomes than a comparison group of similar young people.  Two years after starting the programme, the proportion of people in full employment was no different between the YG group and the comparison group.  The YG participants were more likely to be NEET.  And they were more likely to be receiving a welfare benefit than the comparison group.

The evidence is clear: YG did not reduce the risk of long-term poor outcomes. YG is one of the government’s main tools for supporting this vulnerable section of our youth population. And the risks young people face have just escalated.  We should be very concerned. 

What have we learned? What are we doing about it?

In 2019, the Ministry of Education released important research about education programmes for young people at risk of poor outcomes, programmes that are often called Active Labour-Market Programmes (ALMPs).

What do we know about what works for young people at risk?

Researcher Mandy McGirr reviewed the international literature on ALMPs.  Her analysis shows that the most important factors influencing employability are:

  • Non-cognitive skills, or soft skills, such as attitude, motivation, self-management, self-control, conscientiousness, grit and interpersonal skills
  • Work experience.

The programmes most effective in improving longer-term employment outcomes are those that involve job search assistance, work experience or on-job training. Those programmes help give the young person experience of the workplace. 

Programmes that focus exclusively on developing skills (that is, those without an on-job focus) are usually ineffective. They can even be harmful if they lock people into low-level training rather than giving them experience of job search and building their work experience. 

The research concludes that the literature shows that effective programmes are likely to:

  • include work experience or an on-job training component
  • combine training with help in job-seeking
  • focus on specific skill shortages for identified industries or locations
  • include features that assess and address individual participants’ needs and that lead to individual training and development plans
  • include pastoral support, personal coaching and individual mentoring

If that’s what works, why are we surprised that YG didn’t!

How should we target our programmes

The Ministry review also suggests that programmes need to be carefully targeted to those at risk.  And that raises another question about our current practice.

I said earlier that, over the last 20 years, we have focused on young people who are not in employment, education or training (NEET).   NEET has become the most convenient way of taking the pulse of the youth labour market.  

But being NEET isn’t the same as being at risk.  Ministry of Education researcher David Earle analysed the validity of the NEET measure.  There are two types of problem.  First, most New Zealand young people are NEET at some stage, often for short periods, often because they are “between” stages in their careers.  That is a “false positive” error – they are, technically, NEET but they are not at risk.  Second, there are people in education or in unstable work who are, therefore, not NEET but who are in fact, at serious risk of long-run limited employment; that’s a “false negative” error.

Instead, the researchers analyse the factors that indicate risk of long-term limited employment – that includes part-time, casual or precarious work, as well as being unemployed.

Those at risk include many people who are not NEET and not on a benefit.  People with the poorest long-term employment outcomes have factors such as having experienced intergenerational benefit dependency, having had contact with Child, Youth and Family or with the justice system, and being a young parent as well as leaving school with no or low qualifications.

Using this approach shows that the NEET measure understates the number at high risk in the labour market.  The research suggests that ALMPs should be targeted at this risk group.

So how should we design an effective programme to deal with long-term risk of limited employment

Government agencies offer a range of programmes to support employment for youth.  For instance, alongside YG, the Ministry of Social Development has Youth Services – a mentoring programme for at risk people aged 16 and 17 who are NEET or at risk of becoming NEET.

But the researchers found that the range of youth support programmes are not joined up.  They argue for “fewer, longer and deeper interventions” that focus on employability factors – especially work experience and soft skills.  They propose identifying those at risk early and providing support for them while they are still at school.  And involvement should continue after people leave school, during post-school training and for a period after people gain work.

What should happen next?

We have known for four years that YG wasn’t working.  It’s time to rethink.  Over the last few years, when the labour market was healthy and when other priorities (like the vocational education reforms) have taken centre stage, the government hasn’t seemed interested in addressing the issues of ALMPs.  But with a recession looming, action is needed.   

We need a new approach, one that takes account of what we have learned from the GFC and from the monitoring of the YG programme and from this new research.  One that brings together the skills and orientations of the different government agencies – MBIE, MSD, MoE and TEC.  One that builds on the Youth Services focus on early identification and its mentoring approach, one that works to improve soft skills and that helps young people build attachment to work. 

It will take a long time and lot of work to design what we need.  So, the government and its ministries need to get started.  Now.

References

Cockx B and C Ghirelli (2015) Scars of Recessions in a Rigid Labor Market, IZA DP No. 8889

Earle D (2018) Monitoring Youth Guarantee 2017: Youth Guarantee Fees-Free places Ministry of Education

Irons J (2009) Economic scarring: The long-term impacts of the recession Economic Policy Institute

McGirr M and D Earle (2019) Not just about NEETs: A rapid review of evidence on what works for youth at risk of limited employment Ministry of Education

Rothstein J (2019) The Lost Generation? Scarring after the Great Recession UC Berkeley

Schwandt H and T von Wachter (2019) Unlucky Cohorts: Estimating the Long-Term Effects of Entering the Labor Market in a Recession in Large Cross-Sectional Data Sets Journal of Labour Economics Vol 37 No S1

Scott D (2018) Post-school labour-market outcomes of school-based NCEA Ministry of Education

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