Industry View: A degree is still the key to better job prospects

Whatever happened to graduate unemployment? The teenagers who pick up their A-level results next week may be rather keen to find out as they contemplate their university decisions. After all, there's not much point in staying on, just to join the dole queue heavily in debt, three years later.

Prospective first-year undergraduates should take heart. It's true that in the early Nineties, you could hardly turn the pages of a national newspaper without reading another feature about the plight of the over- educated and out-of-work. But all that angst about the wasted potential of the elite was misplaced. Now the economy is growing, highly qualified young people are finding work and earning more than ever. It is the teenagers who won't be getting exam results next week (because they never made it to A-levels) we should be concerned about.

New graduates did have a bad time during the recession. Their expectations were swelled by watching finalists swan into highly paid jobs in the Eighties. When the graduates of the early Nineties left university, wide eyed and bushy tailed, they discovered that firms weren't recruiting, bank interest charges were mounting, and countless others like them were competing for the same few jobs. No wonder so many of them were out of work.

In fact, graduate unemployment was just one aspect of a wider phenomenon: rising youth unemployment. Between 1989 and 1994, the proportion of young men (age 20-24) on the dole rose from 10.4 per cent to 18.3 per cent. For young women the increase was less spectacular - rising from 8.9 per cent to 10.7 per cent - although the figures are complicated by the fact that women are more likely to drop out of the labour market altogether when jobs are scarce, choosing perhaps to have children then instead. But either way, unemployment among the young rose much faster than for their older colleagues; male unemployment (age 25-54) rose from 6 per cent to 9.8 per cent, women's from 4.4 per cent to 5 per cent.

So what is it with the young? Why have employers taken the recession out particularly on the under-25s? One possibility is that the distinctive talents of youth are less in demand these days, thanks to industrial change and the restructuring of the British economy. Another is that young people today are less disciplined and less committed to work than their older relatives.

The latest edition of the OECD's Employment Outlook devotes an entire chapter to unemployment among the young. Based heavily on a research paper by economists David Blanchflower and Richard Freeman, it considers both possible explanations, but finds them wanting.

Young workers do tend to be concentrated in particular industries - retail trade, hotels and catering, construction (men) and public services (women). In Canada, Germany, France and the US, for example, these sectors account for more than 40 per cent of youth employment. If youth-intensive industries were in decline, that might explain such high youth unemployment. But the opposite is true; retail and catering services, for example, are expanding.

Blanchflower finds that young people are no less committed to work than everyone else. When people were asked whether they thought work was a person's most important activity, employees under 25 were only slightly less likely to agree than middle aged employees. As for the current unemployed, both young and old were more likely to think work important and enjoyable than people who already have jobs.

According to the OECD, the best explanation of rising youth unemployment relative to overall unemployment, is simply the recession. In bad times, young people do even worse than everyone else. Blanchflower and Freeman found that when overall unemployment in the UK goes up by 1 per cent, youth unemployment goes up by 1.35 per cent. Similar results hold for every other OECD country except, curiously, the Netherlands.

None of this should be too surprising. Economists have long maintained that the youth labour market is particularly sensitive to economic conditions. Young people are always chopping and changing. Whether it be from school to jobs, or jobs to university, or temporary work to permanent work, or one disastrous career experiment to another, the under-25s are far less likely than older workers to finish a year in the same place they started.

But all that changing makes young people particularly vulnerable when recession strikes. The first thing companies do when money is tight, is stop recruiting. "Natural wastage", it's called, when employers avoid filling vacancies instead of laying existing staff off. Inevitably the people to feel the pain are the bright young things straight out of university or school, who were knocking on the company door.

Now that the economy is growing, companies are recruiting again and young people are getting jobs. Unemployment for those in their early 20s fell by 16,000 in the last year alone, and from 17.6 per cent in the spring of 1993 to 12.7 per cent in spring this year.

But these figures don't tell the whole story - and they certainly don't tell us what has been happening to those jobless young graduates that everyone made such a fuss about a few years ago.

In fact, graduates are doing fine. Although there are more of them competing for jobs, their employment prospects are still improving. According to the Higher Education Careers Service Unit, graduate vacancies advertised with them rose by 10 per cent this year compared with last - faster than the rise in the number of graduates. The Association of Graduate Recruiters forecast a similar pattern in the coming year. In fact, some of the big companies the association represents expect to have difficulty filling all their vacancies - especially in computer science, finance and engineering.

Moreover, graduate wages are rising fast again. Starting salaries in traditional graduate jobs are increasing faster than average earnings once more, despite the supposed glut in the supply of young people with degrees. Now at around pounds 14,700 (with 10 per cent over pounds 18,500), average graduate starting salaries have risen 5.3 per cent this year.

But what about everyone else? Graduates apart, the story for the young is rather more bleak. In fact, the difference between the experience of young graduates and their unqualified former classmates since the end of the recession is startling.

According to the Employment Policy Institute, the Government's figures show that 22 to 25-year-olds with degrees saw their unemployment rate rise from 4.5 per cent in spring 1989 to 10.4 per cent in 1992. As the graph shows, by spring 1995 it had fallen to 9.1 per cent again, and is bound to be considerably lower by now.

But for the 22 to 25-year-olds with no qualifications the picture, even during the recovery, is bleak. Their unemployment rate rose from 22.1 per cent in 1989 to 24.9 per cent in 1992. Then, despite three years of economic growth, unskilled unemployment rose even further by spring 1995 to 28.2 per cent.

In other words, there is a persistent youth unemployment problem, but it has nothing to do with the bright young things looking for jobs this summer with their degree results clutched tightly in their hands.

Nor should the teenagers who have just received their A-level grades be put off university by the prospect of unemployment further down the line. Even if the first few months after finals are difficult, lifelong prospects for those with degrees are rosy. Unemployment among graduates of all ages is only 3.6 per cent, compared with 7 per cent in the population as a whole and 11.8 per cent of the unskilled.

We shouldn't be bothering about graduate unemployment in Britain. It is the teenagers who have nothing to hope for from their GCSE results later in the month who are really in trouble.