Wednesday, 27 August 2014

Is pensions policy to blame for youth unemployment?


Andrew Fisher

There's one theory that says we're all living longer and are now enjoy longer working lives. The end of the default retirement age means workers aren't automatically thrown on the scrapheap at 60 or 65 and are free to work as long as they like - so that employers and society more generally can continue to benefit from their skills and experience.

I don't buy it. But it's a theory.

Another theory suggests people cannot afford to retire and are forced to continue working. There's some evidence for this theory, which I list below:
  1. The state pension age is increasing. So people and especially women (whose state pension age was 60 until relatively recently) are now forced to work longer
  2. Public sector pension ages have been increased too - but more than this schemes have been downgraded, so that public sector workers are paying extra contributions for a lower pension at a later age. 
  3. Private sector workers have seen occupational pension schemes reduced, and final salary schemes virtually removed.
  4. The economic crash caused a stock market crash that devastated private pension values and low interest rates have damaged schemes and reduced the value of savings
  5. Longer term, the 1980s saw the Lawson raid on pension fund surpluses and the 1980s and 1990s saw corporate contribution holidays. The result has been pension scheme values have been reduced. 
Of course, their is a class impact to all this: richer workers are more likely to be in good occupational schemes and due to their higher wages have paid off their mortgage and have enough savings to still retire early. For poorer workers the prospect is working longer and dying sooner since their life expectancy is lower.
The data exposes some clear trends. The three graphs below show the general adult unemployment rate and the 18-24 youth unemployment rate:

As you can see adult unemployment never reached the levels of the early 1990s recession following the 2007-08 crash and has been on a largely downward trend. Contrast this with youth unemployment:

The difference here is clear: youth unemployment was dropped after the early 1990s recession, but started rising from mid-2003 and rose to new heights following the 2007-08 crash.

At the other end of the labour market, since 2010 an extra quarter of a million workers aged over 65 are employed in the UK, up 36% to over 1 million. And  early retirement seems to be a thing of the past too with an extra 800,000 50-64 year olds in work since 2010, up 8%.

While older employers shouldn't be written off or described as job-blockers (the labour market equivalent of the derogatory hospital 'bed-blockers'), there can be little doubt that the squeeze on wages and pensions is forcing many older workers to carry on, and the labour market is failing to create sufficient jobs and training opportunities for younger workers.

The response to rising youth unemployment is of course the demonisation of NEETs (those not in education employment or training) and to create ever more draconian welfare to work schemes - an intensification of the workfare agenda.

An example of this absurdity is the introduction of traineeships - a spurious addition to the labour market lexicon, which are a sort of sub-apprenticeship, unpaid and notionally voluntary, but subject to conditionality should a young unemployed person sign up to one and subsequently quit it (like many of the other workfare schemes for younger workers). Traineeships have been welcomed, unsurprisingly by the CBI and disgracefully by the TUC ... though not without some dissent:



(And it is understood that as well as the BFAWU President, other unions have made their feelings clear)

The advent of traineeships follows on the already downgrading of the term 'apprenticeship'. In most people's understanding, apprenticeships are paid employment while learning a skill or a trade. But the provider of most UK apprenticeships under the coalition government is the supermarket Morrison's. It's clear that apprenticeships with sub-minimum wage pay rates are now just cheap labour rather than structured on the job training, that provides young workers with a skill.

The problems of the labour market, and the failures of pensions policy, are hitting younger and older workers. This is being driven by the weakness of the UK labour force - buffeted by a deregulated labour market with weak employment rights and restrictive trade union laws.

Addressing those issues would be a socially just solution, but the political orthodoxy is for forcing older workers to work longer and younger workers to work for ever lower, and even no, pay.

Socialism or barbarism, as Rosa Luxemberg once said.

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