We need to ensure that young Londoners gain the skills and experience that will be of value to them in the labour market

While there is evidence that suggests people with no or low qualifications should benefit from living in more successful urban labour markets, where employment rates and wages tend to be higher for low-skilled workers relative to low-skilled workers elsewhere, this isn’t the case in London. Ceri Hughes discusses research that shows that young people with low skills in London are at a particular disadvantage. 

Each year, ambitious young people move to London to begin their careers, joining a relatively young and highly skilled resident population. There are advantages to working in London, particularly for young, mobile and highly ambitious people for whom the city can serve as an ‘escalator’ enabling them to progress further and faster than their peers elsewhere.

But not everyone benefits from living in London. Our new report finds that it is the lower skilled that particularly struggle to find work in London. Young people with lower skills have poorer employment prospects. This applies across the UK, but the distinctive characteristics of the London workforce – the ready supply of a large number of young highly skilled people – puts young people with low skills in London at a particular disadvantage.

In 2011, the unemployment rate amongst young people with a few GCSEs and even those with a few A-levels was much higher than the rates for young people with similar qualifications in the rest of England (see Figure 1). Young people with five or more GCSEs (A*-C) registered an unemployment rate of 28 per cent, compared to 19 per cent in the rest of England.

Figure 1: Youth unemployment rates (%) by qualification level

Hughes fig 1

Source: Census 2011, young people aged 16-24 including full-time students; qualifications listed are examples and equivalent qualifications are also included in each band; data on the level of apprenticeship is not available; other qualifications include some vocational qualifications and foreign qualifications.

Yet, evidence suggests that people with no or low qualifications should benefit from living in more successful urban labour markets, where employment rates and wages tend to be higher for low-skilled workers relative to low-skilled workers elsewhere. Why isn’t this the case in London?

Why do young people with low-skills struggle to get into work?

In part, the high rates of youth unemployment amongst young people with low skills reflect wider challenges that young people across the UK must contend with, including limited access to careers advice and guidance, too few apprenticeship opportunities and variations in the quality and availability of local support services.

But there are also some distinctive factors that may explain the high levels of youth unemployment in London. Local concentrations of unemployment are related to the characteristics of the local population, as well as varying demand for labour. For example, there are high levels of poverty and deprivation in London and the location of the highest rates of youth unemployment broadly mirrors the distribution of deprivation across the city. This matters because many routes into skilled work require young people to undertake unpaid work placements or at least to survive on low wages.

A wider explanation then is that young people with low skills are struggling to compete with other highly skilled people. There are many jobs in London, but where the overall supply of workers exceeds demand then lower skilled, less experienced workers are likely to suffer.

“Bumping down” in the labour market?

The working-age population of London increased by more than 950,000 between 2001 and 2011, but the number of jobs increased by only 229,000 (see Table 1). In addition, the number of people of working-age with low skills in London decreased by almost 300,000 over the last decade, whilst the number of people with a degree-level qualification or higher increased by over 700,000. In all, this means that there are likely to be more higher skilled workers competing for fewer jobs. And this has implications for the lower-skilled.

Table 1: Shifts in labour supply and demand in London: 2001-2011

Summary statistics 2001 2011 Change % change
Working age population¹





Of which foreign-born





Population aged 16-64





Of which educated to NVQ level 4 and above





Of which educated to NVQ level 3





Of which educated to NVQ level 2





Of which educated to NVQ 1 and below





Of which have other qualifications/level not known²





Workforce jobs³





Source: Census 2001 and 2011, ONS workforce estimates 
Notes: ¹Data on the number of 16-64 year olds who were foreign born is not available in 2001. For this year and this variable a different definition of the working-age population is used, covering men up to the age of 64 and women up to the age of 59. As a result, the total number of people aged 16-64 in 2001 does not match the total for the working-age population in 2001. People born outside of the UK are defined as ‘foreign-born’.
²The ‘Apprenticeships’ category, added in 2011, is included under ‘Other’ as the level of apprenticeship was not specified
³Source: ONS estimates, rounded and average of four quarters

Many graduates will struggle to find work in London, perhaps finding that they have to take-up lower-skilled work instead. According to recent GLA analysis, around a quarter of London residents employed in low-skilled occupations had a degree or equivalent qualification in 2011, more than twice the rate for low-skilled workers in the rest of the UK. People that begin their careers in inappropriate jobs can struggle to progress. But they are at least able to enter work – competition for jobs at the lower end of the labour market means that the low-skilled will struggle to enter work.

What can be done?

We need to ensure that young people are being given the chance to gain the skills and experience that will be of value to them in the labour market, as employers will choose to employ the person they judge to be the best candidate. Whilst they are at school young people need to be supported to think through their career options, and be encouraged to consider an array of employment pathways. But recent assessments of careers advice and guidance have found that many schools are failing to secure adequate provision for their students. This must change, but despite the new guidance issued to schools this week this is unlikely to happen unless additional resources are earmarked for careers advice services for young people.

The Mayor has committed to work with business to create at least 250,000 apprenticeships in London by the end of 2016. But the majority of apprenticeship opportunities go to internal recruits and nearly half are taken up by people aged over 25. More investment is needed in initiatives that seek to increase ethnic, socioeconomic and gender diversity amongst young people entering apprenticeships and other routes into skilled work. This might include offering more taster days, and growing the number of traineeships in the capital. To achieve this, more employers need to be willing to offer young people an opportunity.

Financial and transport barriers also need to be tackled to ensure that young people can both access and sustain employment. For a start, Borough councils and Transport for London should extend access to concessionary fares for young people in their first month of employment to support those young people with limited resources to reach their first pay packet.

And finally, entry to employment should not be the only goal. Young people need to be supported to progress once they are in work. With large numbers of people working fewer hours, and working in jobs below their qualification levels, the GLA & DWP should work together to develop post-employment support services in the city, including advice and guidance for those in work, with some provision directed at supporting young people.

Note:  This article gives the views of the interviewee, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting. Homepage image credit: Thomas Leuthard CC BY 2.0

About the Author

Ceri Hughes is the author of a new report, London: A Tale of Two Cities, which looks at the characteristics of young people living in London, with high levels of poverty and deprivation in the city, particularly amongst some ethnic groups.  Ceri works as a Research Assistant in the Socioeconomic Centre, and is currently contributing to the Missing Million consortium and examining the links between cities, growth and poverty.



By George, Britain’s Austerity Experiment Didn’t Work!

December 7, 2013

The New Yorker

Posted by


George Osborne, the patron saint of austerity enthusiasts on both sides of the Atlantic, was in the House of Commons on Thursday, reveling in the fact that the U.K.’s economy is finally growing again, and claiming that “Britain’s economic plan is working.” Delivering his annual Autumn Statement—he was a bit late—the Chancellor of the Exchequer pointed to forecasts from the quasi-independent Office for Budget Responsibility, which point to G.D.P. growth of 1.4 per cent this year and 2.8 per cent in 2014.

For Britons who have been laboring through more than five years of recession, or near recession, that is welcome news. By some measures, the U.K. has been through a worse slump than the one it experienced during the Great Depression, and now, at last, it appears to be over. Recent figures from the Office for National Statistics show that the economy has expanded for three quarters in a row, with manufacturing, services, and construction all sharing in the growth. Small wonder that Osborne was smiling and taking the credit.

It’s a clever political line, and it appears to be having an impact. The rebound in the economy, which caught by surprise most forecasters, including those at the Office for Budget Responsibility, has transformed the political situation at Westminster and given the Conservative-Liberal coalition, which has been lagging badly in the opinion polls, new hope of winning reëlection in May 2015.

But from an economic perspective, Osborne’s argument is hogwash. His effort to cure the patient by subjecting it to the equivalent of leeching—big cuts in government spending and higher taxes—a return to pre-Keynesian policies watched closely the world over, failed abysmally. Imposed at a time when the U.K.’s economy was recovering from the financial crisis of 2008-09, it subjected his countrymen and countrywomen to three more years of slump-like conditions, and it produced a dearth of public-sector and private-sector investment that will hobble Britain for years to come. It even failed to meet its own targets of drastically reducing the budget deficit and bringing down Britain’s over-all debt burden.

Back in June of 2010, just after the Conservative-Liberal coalition took office, but before Osborne introduced big spending cuts and raised the national sales tax to twenty per cent, the Office for Budget Responsibility predicted that the economy, after contracting sharply in 2009, would expand by 1.3 per cent in 2010, and that growth would then accelerate to 2.6 per cent in 2011 and 2.8 per cent in 2013. By the standards of previous recoveries, this growth forecast looked pretty modest, and it reflected the fact that the previous Labour government had already promised modest cuts in spending growth to bring down the budget deficit, which reached about eleven per cent in the fiscal year 2009-10. (In Britain, the fiscal year goes from April 1 to March 31.)

However, after Osborne introduced his austerity drive, economic growth slowed down rather than speeding up. For 2010, the economy outperformed the official forecast, growing by 1.7 per cent, reflecting the fact that it had quite a big of momentum when the new government took over. But in 2011, growth dropped to 1.1 per cent, and last year it fell to 0.2 per cent, leaving inflation-adjusted G.D.P. below the level it reached in 2007.

How much of this dramatic shortfall in growth was due to Osborne’s policies, and how much was caused by other factors, such as the crisis in the Eurozone, Britain’s biggest trading partner? As always in economics, it’s hard to know for sure. A recent study by Òscar Jordà and Alan Taylor, two economists at the University of California at Davis, which employed some sophisticated statistical techniques, concluded that the shift to austerity was the main culprit, accounting for sixty per cent of the fall-off. “Without austerity,” Taylor wrote in an article presenting their results, “U.K. real output would now be steadily climbing above its 2007 peak, rather than being stuck two per cent below.”

One can quibble with Jordà and Taylor’s precise figures. The fiscal “multipliers” they use are derived from data from seventeen O.E.C.D. countries covering the period from 1978 to 2009, and it’s not clear why they should apply exactly to the U.K. in isolation for the period from 2010 to 2013. But if the sixty-per-cent figure is biased, there is reason to believe it is biased downward. For the past few years, short-term interest rates in Britain, as in the U.S., have been close to zero, and it’s long been known that fiscal policy is more potent when interest rates are very low. In such circumstances, cutting government spending and raising taxes is doubly damaging.

Simon Wren-Lewis, a professor at Oxford, has used the results Jordà and Taylor provided to convert the losses in G.D.P. over the course of Osborne’s policy experiment into everyday terms. Here is his conclusion:


(A)usterity has cost the average U.K. household a total of about £3,500 [about $5,700] over these three years. Although all governments like to give the impression that they can have a big impact on people’s prosperity, few actually do. These numbers suggest that the current U.K. government has managed to do so, but unfortunately by making us all poorer.

O.K., a committed Austerian might respond, that doesn’t sound very good. But if the Chancellor has succeeded in putting the finances of the U.K. government in order, and prevented Blighty from turning into Greece, the sacrifices might well have been worth it. And, in fact, Osborne has pushed this very line. “The hard work of the British people is paying off, and we are not going to squander their efforts,” he said in his Commons speech.

The problem with the argument is that the “hard work” hasn’t paid off. After three and a half years of austerity, the outlook for the government’s finances doesn’t look any better than it did when Osborne entered office. In fact, it looks worse. Let’s go back to the Office for Budget Responsibility’s June, 2010, forecast, which didn’t account for any of Osborne’s “deficit reduction” measures. Based on its expectation of steady growth in G.D.P., it predicted that the U.K.’s public-sector net-borrowing requirement, the closest equivalent to the U.S. budget deficit, would be 6.6 per cent of G.D.P. in 2012-13, five per cent in 2013-14, and 3.9 per cent in 2014-15.

Osborne, on introducing his austerity policies, claimed that the deficit would come down a lot more rapidly than the Office for Budget Responsibility had forecast. He also pledged that a measure of the so-called “structural” budget deficit—i.e., one that strips out the effects of the economic cycle—would be balanced by 2015-16. But what has actually happened? In 2012-13, the deficit came in at 7.3 per cent of G.D.P.—that’s 0.7 percentage points higher than the official forecast made in 2010. (This figure doesn’t include some tricks that Osborne used to make things look better, such as selling off part of the Royal Mail to investors and counting the proceeds as revenue.) All that austerity didn’t reduce the deficit: it made it bigger than had been expected!

Looking ahead, the picture doesn’t appear any brighter. According to the latest forecast by the Office for Budget Responsibility, which was released on Thursday, the deficit will be 6.8 per cent of G.D.P. in 2013-14, which is 1.6 percentage points higher than the 2010 forecast, and 5.6 per cent in 2014-15, which is 1.7 percentage points higher than the 2010 forecast. As for Osborne’s pledge to eliminate the structural deficit by 2015-16, that, like much else, has been revised. He now says that the structural budget will be balanced in 2017-18, and that the over-all deficit will disappear in the following year. “He used to say he would balance the books in 2015,” Ed Balls, Labour’s senior economic official, said in the Commons. “Now he expects us to congratulate him for saying he’ll do it by 2019.”

And that’s not all. Back in 2009 and 2010, when Osborne was busy comparing Britain to Greece, he made great show of the fact that its debt burden was growing rapidly—a development he promised to reverse. In his first budget, he said public-sector debt as a proportion of G.D.P. would peak in 2013-14, at 70.3 per cent, and then start falling. That promise is another one that has gone by the wayside. The Office for Budget Responsibility is now predicting that the debt burden will keep climbing until 2015-16, when it will peak at eighty per cent of G.D.P.—almost ten percentage points above Osborne’s original figure.

After all this, you may be wondering: why did the U.K start growing again at a decent clip? This time last year, such a rebound seemed unlikely. Well, it didn’t come about because of any philosophical reversal on Osborne’s part. In this year’s budget, he promised to introduce even more spending cuts over the coming years, and, in his Autumn Statement, he talked of introducing a new austerity-based fiscal compact that would tie the hands of his successors.

The upturn in growth appears to have been primarily a result of ultra-low interest rates, engineered by the Bank of England, and of a desperate effort on the part of the government to gee up the moribund housing market. In 2012, the Treasury leaned on the Bank of England to provide low-cost financing for banks that extended mortgages. Then, in this year’s budget, the Treasury itself went into the business of providing loans to help first-time buyers of properties worth up to a million dollars. The tactics worked: home prices are rising rapidly, construction has spiked, and the rise in housing wealth has fed through to a growth in consumption. Business investment and exports remain depressed.

Osborne is busy claiming credit for the upturn, and, to the extent that he was responsible for an old-fashioned effort to ramp up the real-estate market, he did play a role. But that doesn’t mean his austerity policies have worked: they haven’t. As Alan Taylor pointed out, the entire sorry episode only confirms what Keynes wrote seventy-five years ago: “The boom, not the slump, is the right time for austerity at the Treasury.”

Above, at left: George Osborne leaves the Treasury. Photograph by Simon Dawson/Bloomberg/Getty.