AI and Uncertainty Are Gnawing at the Edges of the Job Market

The latest labour market figures from the ONS are pretty dismal reading for job seekers, particularly the young. While the overall unemployment rate is 5.1%, the rate for 16-24 year olds is nearly three times higher at 13.7%. Even London, the engine-room of the British economy, now has a 7.2% unemployment rate, reflecting the fact that London has a higher proportion of young people than elsewhere. With NEETs at the highest level seen for a decade, the outlook for school and college leavers, as well as recent graduates, is depressing.

What’s Behind the Numbers?

So what’s going on? One problem is that the official statistics are far from reliable, because responses to the Labour Market Survey have plummeted, and recent ONS figures have not been in line with data from tax returns and other sources. So we’re working in a bit of a fog, though there’s little doubt amongst experts that even if we had clear weather the picture would still be pretty grim. The second point to make is that the impact on young people is predictable; they are always hit hardest by economic downturn and rising unemployment.

Two Driving Forces: AI and Employer Uncertainty

Looking at data from a range of bodies, it’s clear that there are two main factors behind the downward trend, neither of which are likely to go away any time soon. One is the advance of AI, which is now gobbling up a whole swathe of jobs, with automation of clerical, manufacturing, and data-processing functions proceeding apace. One recent report indicated an 8% net loss in vacancies; the number of new jobs created is not keeping pace with the number of old jobs being eliminated. How long this process of “Creative Destruction” will last is anyone’s guess at the moment, but it won’t be over quickly.

The second factor is the current uncertainty and lack of confidence amongst employers, triggered by the rise in National Insurance rates in 2024, which along with the cost of living squeeze has hit sectors like Hospitality and Retail hard. The problem has been compounded by the rise in students having to take on part-time work, often in these sectors, to survive financially while they study. The OfS estimates that 68% of students are now working during term time, a whopping 26% increase since 2020. Most college and university students can no longer be described a full-time learners, as they combine work and study to an extent never seen before. The return of maintenance grants, though very welcome, isn’t going to make much of a dent, because they are too small and only available to those from very low income households.

The Government’s Response

The government has reacted, through the DWP, by pumping millions into new initiatives such as the Youth Guarantee, extra apprenticeship places, and a turbo-charged role for JobCentre Plus. Whether these interventions will work is an open question; they are similar in many ways to government responses to unemployment crises since the 1980s. History shows that they can only bring temporary relief, which is of course important and valuable, but can’t address the underlying causes of the malaise.

With AI, the only way forward is to jump quickly onto the new wave of technology, and urgently embrace the kind of upskilling needed to give workers a chance of grabbing the new jobs going. The government’s stated aim of making the UK an AI superpower needs to become a reality, and the recent announcement of free training for all in basic AI skills is a sign that new initiatives are being rolled out.

The Skills Gap and the Lifelong Learning Entitlement

As far as the economy goes, the underlying issues are well known: the UK’s persistently low economic growth and feeble productivity performance. Economists agree that better skills are crucial to improving economic performance in a competitive market. But here, there is a distinct lack of a coherent response. While the new Industrial Strategy was very promising, as were the flood of sectoral action plans and new network of Technical Excellence Colleges that followed, the main initiative designed to tackle the issue of boosting workplace training, the Lifelong Learning Entitlement, is only just about to launch, and at best can only provide a partial solution to the challenge of raising skills levels amongst the UK’s workforce. While the LLE is innovative and groundbreaking, how many working adults will want to take out student loans to get higher education qualifications is a big unknown, and the offer of courses in 30 credit bundles still requires learners to take on big chunks of study, rather than the smaller, more flexible courses employers are clamouring for.

The Growth & Skills Levy: Where Focus Should Be

So all eyes are on the DWP and what it’s going to announce are the new flexibilities promised under the Growth & Skills Levy. “Apprenticeship units” are surely not the answer, as many apprenticeship standards simply aren’t suited to being modularised. We need a much wider toolkit of options, flexible, short, on-line, with a much wider range of levels than only higher education courses.

While the news headlines will no doubt continue to be focused on NEETs and Alan Milburn’s review of the causes of the current NEET crisis, if we’re going to get out of the labour market doldrums, our eyes should be firmly sighted on Pat McFadden and the Growth & Skills Levy. It needs to do exactly what it says on the tin: grow skills to directly stimulate economic growth. Confident, growing companies well-supplied with skills will have a healthy appetite for employing more people and getting the jobs market expanding again.

By Andy Forbes, Executive Director of the Lifelong Education Institute