How can we unlock a £40 billion prize for the UK economy?

November 27, 2018

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by Carmen Cheung Economist

Email +44 (0)7843 360 416

The UK has seen impressive jobs growth in recent years, but our past research suggests that we still lag behind leading OECD nations in relation to measures of labour market performance for women and older workers. In our latest research in this series, we take a look at the UK’s relative performance on an index combining measures of youth employment, education and training.

In 2017, the UK NEET (not in employment, education or training) rate for 20-24 year olds was around 15%, more than 5pp higher than that of Germany, the best EU performer on our index and second best across the OECD as a whole. We estimate that the UK could enjoy an economic boost of around 1.9% of GDP (around £40 billion at current GDP values) if we could reduce our NEET rate to German levels.   

We explore these issues further in our new research, from which I would highlight five key findings:

  • The UK is starting to move ahead of the OECD average. The UK’s overall index score has improved, exceeding pre-crisis levels, and moved up one position to 19th from last year’s index. But even though the UK now sits above the OECD average, this is weighed down by some low performers and the UK is still only in the middle of the pack compared with other OECD countries, so there is still considerable scope to improve to match the top performers.

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  • Japan makes significant improvements to join Switzerland and Germany as one of the top three ranked countries on our youth employment index. The core European countries continue to do well, with Austria and Denmark also in the top five performing countries. Japan has moved from 5th to 3rd position, due to a sharp decline in its long-term youth unemployment rate between 2016 and 2017.

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  • Matching Germany NEET rates could boost total OECD GDP by around $1.2 trillion in the long run and increase UK GDP by around £40 billion. Germany has one of the lowest NEET rates in Europe at around 9%, compared with the OECD average of around 16% in 2017. As I mentioned before, by matching the NEET rates of 20-24 year olds in Germany, the UK could increase its GDP by around 1.9%, or £40 billion at 2017 GDP values. The potential gains for countries with relatively high NEET rates such as Turkey and Italy could be even greater, at around 8% of GDP.

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  • Common factors shared by the top performers in our index include high-quality educational and vocational training systems and support for the disadvantaged. For example, an impressive 98% of Japanese people aged under 25 have at least finished secondary education. Furthermore, over 70% of young people in Switzerland, and over 50% in Germany, participate in Vocational Education and Training of some form, which allows them to choose from a wide range of employment opportunities. Top performers in our index also have policies to look after their most vulnerable young people, such as Japan’s improved provision of education to children with special needs. The UK has attempted to encourage higher levels of vocational training through the apprenticeship levy but feedback from business suggests that its effectiveness could be improved. There is more to be done to make education and training more accessible to people (both young and old) across the UK.
  • Businesses can do more to support career development and attract and retain talent. People are attracted to work for a variety of reasons, such as learning and development opportunities, workplace diversity, corporate purpose and incentives other than just basic pay (e.g. interest-free loans for travel tickets, private medical insurance and more flexibility on holidays and career breaks). Employers can utilise these incentives to attract better talent of all ages and backgrounds into their businesses and enable their employees to become more skilled and productive.

For further details on our research, please read this year’s report here. This analysis complements our other labour market and public policy insights, including our Golden Age Index on older workers and our Women in Work Index.

by Carmen Cheung Economist

Email +44 (0)7843 360 416