UK could boost GDP by £55 billion by developing the economic potential of younger people

Published at 10:03 AM on 21 October 2015

  • UK ranks 21st  out of 34 OECD countries in PwC’s Young Workers index in 2014, down slightly from 20th place in 2006
  • Switzerland and Germany top the table, followed by Austria, Iceland, Norway and Canada

If the UK could reduce the rate of UK people aged 20-24 not in employment, education or training (NEETs) to match Germany, the best performing EU country, UK GDP could be boosted by 3% or around £55 billion, according to new PwC analysis.

PwC’s new Young Workers Index is a weighted average of eight indicators – including employment, education and training - that reflect the labour market impact of workers aged 20-24 across 34 OECD countries. The UK’s performance in the index has improved since 2011 but, overall, it has remained below the OECD average between 2006 and 2014 (see chart below). This is consistent with other evidence that young people in the UK have been particularly hard hit by the economic downturn.

John Hawksworth, PwC’s chief economist and co-author of the report, said:  

“Our Young Workers index identifies which countries are leading the way in developing young people. It seems that core European countries like Germany, Switzerland and Austria are the best role models for this, while the UK is only a middling performer.

“Countries like Germany suffered much smaller rises in youth unemployment after the global recession because their systems of education, vocational training and apprenticeships minimise the number of young people falling through the labour market net.

“If the UK could reduce its NEETs rate to German levels, we estimate that the potential long-term boost to the UK economy could be around 3% of GDP, equivalent to around £55 billion at today’s values.”

As well as the UK, the index also estimates the potential long-term boost to other OECD economies if they can match Germany’s NEET rate. Table 2 shows that potential gains could range from around 1% of GDP in Sweden and Denmark, up to around 3% of GDP in the US, the UK and France, with the highest potential gains being around 7-9% of GDP in Turkey, Italy, Greece and Spain.

Across all OECD countries the potential long term boost to total GDP could be over $1 trillion (at 2015 GDP values).

Table 1: Estimated long-term boost to OECD economies from matching German NEET levels for 20-24 year olds

Country

 

NEET gap with Germany (ppt)

Potential long term boost to GDP (%)

Estimated value at 2015 GDP levels ($ billion)

Turkey

25.6

8.8

66

Italy

23.4

8.0

148

Greece

22.8

7.8

16

Spain

22.0

7.5

93

Hungary

15.8

5.4

7

Mexico

14.9

5.1

63

Chile

14.6

5.0

12

South Korea

12.2

4.2

60

Portugal

11.7

4.0

8

Ireland

11.7

4.0

9

Slovak Republic

10.7

3.6

3

Poland

9.9

3.4

17

France

9.1

3.1

77

UK

8.8

3.0

86

US

8.5

2.9

525

Belgium

8.4

2.9

13

Israel

7.8

2.7

8

Estonia

6.5

2.2

1

New Zealand

5.3

1.8

3

Finland

5.2

1.3

4

Czech Republic

3.9

1.2

2

Australia

3.6

1.2

15

Canada

3.6

1.2

20

Slovenia

3.4

1.1

0.5

Denmark

3.1

1.1

3

Sweden

2.6

0.9

4

Norway

0.5

0.2

1

Austria

0.3

0.1

0.4

Total: OECD

 

 

1264

Source: PwC analysis based on OECD data on NEETs (mostly for 2013) and latest IMF estimates of GDP in 2015. Switzerland, Netherlands, Iceland and Luxembourg are not included as they already have NEET rates in line with or slightly below Germany. Japan is excluded due to lack of comparable data on NEETs from the OECD. The final column shows impacts in 2015 values, but it should be stressed that these benefits could only be realised in the long term not immediately. 

John Hawksworth, PwC’s chief economist, added:

“The index highlights both opportunities and challenges for business and government. The UK government has announced plans to create millions of new apprenticeships, and is encouraging businesses to work more closely with schools and colleges to ensure that young people have the skills they need to be employable. These measures are important because research shows that failing to invest in young people’s skills has long-term economic costs in terms of lower lifetime employment and productivity levels.”

Jon Andrews, head of PwC’s global people and organisation practice, said:

“Businesses can face short-term challenges in the form of skill shortages due to high youth unemployment, but this can also have a long-term impact in the form of lower productivity and less innovation. It is vital for businesses that they adapt their organisations to attract and retain new, young talent – by, for example, investing more in apprenticeships and professional training of younger workers.”

Ends

Notes:

  1. Methodology: The PwC Young Workers Index is a weighted average of eight indicators, including NEET rates, employment and unemployment rates, incidence of long-term unemployment, school drop-out rates and educational participation rates. The age range covered is generally between 15 and 24, but varies as appropriate by indicator.
  2. These indicators are normalised, weighted and aggregated to generate index scores for each country. The index scores are rescaled to values between 0 and 100, with the average value across all 34 OECD countries set, by definition, to 50 in 2006. Index scores were also calculated for 2011 and 2014 (or the closest years for which internationally comparable data were available).
  3. Further details of the methodology, including the calculation of potential long-term boosts to GDP from lower NEET rates, is contained in the full report
  4. A copy of the PwC Young Workers Index will be available from 21st October 2015 at www.pwc.co.uk/youngworkers.
  5. PwC is committed, both through our community affairs and recruitment teams to supporting young people into employment. We offer a variety of programmes and activities using our skills and resources, ranging from mentoring and employability workshops to work experience and our National Schools Employability Challenge to support young people nationwide both in person and online.
  6. At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

Twitter
LinkedIn
Facebook
Google+

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. © 2016 PwC. All rights reserved

« PwC responds to call for a corporate carbon tax at COP21 | Homepage | PwC comments on latest public finance data »

  • Contact us
  • +44 (0) 20 7213 1768

Specific and out of hours contacts