Graduated in 2008? Your job and pay prospects have been scarred by financial crisis
Young people who graduated in the midst of the financial crisis encountered higher unemployment, lower pay and worse job prospects for up to a decade later, compared to those who entered the workplace before or after the downturn.
This is the finding of a report produced by the Resolution Foundation, funded by the Nuffield Foundation. It represents the first major examination of the impact the post-financial crisis downturn had on those who graduated around that time.
Fortunately, it showed that the UK was able to avoid a repeat of the mass youth unemployment that occurred during the 1980s. Instead, the pain was spread more evenly across young people, with the majority experiencing a prolonged pay squeeze.
The analysis also showed that the crisis cohort have experienced a number of ‘scarring effects’ from the downturn. These include lower employment levels for low-skilled workers. For example, employment fell by more than 30% for those qualified only to GCSE level. The Resolution Foundation found that this trend took hold for the decade that followed.
Lower pay was another net effect. The so-called ‘crisis cohort’ saw a 6% fall in pay in comparison to those who started working before or after the financial crisis. What’s more, their wages took up to seven years to recover.
For lower-skilled workers, potential pay reductions were protected to some extent by the minimum wage.
Graduates entering the labour market during the financial crisis were also 30% more likely to be in a lower-paying job one year after graduating, and remained more likely to be in low-paid work up to seven years later.
Time to take action
In light of the findings, the Resolution Foundation is urging policymakers to focus on the lasting effects from the financial crisis, and what they mean for the crisis cohort’s prospects today.
Close to a decade since the last recession, the foundation believes that Britain should start to prepare for the next downturn, and think about the potential repercussions for the labour market.
For example, active labour market policies could focus on the nature of the jobs that young people find themselves in, and involve planning for a rise in youth unemployment during the next crisis.
These policies could also include targeted jobs support, and adjusting how Universal Credit is implemented in the face of higher unemployment.
Stephen Clarke, senior economic analyst at the Resolution Foundation, noted that the scarring effects from the previous downturn have stayed with the crisis cohort for up to a decade, reducing their living standards at a time when they may be facing the additional financial strains of buying a home, or bringing up kids.
“Politicians and policy makers owe it to those young people who leave education during downturns to mitigate the negative effects of this bad timing through active labour market policies, including targeted jobs support,” he added.