Young Hit Worst by British Joblessness

As overall unemployment in Britain reaches 7.6%, the rate among adults ages 18 to 24 is 20% and set to grow. Fears are growing of another lost generation

By Sean O'Grady, Andrew Grice and Nigel Morris

Unemployment has soared by a record 281,000 in three months to total 2.38 million, the highest since before New Labour came to power.

Some 7.6 per cent of the workforce is jobless, the highest rate since January 1997, and up by three-quarters-of-a-million on this time last year. The increase over the last quarter was the steepest since the severe recession of 1981.

About 1.6 million people are claiming unemployment benefits. Economists called the data "truly horrible". The West Midlands has become the first British region in the current recession to see its unemployment rate reach double figures: 10.3 per cent.

Young people are bearing the brunt of the pain. Gordon Brown made his political reputation in the 1980s and 1990s railing against the waste of human talent during the Conservatives' rule, yet today one in five 18-to-24 year olds is jobless; 726,000 youngsters are looking for work. That toll will jump dramatically as more school leavers and graduates sign on this summer.

Concern about the economic and social costs of supporting a lost generation of "neets" – those not in employment, education or training schemes – continues to grow. Poignantly, those now leaving school aged 16 and trying to find work or in further education to avoid unemployment will have started primary school in 1997.

There is also increasing evidence that workers are turning to temporary and part-time work, as well as putting up with minimal pay rises, to avoid the dole. Renewed efforts by the authorities to push workers to accept any kind of job rather than claim benefits, and increasingly stringent eligibility criteria, have accelerated this trend. Thus the number of the unemployed claiming jobseeker's allowance rose by only 23,800 in June, much less than expected – down from rises of 30,800 in May and a record 136,600 in February.

Almost one million people have accepted part-time jobs while looking for full-time work, up 255,000 on last year, and 413,000 are temping while looking for a permanent position, up 58,000 on 2008. "Self employment", which may be disguising underemployment among the "freelancing" professional and managerial classes, is up 55,000.

Philip Shaw, UK Economist at Investec commented: "We suspect that the claimant count numbers are being biased down by individuals moving off the count onto government schemes such as the New Deal. While they would still effectively be jobless, on this measure they would no longer be classified as unemployed. Are people really finding jobs? Employment and hours worked fell sharply in the three months to May, so we think not."

Kevin Green, chief executive of the Recruitment and Employment Confederation, added: "Temporary work should remain a crucial lifeline for those wanting to get back into employment. Flexible working [is] vital in these recessionary times, especially with increasing numbers of jobseekers including recent graduates, wanting to get a foothold in the jobs market."

At all levels there seems to be little resistance to employers' offers to save jobs in return for pay restraint. The ONS say that annual headline average earnings growth is running at a muted at 2.3 per cent, and only 0.8 per cent in manufacturing.

Over the past year the worst losses have been in manufacturing – 212,000 jobs gone. About 196,000 posts in hotels and restaurants and 187,000 in financial services have disappeared.

Most economists believe that unemployment will continue climbing to 3m, or beyond, well into next year. That will happen even if the economy starts to recover, as employers are usually able to respond to rises in demand without having to hire new staff. Today's numbers would also have been worse but for a boost to public sector employment of around 55,000, partially offsetting the loss of 683,000 private sector jobs. Given the pressures on the public finances, that benign trend may soon also begin to reverse.

Major cities such as Newcastle, Swansea, Plymouth, Newport and Ipswich face heavy job losses over the next decade because of the imminent squeeze on public spending, a think-tank will warn today.

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