15/08/2014 10:06 BST | Updated 14/10/2014 06:12 BST

Are 50,000 Young People 'Missing' in Our Employment System?

It's exam results season, and young people will be entering one of the strongest jobs market in years. Yet there may be up to 50,000 young people not getting the support they need to find work, storing up long-term problems.

The jobs market has been one of the success stories of recent years, with employment consistently higher than expected given the severity of the recession. The flipside of this has been an unprecedented fall in real wages and living standards. And unemployment remains high among some groups, with particular concern about the job prospects for young people.

The Government is able to tell a good story on long-term unemployment in general, and youth unemployment in particular. The number of young people claiming Jobseeker's Allowance (JSA) - the main unemployment benefit - for more than six months has halved from its peak and stands at under 100,000 today.

Youth unemployment: a tale of two measures

Yet beneath this seeming success lies a puzzle and a risk that, as a country, we are storing up long-term problems.

There is a growing divergence between the count of people claiming benefit, and the number of people saying they are out of work in ONS surveys (which are conducted to international standards and widely seen as the best measure of what's going on in the labour market).

By the claimant count measure, long-term youth unemployment is down to late 1990's levels - a time of a strong economy, 'Things Can Only Get Better', and when Tony Blair was still enjoying an extended honeymoon as prime minister.

By the survey measure, long-term youth unemployment is at early 1990's recession levels - a time when the National Lottery and Cones Hotline were being introduced, and John Major had just won an unexpected election victory.

Indeed, if the ratio between the two measures of unemployment had stayed where it was in the late 1990s, there would be 50,000 more young people reaching the point where they could access employment support, like the Work Programme - the Government's flagship back-to-work programme for people who are long-term unemployed.

Where did these young people go?

The fall in the number of young people claiming JSA would be good news if they were in work, but the survey measure suggests that, while youth unemployment has fallen significantly, this does not account for the full drop in JSA claims.

The Department for Work and Pensions helpfully publishes data on the reasons people give for leaving benefit.

This shows that today only one in three young people leaving JSA in the first six months of their claim say they do so because they have found work, down from 45% in the late 1990s. By contrast, the proportion leaving because they 'failed to sign' has doubled to more than 40%.

In other words, young people are increasingly simply failing to sign. Now this would be good news if they were in work, but the survey measure suggests many are not.

Either way, it would still be good news for the taxpayer if they simply did not need taxpayer support and so weren't claiming it. But only in the short-term. Because the longer young people are out of work, the bigger the lifetime jobs and earnings price they pay.

So the risk is that we are saving money in the short-term, but that it's going to cost us in the long-term.

What next?

It is not clear what is driving this outcome. It may be that a tougher benefit regime is making young people less likely to claim if they can get by in other ways, such as support from their parents (though with potentially long-term consequences on their job and pay prospects).

It may also be because the Government judges the impact of Jobcentre Plus according to how many people leave benefit, not whether they find and keep work. This gives a perverse incentive, whereby a young person leaving benefit (for any reason), then signing back on and leaving again, counts as two positive results of someone leaving benefits - rather than being a sign of failure.

So step one would be to focus all employment and skills services with helping young people to find and keep a job, and to progress their careers. Proposals like those made by David Lammy and Policy Exchange to change the way that Jobcentre services work locally are also worthy of consideration.

Step two would be to better join up the myriad forms of support that are currently too often fragmented - there are thousands of inspirational people across the country doing amazing work to support our young people, but the schemes and silos we create sometimes make this harder not easier.

Step three is to work with employers to create career paths for young people, as well as entry level jobs. Plymouth and the South West Peninsula is doing just this as part of their City Deal, running an innovative programme that focuses on the earnings that young people get as well as jobs.

Exam results are the start of the journey for young people, with so many possibilities and opportunities ahead. We need to make sure that our employment and skills system gives them the right support at the right time to make the most of these.