This blog has been contributed by the Rt Hon. Lord Willetts FRS, who was the Minister for Universities and Science between 2010 and 2014.
He is now President of the Resolution Foundation and a member of the UK Research and Innovation Board. A new edition of his book The Pinch: How the Baby Boomers Took Their Children’s Future – And Why They Should Give It Back was recently published and is available here.
This is his first ever blog for HEPI.
Covid-19 is creating an economic crisis which is at least as severe as the Crash of 2008/09. One of the groups worst hit by this will be those who graduate into a shrinking economy this summer.
We can already see how younger workers are particularly badly hit by this crisis. Young people aged 18 to 24, including graduates,work disproportionately in jobs requiring face-to-face contact and are less likely to report working from home. More young people say they likely to lose their job because of the virus than any other age group. Young people are already most likely to have had their hours cut or lost jobs.
We must hope that this recession is acute but short-lived – a V-shaped recession. The bold measures taken by the Government in the past few weeks are an attempt to maintain viable companies and jobs during this temporary dislocation. But there could be long-term effects, especially on young people entering the job market at this, the worst possible, moment.
The Resolution Foundation published a report last year on the long-term effects of the 2008/09 crisis. We found:
people starting their careers in the midst of a downturn experience a reduction in real hourly pay of around 6 per cent one year after leaving education, and that compared to people who left education in better economic conditions their wages do not recover for up to 6 years. For those with lower levels of education, the chance of being in work falls by over 20 per cent, while for graduates the chance of being in a low-paying occupation rises.
That recession affected graduates and non-graduates rather differently. Non-graduates were more likely to become unemployed. Graduates still had a much better chance of getting a job even in the recession, but for them the adjustment was in much lower wages. This was partly because they went into less well-paid sectors of the economy. That trapped some of them in low pay sectors, reducing their future prospects in terms of earnings.
Our report concluded:
Like previous downturns, the recent recession has severely affected the prospects of those leaving education in its midst. The cohort that graduated in the aftermath of the financial crisis suffered higher unemployment and poorer job prospects than their slightly younger counterparts. Unlike previous downturns, the financial crisis brought with it nominal pay cuts for those starting work in 2008 and 2009, particularly sluggish wage growth and a marked rise in the share of people in low-paying occupations.
This incidentally is one reason why some of the conclusions drawn from the data on Longitudinal Educational Outcomes (LEO) are so misleading. They focus on pay not employment and, by unhappy accident, quite a lot of the analyses take students who graduated around the time of the last recession and so shows modest gains for some of them. They capture the long-term earnings hit of the crash but do not show that at least graduates were protected from unemployment because their results focus very much on people in employment.
One crucial difference between this crisis and 2008 is that this time the recession is accompanied by the disruption of education coming on top of the disruption to the labour market. This year’s cohort of graduating students will have had a more disrupted and abbreviated year of education than for a long time. This adds to their problems.
Some of today’s edu-sceptics argue that many education qualifications are signalling prior capacities and do not mean people actually learn stuff. (Alison Wolf’s Does Education Matter? is a vivid example of the genre.) I accept there is an element of signalling (for example, it is an important reason for distinctions between universities) but, nevertheless, I argue in A University Education [Editor’s Note: out now in paperback!] that students do usually learn useful knowledge and develop intellectual skills. This argument goes beyond university to other educational qualifications as well. It is hard to resolve because the evidence of strong wage returns to higher education is consistent with signalling as well as real improvements in human capital.
The impact of the virus shutdown reducing the amount of education received by young people is an important natural experiment for social scientists to assess these arguments. It might be possible to track the earnings of students who get A-Levels or graduate from university this year or next with the usual qualifications but having received less actual education. Will this affect their long-term earnings or not – on top of wider effects from the recession?
If you think there is a genuine reduction in human capital investment, you would expect the disruption of higher education to have an effect. If higher education is largely signalling, there should be no further effect. So far, I presume, the loss of actual education is relatively modest but the effect could build up. This would be a type of scarring effect different from and additional to the one we can see from the 2008 Crash. It would be a heavy blow for young people if they face this double whammy.
We need not just be passive in the face of this looming disaster. University is a safe haven for young people in these tough times. We can expect many more 18-year-olds to try to get to university now as the alternatives are so poor at the moment. If the Government does re-introduce number controls (which I would regret), it must not do so in a way that reduces opportunities for young people to go to university.
Universities and FE Colleges could offer short courses for young people who would not otherwise have gone into tertiary education. Moreover, it is very likely that more graduates than usual will try to stay on for further study notably in a Master’s course and universities should make space for them. This is a rational response to the labour market, and makes even more sense if their undergraduate study has been cut short.
Universities could also offer an extra year of an undergraduate study to plug gaps in their last year of study. Universities might offer other types of help for this summer’s graduates as well – funding internships with local employers with some continuing study, for example. We should be encouraging universities and colleges to be flexible in helping young people in this way and providing extra funding to promote it. Over the past few weeks the Government has shown itself imaginative and bold and it should show similar boldness in helping young students.