Thursday, 17 June 2010

Can I tell the future?

Well, we're about to find out.

As things stand, we’re just starting the third quarter of a shallow economic recovery. We’re officially out of recession.

This year’s destination statistics are due out in early July. They look at the outcomes for graduates from the 2008/9 academic year, six months after they graduated. They are essentially an examination of last year’s graduates and what they were up to at the beginning of 2010.

I made some predictions this time last year. One was that the unemployment rate for graduates in the last set of stats would be about 7.5%. I wasn’t too far off – it was 7.9%.

The next was that this year’s stats would see graduate unemployment over 10%. This, I predicted, would mean that about 30,000 EU graduates of UK universities from 2008/9 would have been seeking work this January. I also predicted that it meant that maybe 40,000 would have been seeking work on graduation.

So, first question. Do I still stand by these figures? Essentially, yes. Nothing has made me think there’ll be a substantial difference. I’m basing these predictions partly on the behaviour of the graduate employment market in the last recession, and partly on what we’ve seen over the last 12 months, with a pinch of my own interpretation thrown in.

First, employment has not declined as much as expected.

This graph shows the number of people unemployed in the UK since 1971 (data comes from the ONS). As you can see, in previous recessions, it has gone up very quickly when a recession begins (in fact, it usually starts to rise before a recession formally begins and is often an indication that one is coming). Unemployment then peaks well after the recession ends and stays high for some time afterwards. Graduate unemployment follows a similar pattern, but, crucially, graduate employment recovers first, and more strongly, than employment for people with lower qualifications.

This time, as you can see, unemployment hasn’t got as high as people expected, and again, that also applies to graduate unemployment.

The AGR, for example, predicted that vacancies last year would be down 24.9%. In the end, they were down 8.9%.

There are a few explanations. Many employers are still scarred by the fallout from the closure of their graduate training schemes in the last recession. It saved money, but had serious consequences down the line, when recovery came and they didn’t have the new ideas and personnel they needed to capitalise. They found that they had cut their own internal pipelines of talent and that their next generation of leaders weren’t there. It took some years to recover. Instead, this time they continued recruiting, although many did in smaller numbers. Few companies froze recruitment, and many of those that did, are lifting that freeze this summer.

In broader terms, workers have been more willing to accept for lower pay rises, and also other working changes, like shorter hours. Figures for the average hours worked have fallen from 2007 levels. More people are working part-time. All these factors have helped to explain why the labour market is not as depressed as it was in the last recession.

So, what happens next?

Now that we know the recession ended at the end of 2009, we can make an educated estimate (it’s educated, so I don’t need to call it a guess. Really.) of how graduate employment would be likely to go in a typical, post-recession labour market.

Ordinarily, we’d expect graduate unemployment as a result of this recession to peak somewhere between 2010 and 2011, and to start to get to where we were before the recession began a couple of years later.

Some forecasters don’t expect the unemployment rate to fall this year – some expect it to go up, and the new Office of Budgetary Responsibility reported that they expected unemployment to continue to rise this year and peak, before starting to fall (a little) in 2011 (see page 24).

But for graduate employment, it might be a little different. The AGR predicted a very modest fall in vacancies (1.6%) this year, back in February, but feel that the signs suggest improvement in the labour market.

At Graduate Prospects, we’re seeing an increase in vacancies over last year. Companies are lifting recruitment freezes. It could be that the graduate labour market has entered recovery from the recession – ahead of the main labour market, as we'd expect.

Last year, I suggested it could be 2013 before graduate employment got back to where it was post-recession. I think that’s still likely, even though things have improved so far, and I’ll discuss why in my next blog piece.

But, back to this summer. By the looks of things, as anticipated, the situation for graduates leaving university will be much as it was last year.

I predict that graduate unemployment for this year’s cohort will be over 10% six months after graduation – at the start of 2011. That means that about 30,000 graduates who leave university this summer could be out of work in January 2011. Many more will leave university without employment this summer – but they will find jobs over the intervening months.

All in all, I expect over 40,000 first degree graduates from 2008/9 to be actively seeking work this summer.

It might also be worth mentioning that there could be as many as 2,500 new Masters graduates out of work in January, and many of them will also be competing for the same jobs as their first degree counterparts.

Most graduates leaving university this summer will get jobs. Most of those who get jobs will get graduate level jobs, in fact. But many will find it difficult and will not succeed, at least initially. We need to support them.

Many graduates from last year will still be looking for suitable work and their search will not be made easier by an influx of tens of thousands of rivals. And new graduate jobseekers will also be competing with older, more battle-hardened graduates who have been looking for a while. There are jobs available, and graduates will get and continue to get jobs, but it’s a very competitive and tough labour market.

This is a cohort of young people who need the best advice they can get and the best help we can offer.

But - there are other factors to consider, most specifically cuts to public spending. They're likely to have a significant effect on graduate employment, and I'll talk about them in my next post.