The UK has lost 330,000 young workers in three years – and it’s not AI’s fault
Key Points
- The IFS finds 330,000 young workers aged 16 to 24 have left UK payrolls in the three years to December 2025
- The 4.3 percentage point fall in youth employment is approaching the scale of the financial crisis and COVID-19 declines
- The IFS says the rise in the NEET rate is structural, not cyclical, and will not reverse without specific policy interventions
- The recent employer NICs increase and the AI graduate jobpocalypse theory are both ruled out as primary drivers
- Minimum wage data are inconclusive, but central estimates suggest other structural factors are at play
The UK has lost 330,000 young workers in three years, and there is little chance of there being a recovery.
A new Institute for Fiscal Studies (IFS) report shows the share of 16- to 24-year-olds in payrolled employment fell by 4.3 percentage points to 50.6% in the three years to December 2025.
The fall is approaching the 5.4 percentage point decline over the financial crisis and the 6.5 percentage point drop over the COVID-19 pandemic.
The share of 16- to 24-year-olds not in education, employment or training (NEET) rose to 12.8% in the final quarter of 2025, up from 10.8% in 2022.
The central finding is that the rise is not a cyclical downturn that will reverse as the economy improves.
The IFS said current NEET rates are a percentage point higher than the historical relationship between NEET rates and adult unemployment would predict, statistically significant at the 1% level.
Changes in youth and adult employment rates across UK regions are also not strongly correlated, the IFS added, contrary to the pattern that would emerge from a labour demand shock alone.
The data shows that the decline has hit nearly every region. Payrolled employment fell by at least 3 percentage points in 8 of the 12 UK regions, including a 4 percentage point fall in London.
The share of 18- to 24-year-olds claiming out-of-work benefits rose in every region for which data are available. Inactivity-related benefits, including health-related incapacity benefits, accounted for a larger share of the rise in Northern regions, Scotland and Wales.
In London, most of the increase came from unemployment benefits.
The hit has fallen hardest on the youngest and oldest workers in the bracket. Payrolled employment fell by 7.3 percentage points for 16- and 17-year-olds, which the IFS attributed in part to a decline in casual work alongside studies, and by 4.8 percentage points for 22- to 24-year-olds.
The change for those aged 18 to 21 was more muted at 1.1 percentage points. However, 18- to 20-year-olds saw the sharpest rise in out-of-work benefit claims, climbing from 7.2% in 2022 to 9.4% in 2025.
What the IFS rules out
The recent rise in employer National Insurance contributions (NICs) is unlikely to be the main driver, the IFS said.
Workers under 21 are largely exempt from the increase, and the fall in employment among older youths began at the end of 2022, two years before the NICs reform was announced in October 2024 and six months before it took effect in April 2025.
The data also goes against the theory that AI is replacing entry-level graduate roles. NEET rates have risen by similar amounts for recent graduate and non-graduate labour market entrants, the IFS found, and the historical gap between the two has not changed since 2022.
The report did not rule out a broader role for AI affecting graduate and non-graduate jobs equally, or AI increasing competition from graduates for typically non-graduate jobs.
The IFS also examined the impact of recent youth minimum wage rises in detail, using regional variation in wage exposure to isolate the effect.
The estimates were too imprecise to give a definitive answer, the report said, with confidence intervals wide enough to be consistent with either no effect or a meaningful negative effect on employment. Central estimates suggested other structural factors are at least playing a role.
Possible factors flagged by the IFS for further work include the sustained decline in mental health among young people, persistent school absences that remain well above pre-pandemic levels, and the widening gap between health-related incapacity benefits and unemployment benefits, which the report said may incentivise out-of-work claimants to take up incapacity benefits.
The government has commissioned an independent review of NEET rates led by Alan Milburn and has introduced a Youth Guarantee of employment for long-term benefit claimants.
Other proposals under consideration include restricting health-related incapacity benefits for those aged under 22.
“NEET rates may not return to previous levels without specific policy interventions,” the IFS said in its report published on Tuesday (19 May).
