Tory plan to raise pension age will add to youth unemployment

The Conservatives’ plan to raise the state pension age to 66 will make youth unemployment worse, a leading economist has warned.

Last week the shadow chancellor George Osborne announced at the Conservative Party Conference, that a Tory government would look to increase the state pension age by one year, to 66, by 2016.

But Ray Barrell, director of macroeconomic research at the National Institute of Economic and Social Research, told Personnel Today that doing so would lead to a 200,000 rise in unemployment in the first year – many of whom could be young jobseekers.

Official unemployment figures to be published tomorrow are expected to show that youth unemployment has risen to more than one million.

Barrell said: “One of the things you have to recognise is that markets don’t jump to equilibrium; markets work slowly. If you raise the working age by one year, even if you announce it five years in advance, that will cause some unemployment problems when it happens.

“The numbers I see suggest that if you increase the number of people in the workforce by 600,000, in the first year unemployment will rise by 200,000.

“If we extend working lives effectively the people we will have to help in the labour market are not those who are in a job and can stay in it for another year, but those at the other end of the labour market who are looking for a job, and the job that would have come up for them is no longer available.”

Barrell added that after the first year of a raised state pension age you would still see an extra 100,000 people out of work, but by the third year this would have dropped to 50,000. He said it would take five years for the extra unemployment to be absorbed.

“Probably the most important of those [changes] is going to be dealing with youth unemployment, because that’s what raising the state retirement age will cause, youth unemployment,” he said.

Speaking at the Just Ageing Seminar, hosted by the Equality and Human Rights Commission (ECHR), Barrell said raising the state pension age by one year would improve the government’s budget deficit by 1% of GDP after 12 years.

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