By Nick Litsardopoulos, Research Economist, IES.
The UK labour market faces unprecedented challenges with unemployment, particularly for young workers and graduates. What emerges is a troubling picture of declining opportunities, structural shifts, and a generation at risk.
The Demand Collapse
The UK labour market has experienced a persistent downward trend in job demand over the last three years. Most strikingly, graduate positions have plummeted. In 2025 alone graduate positions were reduced by 33%, reaching the lowest level since 2018. This marks the second consecutive year of decline, creating fierce competition as previous cohorts continue struggling to find suitable employment. The Resolution Foundation has reported that job mobility rates are now lower than in the 1980s, signalling a fundamental shift in labour market dynamics.
Industry Analysis: The Paradox of Rising Salaries
Data from the Adzuna intelligence portal reveals a troubling paradox across major industries between 2024 and 2025. The data allows us to examine the demand in graduate job roles across major industrial sectors along with the median salary offered in these sectors. According to the job advertisement data between 2024 and 2025 the median salaries have increased in industries associated with the Arts entertainment and recreation, Human health and social work, Information and communication, the broader Public administration activities (including Defence), and Wholesale/Retail trade. However, in each of these industries Demand has decreased; and on some occasions, like the Information and communications sector, it has decreased quite substantially.
Figure 1. Demand and Median Salaries for graduate jobs across major industries
Graduate Outcomes: Underemployment Epidemic
The UK graduate roles statistics paint a sobering picture:
- Just 61% of 2022 graduates secured full-time work 15 months after graduation, with many in non-graduate roles
- According to the ONS, only 60% of graduates aged 21-30 in England work in “high-skilled” positions
- Approximately 26% are in medium or low-skilled employment
- 5.5% remain unemployed
As the CIPD highlighted in their 2024 report, three decades of higher education expansion has led to “a growing number of graduates [entering] occupations where a degree is not necessary.” Young people delay labour market entry to pursue degrees, only to find themselves competing for roles that don’t require their qualifications.
The AI Factor: Displacement and Discouragement
Artificial intelligence represents a disproportionate threat to youth employment. Young workers concentrate in sectors with highly automatable tasks, making them particularly vulnerable to displacement or augmentation. The psychological impact is profound: more than one in four young people report avoiding job applications or courses because they fear AI will replace those roles. Whether these fears prove accurate or not, the discouragement itself creates negative implications for future employment potential.
Recent research on the “agentic economy” suggests AI agents could eliminate the need for intermediary platforms entirely. The jobs market is witnessing a “double squeeze” of economic stagnation (leading to employer caution) and the rapid integration of Generative AI that seem to be automating the entry-level tasks traditionally used to train new workers. Until economies expand and create demand for new skills and expertise, the market will likely continue face a volatile period of suppressed hiring. Alarmingly, only 13% of graduate schemes include AI training, leaving young workers unprepared for the very technology reshaping their career prospects.
Current Employment Reality
Government data from 2025 shows:
- 3.85 million young people aged 16-24 in employment
- Employment rate of just 51.6%
- Unemployment rate for 18-24 year-olds at 13.4%, up from 12.7% in 2024
These figures likely underestimate the crisis, as they don’t capture everyone out of work or reflect the quality of available opportunities.
The Mental Health Crisis
Mental health has emerged as both cause and consequence of youth unemployment, creating a vicious cycle. The Youth Employment 2024 Outlook found that 85% of young people with mental health conditions believe it affects their ability to find or function in work. The Resolution Foundation notes that one-third of 18-24 year-olds report having a common mental disorder, rising to two-fifths among young women. This crisis threatens to create what researchers term a “lost generation”. In September 2025 ONS reported that the number of economically inactive aged 16 to 24 years who were NEET was at an estimated 580,000 young people. Another recent report estimates that the overall number of disabled people aged 16-24 years not-in-employment was at 811,000, which is an increase of 65% since 2013.
Policy Response and Future Directions
The UK’s Get Britain Working white paper and Youth Guarantee initiative represent important first steps. However, addressing this multifaceted crisis requires comprehensive action:
Immediate Priorities:
- Fund “AI Skilling Hubs” in areas beyond major urban centres to prevent widening regional divides.
- Implement continuous upskilling schemes aligned with evolving AI-era needs
- Consider “human-centric” tax credits encouraging companies to retain staff
- Provide significant support for mid-career retraining
The youth employment crisis of 2025 reflects converging forces: cyclical economic uncertainty, structural AI-driven disruption, inadequate skills preparation, and a devastating mental health epidemic. Without urgent, comprehensive intervention across education, technology policy, mental health support, and economic strategy, we risk condemning an entire generation to diminished prospects and unfulfilled potential. Moreover, as labour-based tax revenue declines, governments may need to pivot toward higher VAT or specific taxes on “automated transactions” executed by AI agents. Pressure for Universal Basic Income or similar schemes will likely increase to support populations during this “hiring stall”. The data is clear: young people face not just a difficult job market, but a fundamentally transformed landscape requiring radical policy innovation to ensure their futures.
IES is an independent, apolitical, international centre of research and consultancy in public employment policy and HR management. It works closely with employers in all sectors, government departments, agencies, professional bodies and associations. IES is a focus of knowledge and practical experience in employment and training policy, the operation of labour markets, and HR planning and development. IES is a not-for-profit organisation.
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