How Labour Can Solve the Youth Jobs Crisis With Fiscal Policy 2026

How Labour can solve the youth jobs crisis is a pressing question as youth unemployment rises, but traditional approaches like placements and apprenticeships often fall short. The real issue is insufficient government deficit spending, which limits money circulation and job creation. This article explores macro solutions to this macro problem, drawing on insights from Modern Monetary Theory (MMT).

The Real Cause of Youth Unemployment

Youth unemployment is not a crisis of skills or geography; it is a crisis of insufficient aggregate demand. As macroeconomists note, the economy comprises three sectors: government, households, and businesses (including the rest of the world). One sector's spending is another sector's income. Government spending is income for the non-government sectors. All transactions across these sectors add to zero. With the UK running a persistent current account deficit, money flows continuously abroad. Unless the government runs a deficit large enough to offset that outflow, households and businesses cannot accumulate financial assets. So jobs vanish, wages stagnate, and young people bear the brunt.

Why Traditional Solutions Fall Short

Placements, apprenticeships, and work coaches cannot conjure jobs that do not exist. They address symptoms, not causes. Without sufficient spending, these programs merely shuffle the unemployed without creating net new jobs. Moreover, unemployment has long been used deliberately as an inflation management tool. As US economist Stephanie Kelton notes, orthodox economic policy assumes that a certain amount of unemployment is necessary. When the Bank of England raises rates, it intends to slow activity, and the inexperienced young are always first out of the door.

Macro Solutions for a Macro Problem

To genuinely solve youth unemployment, Labour must adopt macro solutions: increase government deficit spending to boost aggregate demand, invest in public sector jobs, and reform monetary policy to prioritize full employment over arbitrary inflation targets. This means rejecting austerity and embracing a fiscal stance that ensures enough money circulates to employ everyone who wants to work.

Comparison of Policy Approaches

Key Takeaways

• Youth unemployment is primarily caused by insufficient government deficit spending, not skills gaps.
• Traditional solutions like apprenticeships fail without sufficient aggregate demand.
• Labour should adopt macro solutions: increase deficit spending and invest in public jobs.
• Monetary policy must prioritize full employment over inflation fears that disproportionately hurt youth.
• MMT provides a framework for understanding how government spending creates jobs.

FAQ