The Rising Tide of NEETs

The not in employment, education, or training, Gen Z cohort, is facing the dual crises of housing affordability and a burgeoning cost of living.

In recent years, a concerning trend has emerged among the world's youth population. According to the International Labour Organisation (ILO), approximately one-fifth of individuals aged 15 to 24 worldwide were classified as NEETs (not in employment, education, or training) in 2023. This staggering statistic highlights a growing crisis that spans continents and cultures, with far-reaching implications for both individuals and societies at large.

The NEET phenomenon is not confined to any single region or country. In Spain, for instance, over half a million young people between 15 and 24 years old are neither studying nor working. This represents a significant portion of the country's youth population and raises serious questions about the future of its workforce and economy.

The United Kingdom paints an equally troubling picture. Nearly three million members of Generation Z are now considered economically inactive, with a startling 384,000 young people joining the ranks of the workless since the onset of the COVID-19 pandemic. This surge in economic inactivity among youth is a clear indication of the pandemic's long-lasting effects on employment and education opportunities.

While the global trend is concerning, New Zealand offers an interesting case study in the evolution of NEET rates over time. According to Stats NZ, the country's NEET rate remained relatively stable between 2004 and 2008. However, it experienced a significant spike following the global financial crisis, with youth unemployment rising sharply.

The NEET rate in New Zealand reached its peak in the latter half of 2009, with 17.8 percent for young women and 12.6 percent for young men. After this peak, the rate declined from 2012 to 2015 and has since maintained a relatively steady level.

Interestingly, New Zealand has witnessed a convergence in NEET rates between men and women over the past two decades. This shift is primarily attributed to changes in NEET rates for individuals in their early twenties, as rates for teenagers tend to be similar regardless of gender. Moreover, the majority of youth classified as NEET fall within the early twenties age group.

Prior to 2009, young women in New Zealand were approximately twice as likely to be NEET compared to young men. However, since then, higher NEET rates for young men and declining rates for young women have significantly narrowed this gender gap.

A notable trend in New Zealand is the steady decline in the number of women aged 20 to 24 who are not in the labour force or education and are instead engaged in caregiving activities. This number dropped from 16,300 in the March 2004 quarter to 9,900 in the March 2024 quarter, despite an overall increase in the total number of young women during this period.

While New Zealand's NEET rates may not perfectly align with international trends, extensive research indicates that young people in their early 20s across the Western world are facing significant economic challenges. Compared to millennials at the same age, today's young adults are earning less, carrying more debt, and experiencing higher delinquency rates.

A study by credit reporting agency TransUnion found that individuals in their 20s today are taking home substantially less income than millennials did at their age, even when adjusted for inflation. This reduced earning power is compounded by the fact that young people are being forced to allocate a larger portion of their income to basic necessities such as food, groceries, and gas due to rising inflation.

One of the most significant challenges facing young adults today is the increasingly unaffordable housing market. Since the turn of the millennium, house prices have increased more than twice as fast as income. This dramatic divergence between housing costs and earning potential has made homeownership an increasingly distant dream for many young people, contributing to a sense of financial insecurity and frustration.

Over the past few decades, housing prices in many areas have risen at a much faster rate than average incomes. This means that the cost of buying a home has become increasingly disproportionate to what young people can earn, even in professional careers. As a result of this divergence, the affordability of homes has significantly decreased. In previous generations, it was often possible for a young person or couple to save for a few years and then purchase their first home. Now, even with years of saving, many young people find themselves priced out of the housing market, especially in desirable urban areas.

With housing prices so high relative to incomes, it takes much longer for young people to save enough for a down payment. This delays their entry into homeownership, often by years or even decades compared to previous generations. Unable to afford to buy, many young people are forced to rent for longer periods. While renting can offer flexibility, it also means they're not building equity or benefiting from property appreciation.

Homeownership has traditionally been a key pillar of wealth-building and financial security. The inability to own a home can significantly impact a young person's long-term financial outlook and retirement planning. The seeming impossibility of homeownership can lead to feelings of frustration, insecurity, and even hopelessness among young people. It may feel like an important life milestone is permanently out of reach. This situation contributes to a widening wealth gap between generations. Older generations who bought homes when they were more affordable have

The unaffordability of housing may lead young people to delay other life decisions, such as starting a family or pursuing certain career paths, further contributing to a sense of life being "on hold." Young people may find themselves priced out of areas with better job opportunities or closer to family support networks, forcing difficult choices between career prospects and housing affordability. For those who do manage to buy a home, they often have to take on significant debt relative to their income, which can increase financial stress and vulnerability to economic downturns.

This divergence between housing costs and earning potential is not just an economic issue, but a social one with far-reaching implications. It affects everything from family formation to social mobility, and from mental health to overall life satisfaction among young people. Addressing this issue will likely require significant policy interventions, from housing market reforms to initiatives aimed at boosting young people's earning potential.

Young New Zealanders are facing particularly significant challenges in achieving homeownership due to rising housing prices, increasing rents, and limited affordability. This has resulted in a housing affordability crisis in this country, making it difficult for many to secure a foothold in the property market.

The average house price in New Zealand has increased by over 50 percent in the past five years, with the national median price exceeding $800,000. (Source: REINZ). Rent prices have risen by over 30 percent in the same period, with the national median rent exceeding $500 per week. (Source: MBIE). The homeownership rate among young people (20-34 years old) has declined from 42 percent in 2006 to around 25 percent in 2022. (Source: Stats NZ).

Insufficient housing supply, particularly in Auckland, has driven up prices, alongside limited availability of affordable housing, including state and social housing, while rising building costs and materials prices have made it harder to build affordable homes.

The combination of lower earnings, higher living costs, and seemingly unattainable housing prices has led many young people to question the value of saving or even working towards the future. This sentiment of futility is a dangerous one, as it can lead to decreased economic participation and a cycle of disengagement from both education and the workforce.

The rising tide of NEETs globally, and the economic challenges faced by young adults in the Western world, represent a critical issue that demands attention from policymakers, educators, and society at large. While countries like New Zealand may show some positive trends in narrowing gender gaps and reducing certain types of economic inactivity, the overall picture remains concerning.

Addressing this crisis will require a multifaceted approach, including improved educational opportunities, targeted job training programs, and economic policies that address the growing disparity between income and living costs. Furthermore, efforts must be made to restore young people's faith in the future and the value of their participation in the economy and society.

As we navigate the aftermath of global crises like the COVID-19 pandemic and ongoing economic uncertainties, supporting and empowering our youth must be a top priority. The future of our global economy and the well-being of entire generations depend on our ability to reverse the NEET trend and create meaningful opportunities for young people to thrive.

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