UK youth job market worsens as AI impact looms, PwC finds

LONDON, ENGLAND — The United Kingdom’s youth labor market has deteriorated sharply, now ranking 27th among OECD economies and falling the most in the G7, according to PwC’s 2025 Youth Employment Index. 

While the analysis finds no current statistical link between AI adoption and rising youth unemployment, early signs of displacement are emerging in technology sectors amidst a broader economic slowdown, squeezing young workers.

“In 2025, more than one million young graduates could enter a [labor] market that is changing rapidly, with many moving into industries [characterized] by high AI adoption,” said Jake Finney, PwC UK Senior Economist.

It can be recalled that the UK government commissioned an urgent review into the record number of young people classified as NEET, a crisis that ministers framed as a critical failure of opportunity requiring immediate intervention. This political alarm is critically contextualized by the PwC report, revealing the severity of the underlying economic decay.

UK youth unemployment surges amid slowdown

High youth unemployment, which rose from 10.8% in 2022 to 15.3%  in 2025, and escalating economic inactivity, which has pushed three million youth out of the labor force, drive this slump. 

Though they represent less than a fifth of the total working-age population, young people have accounted for over half of the overall increase in unemployment since mid-2022. 

This decline reflects a wider decline in the UK labor market, where a 20% reduction in vacancies over 18 months has been matched with a 16% increase in youth unemployment. 

Nonetheless, youthful employees are disproportionately affected; the youth-to-adult unemployment ratio has reached new highs and is the largest in the OECD, suggesting they are bearing the brunt of the slowdown. 

The youth employment rate in the UK has fallen to a ten-year low of 51%, and the OECD average has increased to 41% over the last ten years. 

Early AI disruption squeezes graduate jobs

PwC’s econometric modelling currently finds no statistically significant relationship between AI adoption and overall youth unemployment. This is attributed to the concentration of young workers in sectors with lower AI exposure, such as retail and hospitality. 

The report notes that, given the recent launch of publicly accessible large language models, there is insufficient data variation to measure AI’s full impact with confidence.

Nevertheless, early signs of strain are appearing in the most AI-exposed sectors. In the information and communication sector, youth employment fell by around one-fifth over the past year, largely due to fewer graduate roles, while adult employment remained stable. 

The industry has also seen significant occupational churn, which has accelerated since late 2024. Furthermore, the share of recent graduates in “graduate jobs” has fallen to its lowest level since 2014, suggesting the labor market’s capacity to absorb new, highly educated entrants is weakening as structural changes, potentially including AI, take hold.

Rising inactivity and regional gaps carry heavy costs

A growing share of young people are economically inactive, with the number rising by 34% over two decades to reach 3 million. 

The length of sickness has increased threefold since 2003, and it has become one of the main factors, even as more youths are staying in school. As a result, the percentage of NEETs is now at a record high of 1 in 8. 

Addressing such inequalities, especially those related to the regions, is a great economic opportunity. Northern Ireland has the UK’s lowest NEET rate at 9%. PwC estimates that if other areas could narrow their NEET rate gap with Northern Ireland, UK GDP could increase by £13 billion (US$17.3 billion) to £26 billion (US$34.7 billion). 

The largest potential gains would be in London and Scotland, reflecting their higher absolute numbers of NEET young people. This underscores the high economic and social costs of the current failures in the youth labor market.

This confluence of a severe cyclical downturn bearing down on youth and the first structural tremors of AI displacement in key graduate sectors presents a dual crisis that threatens to erode the UK’s future labor market foundation at the very moment it needs to be most resilient.