A steep bill for Australia's lost youth

Australia's youth unemployment has tripled since 2008 and much-needed economic potential is being lost day by day. The implications cannot be neglected.

Australian society is failing its youth and setting itself up for economic disaster. The persistent rise in youth unemployment will reverberate across the economy for decades to come, potentially reducing productivity and limiting creativity and innovation.

Australia may have avoided a recession during the global financial crisis but good luck convincing Australia’s youth. For those graduating high school and university since 2008 opportunities have been limited and six years later conditions only continue to deteriorate.

The unemployment rate for 15 to 24 year olds has increased significantly since 2008, rising to around 12.5 per cent in February. But that severely understates the challenge facing today’s youth.

Since 2008 the participation rate has declined by over 5 percentage points and it’s now at its lowest level since the series began in 1978. The rapid and sustained decline in youth participation since the global financial crisis is larger than during the early 1990s recession.


Graph for A steep bill for Australia's lost youth

To some extent the decline in participation rate may reflect higher university uptake. Many younger Australians, realising there are limited job prospects, either go or return to university to improve their skills.

The demand for skills continues to grow across the economy, particularly as entry-level jobs continue to disappear across a range of sectors. The demand for university degrees and advanced degrees grows by the day.

However, greater university participation cannot explain the rapid fall in employment participation. Furthermore, no matter how high university participation goes there would never be a shortage of young people looking to make a buck – the university party scheme has not become any cheaper.

Some people will say that the decline simply reflects young people being lazy or choosing the wrong university courses. But lazy youth and questionable degrees are hardly new and cannot explain the rapid fall in participation or rise in unemployment.

Instead the decline is more likely to reflect young Australians becoming discouraged by rejection or limited opportunities and giving up on finding a job. This is first and foremost a failure of Australian industry and the labour market itself rather than something specific to young Australians.

The economic implications of these developments, if sustained, are vast and cannot be neglected by state and federal governments.

The period between 15 and 24 years of age is a crucial development phase; this is the period in which we establish a sense of personal identity and our own independence. For most people, employment has traditionally been at the centre of this development; however, unemployment – particularly of the long-term variety – can have a significant effect on individual growth and social outcomes.

Research shows that people who suffer long-term unemployment find it more difficult to not only find a new job but also to retain that job. If and when they do find a role they will often find that their skills have eroded and they are no longer as productive as they once were.

The youth version of this tale also involves greater difficulty finding a job and lower productivity when they finally enter the workforce. However, younger workers aren’t measured against their past selves but their best potential selves. High youth unemployment equals lost potential, reducing future productivity.

In Australia the number of young Australians suffering youth unemployment has tripled since 2008. These are people who have been unemployed for at least a year. This accounts for around 18 per cent of total youth unemployment. Australia’s potential is being lost by the day.

A major consequence of high youth unemployment is lower lifetime earnings. Employees who miss out on the opportunity to develop skills and gain experience in their youth typically earn less than those who had steady employment. More importantly there is limited catch-up – the effect of youth unemployment persists throughout an individual’s career.

Research suggests that, all else equal, Australians who entered the workforce prior to the global financial crisis will do better than those who entered after the crisis began. A 2007 graduate has greater prospects than someone graduating a year later. Hardly seems fair does it?

With the labour market for young Australians continuing to deteriorate, Australia is creating a generation of youth who will be less skilled and experienced than the generation that precedes it. The economy has not yet experienced the effects of this but with an ageing population it is only a matter of time before we have to rely on today’s youth who cannot find a job.

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