Today I am going to tackle the hardest problem in Australia and indeed around the globe: high youth unemployment. In an attempt to show how we can reduce it, I spoke with Andrew Bassat, chief executive of Seek, in a KGB interview to be published later today. I also spoke with several café owners recruiting in the low-skilled youth end of the job chain, and will draw on remarkable research recently published in the New York Times.
I should warn you that some of the café owners’ solutions are not what you want to read.
But first I'm going to start with a New York Times article that shows that while recessions or economic downturns in the US make youth unemployment worse, they are not the cause of it.
Economists Stephen J. Davis of the University of Chicago and John Haltiwanger of the University of Maryland have discovered that when there is a lack of churn in the labour market (the rate at which people change jobs), it makes it harder for younger people to find jobs. And when they don’t find jobs, they are more likely to remain outside the labour force.
A one percentage point decline in the rate of job churn in the US labour market lowers the employment rate of young men who don’t complete high school by 1.44 points. In the US, more and more people are holding onto their jobs because of looming retirement and the fact that huge employers like Walmart and McDonald's are much more mature businesses. These forces were developing in the US well before the global financial crisis and the same thing is happening in Australia.
So what do we do about it?
Lower interest rates are not much use because they will not increase the labour market churn.
Bassat says part of the problem is that Australia’s leading companies are being driven to short-term thinking by yield-chasing institutions. The chief executives of our big companies are not willing to take risks and look for growth. That’s what Seek does, because Bassat is an old-style chief executive and effectively demands that institutions be long-term investors or get out.
Bassat also believes that there needs to be an increase in entrepreneurialism in the small and medium-sized business sector. We did not go into how you could create that, but clearly a long-term growth vision from Canberra would help.
My comment on the visions that emerged at the Australian Leadership Retreat at Hayman becomes vital if we are going to reduce youth unemployment (The one minister who has a vision for Australia, August 19; Liveris: Australia should be a petrochemical power, August 19 ).
Bassat also believes that young people need to tailor their studies to industries where there are plenty of jobs. He suggests scientific and technical qualifications are important. You will see that we discuss arts degrees and media studies.
Seek has shown that there is good money to be made providing education that is job-oriented. Our education advisers and providers have a lot to answer for, but so too do the students. Even with the best education, if there is limited job churn there will still be high youth unemployment. But at least we can reduce it.
So I turned to my eastern-state café owners who, as you will see, must remain anonymous.
When they advertise for an unskilled young dishwasher, they usually receive about 250 applications. Half of them are useless because the young people have been sending out job applications en masse and often have the name of the wrong employer in their application.
Many of the young people are absolutely desperate for work, but no one has told them what actually happens in a vast number (but by no means all) of small cafes.
Australia has a set of shift allowances and penalty rates that many small cafes cannot and do not pay. Recent changes will help, but they don’t solve the problem. The café owner is looking for a person who really wants a job, will get on well with other employees and the owner, and will be ‘flexible’ in nominating the days they work for taxable income. They must not nominate too many days that have high shift allowances even though they worked on those days. The young unskilled worker must also be prepared to take the odd bit of cash since silly labour laws have forced lots of small enterprises to break the law. However, these enterprises represent the first place that many less educated young people (including new migrants) must start on the job ladder. Few people tell them what is really required in interviews for these positions.
As the US research shows, once a person fails to gain employment, they lose interest in jobs. In Australia, people in this situation will apply for jobs en masse because that ensures they will continue to receive the dole. Teaching them how to secure a job is not easy.
There is a lot to be done. Politicians, educators, employers and young people themselves need to undergo fundamental change. Central bankers have only a minor role to play.