Australia's unemployed youth are getting priced out of the market - The Centre for Independent Studies
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Australia’s unemployed youth are getting priced out of the market

jobs employmentThe alarming upward trend of young jobseekers experiencing long unemployment duration demands proper attention and politically bold policy solutions. The huge pachyderm in the room remains Australia’s national and industry-specific minimum wages, including weekend penalty rates.

There are around 50,000 young Australians currently out of work for more than 12 months. And worse, a third of the young long-term unemployed have been unemployed for the past two years, severely increasing their risk of lifetime welfare dependence.

Although rising long-term unemployment has affected Australians of all ages, young jobseekers aged 15–24 have been hit hard by the seven-year subdued economic environment. With a lower skill set and work experience, young Australians struggle most to succeed in tight labour market conditions.

The traditional definition of long-term unemployment refers to jobless spells of over a year. By this measure, the 12-month average share of long-term young unemployment has more than doubled since the Global Financial Crisis, from 8.8% of the total pool of young jobseekers in 2008 to 18.2% in 2015 (see the graph below). This is particularly concerning, as the current proportion of long-term unemployed youth is at its highest level in more than a decade, including the historical average of 15.1%.

Long-term unemployment presents a real menace to young Australians, possibly leading to years — if not a lifetime — of struggle to get a stable and well-paid job. Further, numerous studies point to the long-lasting effects not only on future employability, but also on health and social exclusion, including a disastrous high correlation with drug abuse, domestic violence and crime.

It is time to seriously tackle long-term youth unemployment.

For starters, public debate needs to reach consensus around structural reforms (e.g. tax and competition legislation) to lift economic growth and job creation. Additionally, more effective schooling outcomes, especially in numeracy and reading skills, should also be part of an effective agenda.

Research outlines a specific barrier preventing the long-term unemployed from landing a foothold in the workforce: Australia’s pay floor system dictated by the national and industry-specific minimum wages, including weekend penalty rates.

The long-term young unemployed are greatly exposed to potentially high minimum pay floors, at the risk of being summarily priced out of the labour market. Long jobless spells not only corrode important working skills, but also negatively influences employer perceptions about a candidate’s ability to perform.

For instance, Sunday pay rates starting from $33 an hour for a casual entry-job level in a fast-food shop might explain why it is so hard for long-term dole recipients to be given a fair chance to enter the workforce. Such high pay rate levels act as a strong disincentive for employers to create job positions for low-skilled, long-term unemployed youth.

A better policy arrangement would be to introduce long-term unemployment discounts to nationally regulated pay floors over a fixed period, which could particularly assist the long-term young jobseeker aged over 21, who can be shut out of the market once too old to qualify for the pay floor discounts in federal junior pay rates.

Minimum pay floor discounts for vulnerable groups are not a new concept. In Germany — with a youth unemployment rate half of Australia’s — the new minimum wage legislation prescribes that long-term unemployed jobseekers are entitled to receive the minimum wage only six months after taking up a new job.

For Australia, given the specificities of our welfare system, a discount rather than a complete exemption on pay floors might be more appropriate — with further debate and consultation needed to reach an optimal rate. Nonetheless, other aspects of the German success might be a good benchmark.

In particular, a six-month period discount seems a reasonable timeframe for the new worker to acquire the skills, experience and confidence lost after a long jobless period. In addition, a six-month discount is in line with the exemptions enshrined in the unfair dismissal provisions, reducing further the risks of a bad hiring, which particularly stigmatises the long-term unemployed.

Long-term youth unemployment is a pressing issue; refraining from acting is not a functional option. In this respect, young Australians would much benefit from having an evidence-based debate, not ideological diatribes, to guide through a sensible set of solutions.

Dr Patrick Carvalho is a Research Fellow at the Centre for Independent Studies and author of Youth Unemployment in Australia.