Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Youth woes are structural

11 July 2014

alex-philipatosMuch has been made of lacklustre employment levels for our youth. Last month, for example, then Telstra chairwoman Catherine Livingstone labelled youth unemployment levels (currently 13%) 'a tragedy.'

A particularly alarming graph comparing employment growth among 15 to 24 year-olds to the broader labour force shows that employment growth was similar for both young and old during the mid-2000s, but changed after the Global Financial Crisis (GFC). Since 2008, youth employment has contracted 7% while growing almost 10% over the rest of the labour force.

Cumulative employment growth (Index, May 2004 = 100)

113

While these trends are concerning, the graph is misleading.

Employment among youths departed from that of the rest of the labour force as early as the 1980s, and the gap has grown wider over the following decades. The mining boom of the 2000s is the exception, where youth employment grew lock-step with the rest of the labour force.

In a way, the mining boom has helped to mask some of the underlying problems affecting young workers, problems that predate the GFC.

Cumulative employment growth (Index, Feb 1978 = 100)

115

There are cyclical as well as structural problems.

Some cyclical unemployment is expected, particularly among young workers. Employment growth among youths should rise and fall along with the adult workforce, however young workers are often harder hit during recessions and slower to recover when the economy bounces back. Economic growth has been soft since the GFC, and this has not helped our youth.

But there are also structural factors at play, and now that economic growth has slowed, these issues are becoming more pronounced.

Among these structural changes are the effects of mechanisation and information technology. These advances have made substantial improvements to living standards while eliminating many low-skilled, labour intensive jobs on which many young workers relied.

The contraction of the manufacturing sector (relative to other areas of the economy) since the 1980s has also meant that aside from the services sector (in particular retail trade and hospitality), there are simply fewer entry level jobs to go around.

The structural problems affecting our youth have become more important, and will only continue as technological advances make more jobs obsolete. However, as the 2000s demonstrated, young people are best placed to find good jobs when the economy is growing strongly.

Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.

 

 

 

Improving housing affordability begins at home

Stephen Kirchner

11 July 2014

stephen-kirchner Australia’s capital house prices rose 10% last financial year, with an even stronger rise of 15% in Sydney. While seemingly a dramatic increase, it is important to look through the short-run variability in house prices to longer-run trends.

On an inflation and quality-adjusted basis, house prices in Australia have increased by around 2-3% per annum since 1970. This is enough to yield a doubling in real house prices every 30 years or so, underpinning a long-term decline in housing affordability and the homeownership rate.

Far from being an asset price ‘bubble,’ this increase in real house prices is well explained by economic fundamentals. A major influence has been the decline in global real interest rates since the early 1980s. Australia’s real mortgage interest rates have also declined, from around 10% in 1990 to around 3% today. This long-term decline has boosted asset values and, together with increased competition in housing finance, the borrowing capacity of households.

Unless global real interest rates rise significantly in the future, the gains in house prices associated with this long-term decline in real interest rates are unlikely to be unwound. Income and population growth are the other main drivers of housing demand. While these growth rates are subject to considerably short-run variability, they represent permanent changes to the overall level of demand.

Demand suppression policies are thus unlikely to improve long-run housing affordability. The central bank has little influence over real interest rates in the long-run. Tightening accessibility to housing finance might be justified on financial stability grounds, but won’t change the overall demand and supply balance in housing markets when only 37% of Australian households are owner-occupiers with a mortgage. Suppressing income and population growth or immigration in the name of housing affordability would be a perverse public policy response.

An unfortunate and increasingly common response to rising house prices has been to scapegoat some buyers, such as domestic and foreign investors. But they are no more responsible for rising house prices than the typical first homebuyer.

The problem is not too much demand, but too little supply to prevent upward pressure on house prices.

In most markets, rising prices would induce new supply, containing or even lowering prices in the long-run. Unfortunately, the supply of new land and new homes in Australia is largely determined by regulation, preventing housing supply from responding quickly enough to rising prices.

Dr Stephen Kirchner is a research fellow at The Centre for Independent Studies, and author of Eight Housing Affordability Myths.

 

 

Does fair paid parental leave mean taxpayers cop the bill?

11 July 2014

matthew-taylor The reaction to the CIS' Fairer Paid Parental Leave this week, a report that proposes an alternative to the Coalition's controversial reforms to Paid Parental Leave (PPL), has been mostly positive.

The Coalition proposes to increase the length of taxpayer-funded PPL from 18 to 26 weeks, and increase the rate of payment from $11,538 to the primary carer's pre-birth wages up to a cap of $100,000.

Not only would this greatly increase expenditure on PPL to over $5 billion by 2016-17, it would also provide payments of $50,000 to parents with incomes in excess of $100,000 while providing $16,667 to those earning less than the full-time minimum wage.

Fairer Paid Parental Leave makes the case for up to 26 weeks of wage replacement PPL to be provided through a loans scheme similar to the Higher Education Contributions Scheme (HECS). This Parental Leave Contributions Scheme (PLCS) would enable parents to fund parental leave out of their own future incomes. Repayment of the loan would be the responsibility of both parents, not just of the parent who takes leave.

As is to be expected, not all who responded to the report were in favour of the proposal, especially not the assertion that PPL should be largely financed by parents rather than taxpayers.

The notion that the taxpayer should fund PPL is one that has gone largely uncontested in this policy debate. The two most often cited reasons for taxpayer funding are: PPL is a workplace entitlement; and there are social benefits associated with full-time parenting in the early months of a child's life.

The first argument is somewhat at odds with how the labour market actually works. The second might be an argument for some taxpayer funding but does not justify poorly targeted PPL payments, let alone a policy that provides $50,000 to high income earners, less to those on lower incomes and nothing to stay-at-home parents.

If parents are deserving of taxpayers' dollars because parenting is a `social benefit,' then a case needs to be made as to why our current family payments provide insufficient recognition of this. Current PPL policy provides far greater payments to those who work prior to giving birth than to those who stay at home – the clear implication of this is that the parenting of stay-at-home parents is of lower social value.

The Coalition's proposal also sends a clear message that the parenting of some is superior to that of others. Many would think this proposition controversial but not some.

A PLCS does not make value judgements about people's parenting. All working parents could receive a similar level of support from the taxpayer or this could be means tested. The rest of the payment would come out of parents' future incomes rather than be shifted to the taxpayer. That's fair. 

Matthew Taylor is a research fellow at The Centre for Independent Studies, and author of Fairer Paid Parental Leave.