Unemployment is hitting youth hard: this is what we should do

Australia came out of the global financial crisis better than most industrialised countries, but did not escape altogether. With a weaker economy, the unemployment rate rose from about 4% to 6% between 2008 and 2009. It has remained around that level since then, and the longer unemployment remains at this level, the greater the costs it imposes on those affected.

The young are particularly disadvantaged by the current unemployment rate. This is not unexpected, as the young always fare worst in downturns.

Slowing economic activity reduces the rate of creation of new jobs. At any point in time, the young, who are making the transition from education to work, account for a disproportionate share of job seekers. Therefore, they are also most affected by the declining availability of jobs.

In May 2012, the rate of unemployment for 15 to 19-year-olds was 18.8%; and for the broader group of 15 to 24-year-olds it was 13.1%. This compares to an unemployment rate of 5.8% for the population aged 15 to 64 years.

Long-term unemployment also becomes a more severe problem as the economic downturn lengthens. Of those 15 to 24-year-olds who were unemployed in May 2012, more than 25% had been unemployed for 12 months and longer.

These numbers have attracted growing attention to the labour market problems facing young Australians today. The main point of discussion has been how to assist the young unemployed and those who will make their transition to the labour market in coming years to obtain employment.

Focus on help, not blame

It is important to recognise that the main influence on their employment prospects is outside their control. This is the rate of economic growth. It determines the pace at which jobs are created, and therefore the unemployment rate. Recent research I have done shows that virtually all of the increase in Australia's rate of unemployment since the start of 2008 can be explained by slower economic growth.

Once the rate of economic growth becomes sufficient to generate a higher rate of job creation, it is young job seekers who will benefit most. Being the largest share of job searchers, they will get the largest share of the new jobs. Therefore, the employment rate of the young will increase, and their unemployment rate will decrease by more than for the rest of the population.

The best way for a government to reduce youth unemployment then is to keep economic growth as high as possible. The other main way to improve labour market outcomes for the young unemployed is through targeted programs that make them "job ready" and create pathways to employment. Programs that provide these services to the young unemployed can increase their opportunities to move into work when extra jobs become available.

There is, however, a problem. Having programs targeted to improve outcomes for the young unemployed sounds good in theory, but the practice has been more difficult. Designing programs that work has been a major challenge.

It is this challenge, and the challenge of long-term unemployment more generally, that was taken up this month by the Social Ventures Australia (SVA) "Employment Dialogue". With the theme "Building better futures for those experiencing long-term unemployment", the event brought together representatives of leading welfare agencies, service providers for the unemployed, major business groups, as well as SVA members.

At a time when the federal government's best idea is to go back to the failed model of Work for the Dole, the discussion at the Employment Dialogue was refreshing and inspiring.

Speakers from very different backgrounds provided a broad range of ideas on what would be good policy that were striking for how much they had in common. Putting these ideas together provides the possibility of a new approach to designing policies to improve labour market outcomes for the long-term unemployed as well as those about to move into the labour market.

Policies to help young workers

Here's my summary of the main ideas from the Employment Dialogue about policy design:

• Assistance to the unemployed should ideally involve a job placement. This is the best pathway to long-term employment and the best context for increasing skills.

• Many employers are willing to support initiatives to improve outcomes for the unemployed; for example, by providing job placements. A prerequisite for employers to offer placements is that they want workers who already have basic capabilities needed for work. They are happy to partner not-for-profits/service providers who can do the work of giving the unemployed those basic capabilities. An example profiled on the day was a partnership between Leighton Contractors and Beacon Foundation and CareerTrackers.

• Not-for-profits can also successfully create job placements that improve the employment prospects of young unemployed. A leading example is the STREAT program which provides young jobless homeless youth with the training and skills for a career in the hospitality sector.

• To support building relationships between business and not-for-profits or service providers it is necessary to have a local or decentralised model of assistance for the unemployed and the young who are making the transition from education to work.

• Part of the local assistance to young people making the transition from education to work should be a greater role for schools and suppliers of tertiary education in providing opportunities to engage with the workplace. For example, having more information on work options allows students to make better study choices and provides greater motivation for study.

• Training and obtaining a formal qualification can be an important part of improving outcomes for the unemployed, but the incentives to undertake training and the value of training are greatest when it is matched to a job placement.

• All this can only happen if we have government funding that supports a decentralised model of assistance to the young unemployed. Any funding model should require that specified outcomes be achieved, but must also allow greater flexibility and less bureaucracy than current government schemes.

• The government funding model should recognise that "you get what you pay for". Some young unemployed have a substantial level of disadvantage, which will require significant spending for them to acquire basic capabilities for employment. Therefore, it is necessary to take a long-run approach to benefit-cost in evaluating this type of spending.

• It is important to make more effort to do rigorous evaluation of programs that seek to assist the unemployed, as a basis for refining our knowledge of what is most effective.

Applying these principles to the design of programs for young unemployed would be a big step forward in Australia. It would give us a good chance of, as one participant put it at the Employment Dialogue, "getting money to where it will be most effective and starting to make a difference".

See the rest of the Another Country: Youth in Australia series here.

Jeff Borland, Professor of Economics , University of Melbourne

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