Youth unemployment: The forgotten labour force

The long term impact of being "not in employment, education or training" on our young people

by Jasminah Woodhouse and Jeremy Thorpe

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Around the world, young people (between 15 and 24 years of age) are more likely to be unemployed compared to the rest of the labour force. The disparity between younger and older workers varies considerably from country to country – in Japan youth unemployment is 1.6 times that of the adult labour force, while in Australia they are 2.5 times more likely to be unemployed compared with adults.1

Although Australia’s youth unemployment rate has fallen in recent years to the current level of 11.8 per cent2, the figure still represents a significant underutilisation of this cohort. Additionally, this figure does not take into account the growing rate of underemployment, a trend that also disproportionately affects young people who often work in sectors with the highest rates of workforce casualisation such as service industries.

Perhaps most concerning, however, is the estimated nine per cent (or 270,000) of all youths in Australia who are ‘not in employment, education or training’ (NEET). This phenomenon is a concern for many developed countries given its potential to entrench disadvantage.

Time spent as a NEET can have negative consequences for physical and mental health and increase the likelihood of long-term unemployment, low wages or low quality of work later in life. It also has an immediate economic cost: according to the OECD, Australia’s NEET levels cost the nation around $16 billion every year, or around one percent of GDP.

Flexibility by necessity rather than choice

The overall participation of young people in the workforce is prone to fluctuations within a given year. Those engaged in study often oscillate between full and part-time employment as they scale their workload up and down around periods of study.

While this reflects a level of flexibility enjoyed by some young people in the labour market, their age group is also more vulnerable to shocks in employment opportunities: they experienced the biggest increase in unemployment over the two years following the global financial crisis, even after a period of improvement (see Figure 1).

Figure 1: Labor force participation (LHS) and underemployment (RHS), by age
Source ABS 2018

The majority are looking for some type of employment, regardless of whether they are engaged in education.

The overall unemployment rate in Australia has been falling in recent years (12.2 per cent at the end of 2018, down from the 20-year peak of over 14 per cent in 2014), putting us roughly in the middle of the pack among OECD nations. However, we have the fourth highest incidence of part-time employment in the OECD.

Although part-time work may at times benefit younger workers who are looking for flexibility, increasingly this is becoming less of a choice. Young people are more likely to work in retail, food service and accommodation: sectors where the prevalence of roles are increasingly either casual or part-time.4 This rise in part-time and casual work is the most significant factor driving up the youth unemployment rate, and it is far more pronounced than in any other age group (see Figure 2 and Figure 3).

Young lives on the fringe

At 11.5 per cent, Australia’s NEET rate for the 20–24 age bracket might be lower than the OECD average of 16.2 per cent5 , but it still represents a significant problem given the high social and economic costs associated with NEETs.

This group is at greater risk of remaining a NEET for long periods, with one out of five spending more than 12 months as such. NEETs also show high levels of discontent with their personal circumstances: they tend to exhibit higher rates of psychological stress and lower levels of life satisfaction than non-NEET youth and have a more pessimistic view on the economy and political system.6

PwC UK’s 2018 Youth Employment Index – a comparison of labour market performance across all OECD countries – provides a number of lessons Australia can draw on.7 Common features of top performing countries were high educational attainment, high quality vocational training opportunities and a high level of support for young disadvantaged people.

Countries with good provision for the disadvantaged in their societies also scored highly, as this lowers the unemployment rate and prevents a significant minority of young disadvantaged people from being ‘left behind’. Japan was a standout performer when it came to education: Japan’s under 25-year-old secondary attainment rate is an impressive 98 per cent. And both Switzerland and Germany have large-scale public vocational education and training (VET) programs which are well integrated into schooling so that students can move easily from upper secondary education into work.

The OECD recommends that an area where government can make the greatest impact is in the NEET gender gap. Greater investment in affordable childcare is one way to tackle this gap, particularly given Australia’s relatively high childcare costs and that almost half of NEET women report that they would like to work, but that the lack of childcare solutions is one of the reasons preventing them.

Australia’s education system is generally considered to perform well, but there is still work to be done to address inequities in educational attainment. Students from rural areas, as well as those within the Aboriginal and Torres Strait Islander population, tend to have lower academic performance and less access to tertiary education than the national average. This is clearly reflected in the lower employment outcomes for these groups.

VET can be an attractive option for young people and has the potential to develop workforce skills that are wellmatched to those required by employers. In Australia, the VET sector already provides services to 4.2 million students.8 However, scandals and issues with some training providers have triggered concerns about the quality of the training provided and alignment between qualifications and employer needs.

Turning it around: The role for government

Australians on the whole enjoy good life course mobility. Although unemployment rates are higher during youth, this situation generally improves into adulthood, with most young people successfully transitioning to fuller employment.

However, it is a critical time in one’s life; and many young people experience setbacks which can mean that existing disadvantage becomes entrenched in their life as an adult.

The issue presents a number of challenges for policy makers, none of which are easily solved. However, when we look at the common factors between top OECD performers, it’s possible to identify areas for improvement and new approaches that can be implemented at various levels of government.

Firstly, there is room for educational attainment to be improved, particularly for young people who are already socially and/or economically disadvantaged. Schools are also in a position to act as a conduit to support services that students and their families may need.

During post-secondary schooling, students need greater support to make the right career decisions considering their passions, capabilities and the future opportunities in the economy, whether that sees them first enter university, TAFE or into an apprenticeship. Training packages need to respond to the skills required by industry, but there must also be enough individuals who are effectively trained in those skills. Providers also need to be flexible to adapt to the changing needs of the industries they serve, requiring a shift away from the traditional rigidity of qualifications.

Young NEETs need particular targeting, which can be difficult given their inactivity or disengagement from education and work. One of the greatest areas of impact for government to consider is the accessibility of childcare services, given that young mothers are at greater risk. Providing these people with accessible, affordable childcare is crucial if they are to re-enter the workforce or further develop their skills through training.

Finally, young people across the board are those most impacted by changes in the labour market, as they contend with shorter and more irregular working hours. This is a particularly challenging policy issue given that these changes reflect, to some extent at least, business imperatives and broader social issues. It is also a phenomenon that appears to be benefiting many older people and enticing them back into the workforce.

There is still an important role for government here, one which ensures that wage levels and working conditions (particularly for casual workers) are maintained, even if there is less scope to influence the quantity of work that is available.

1 PwC Youth Employment Index
2 Data as at February 2018
3 Data as at February 2018. and
4 Reserve Bank of Australia, 2017 Statement on monetary policy, February 2017, Box B.
5 Based on 2017 data
6 Organisation for Economic Co-operation and Development, Investing in Youth: Australia, 2016, pp. 69–70.
7 PwC Youth Employment Index
8 Based on 2017 data.

Contact us

Jasminah Woodhouse

Senior Manager, PwC Australia

Tel: +61 2 8266 1274

Jeremy Thorpe

Chief Economist & Partner, PwC Australia

Tel: +61 (2) 8266 4611

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