The labour market’s troubling trend

The latest ABS figures show the labour market continues to perform reasonably well, given the subdued economic activity in Australia. In comparison with 2014, Australia last year managed to increase both its labour force participation and employed workforce, while reducing unemployment rates. A welcome feat, but not all that glitters is gold.

The rising number of youth not in employment, full-time education or training highlights a troubling pattern for young Australians approaching their early 20s, as new research points to the highest figures in more than a decade.

In response, a range of policy actions on economic growth, education standards and youth employment barriers must be taken. Sooner rather than later.

Young people not in employment, education or training — known as NEETs — represent a vulnerable group at risk of becoming alienated from social and professional lives, and possibly heading for a lifetime welfare dependence trap.

From a little known concept in the early 2000s, NEETs have been gaining attention in the policy debate, even featuring as a sole target in the ongoing discussions of the upcoming United Nation’s Sustainable Development Goals, which vows to ‘by 2020 substantially reduce the proportion of youth not in employment, education or training’.

As an alternative measurement of jobless youth, the NEET concept can better capture not just those looking for a job (unemployed NEETs), but also those completely disengaged from participating in the workforce (inactive NEETs).

In Australia, there are around 360,000 NEETs aged 15–24. But the problem is mostly concentrated among jobless in their early 20s, who account for more than two-thirds of the total.

The ratio of NEETS aged 15–19 has been steadily reducing, and is currently at 6.9% (the lowest on record). Most of the recent improvement is due to a welcome national effort to increase Year-12 attainments agreed in the 2009 COAG National Education Agreement. As a result, higher rates of school retention among teenagers are preventing them from falling victim to complete disengagement — a healthy sign that good policy does work.

However, a much grimmer scenario exists for those in their early 20s, with their NEET rates presently at 15.7%, the highest peak since 2003. The alarming upward trend is explained by both an escalation in the unemployment numbers as well as by the alienation of inactive youth in this age bracket who are outside the labour force but not enrolled in any full-time education or training program.

The latest data on unemployed NEETs points to 97,000 early 20s looking for a job — nine out of ten aiming at full-time positions. This is almost double the amount of jobseekers in the same situation in 2008. Moreover, there are currently around 149,000 inactive NEETs aged 20–24, in comparison to the 132,000 at the onset of the GFC. This indicates that more work needs to be done to successfully activate the early 20s NEET cohort back into the labour force.

The solution to reduce current NEET rates includes a range of remedial actions. First, as evidence from pre-GFC levels largely suggests, the most effective way to tackle youth disengagement is by growing the economy. For that, it is paramount to prepare the proper ground for economic growth, namely timely structural reforms of taxation, competition and workplace relations, for instance.

Second, following the efforts to increase school retention, it is important to make sure that while at school, young Australians are actually learning the basic educational skills in order to boost their professional lives, in particular improving the lagging numeracy and literacy skills.

Additionally, Australia needs to find the political courage to remove some unnecessary labour demand barriers upon young jobseekers. The Productivity Commission recommendation to create a more sensible weekend penalty rate system for retail and hospitality is a good start. These sectors are the labour market entry gate for young Australians, accounting for almost half of all youth employment numbers.

Diverging NEET rates among young sub-cohorts is a testament that good policy can successfully reverse the perils of youth disengagement. Winston Churchill warned against letting “a good crisis go to waste” and Australia must act accordingly to unleash job creation for early 20s youth.

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