With the proposed changes in the latest Budget regarding access to Newstart for the under 30's I thought it is valuable to add a thread discussing the obvious issue - Youth unemployment.
First, the data (Sourced from: ABS Labour Force Survey, 1966-1977; Labour Force, Australia, 1978-2000 (ABS cat. no. 6203.0 and 6204.0).
As can be seen unemployment in younger age groups has always been higher than older workers. This is to be expected simply because the youth have the least amount of training and skills compared to other workers. Prior to the 1970's however, youth unemployment was still very low being below 5%. Since then it has grown to be consistently 2-3 times average unemployment in other age groups with the rate as at April-2014 being 17.7 per cent compared to the Australian average of just under 6.0 per cent.
This fact is widely known, but it is rarely highlighted that it was not always this way. The implications of it are never discussed. But the inescapable conclusion of the very high unemployment levels, for young men and women in the 15-19 age group, relative to other sections of the work-force is that the price of their labour, relative to other labour, or to labour replacing capital equipment, is far too high. It is the inevitable failure of the regulators to get the relative prices right which causes unemployment. (One reason for the inevitability of failure is that these relative prices are subject to constant change.)
In order to understand more fully some of the mysteries of unemployment and the misery of those in states of unemployment or poverty, it is necessary to look beyond the labour market barriers to frequent employment, and to understand the incentives to participate in the welfare system. Australia, in the 1970s, saw dramatic increases in the incentives for youth and adults not to work, the result of both contrived increases in wages and increases in welfare benefits, which had the effect of both reducing the number of job offers to less skilled people and increasing the benefits they received in the event that they did not work.
In the United Kingdom and New Zealand the incentives not to work also increased dramatically around this time. The victims of artificially imposed wages were not those with high skills, good connections or those at the top end of the tertiary education system, since they were typically earning far more than any minimum wages imposed from Nauru House. The victims were, rather, the young, the less skilled, the aboriginal stockmen, the women attempting to rejoin the workforce after long periods out of work due to family obligations, and others who simply did not conform to the standards expected by employers obliged to pay high minimum wages.
In earlier times, so long as the minimum wages were modest, as indeed they were for much of the 20th Century in most countries, there was little by way of an unemployment problem, since those wage minima were largely irrelevant. But as union muscle increased, as the group setting wages increased their claims as to what constituted a 'fair wage', and as the welfare industry succeeded in negotiating very generous welfare, compensation and other terms and conditions associated with not working, so unemployment in the western world exploded.
The price for labour in the 15-19 age group is, of course, not a market price. It is a price set by regulation and through bodies which have statutory authority concerning entry into all manner of occupations. Boards which control rates of pay and conditions of work for young people who want to become gardeners, boiler makers, builders etc. In many cases if you want to enter a profession you must first become an apprentice. The price is not just a dollar value, although that is undeniably important. The price also includes intangibles such as the difficulties and frustrations of terminating an employment relationship if things do not work out.
All of the proposals for government remedies for youth unemployment are designed either to lower the effective price, or to raise the quality, of the young job-seeker, without acknowledging the source of the problem.
The fact is that young people have been priced out of the job market by regulators of all shapes and sizes, but notably the arbitral tribunals, acting under pressure from trade unions. Once that fact permeates the public consciousness, then dramatic political and institutional consequences follow.
I contended last week that, although the proposed welfare changes are admirable, before they can be properly implemented there needs to be substantial change in the ease of starting up businesses and hiring and firing people. Many youth (and other unskilled people) have had the bottom rungs of the employment ladder forcibly removed from them. Put the rungs back and the unemployment problem will solve itself. The welfare and the unemployment problems grew together. They should be unwound together.
First, the data (Sourced from: ABS Labour Force Survey, 1966-1977; Labour Force, Australia, 1978-2000 (ABS cat. no. 6203.0 and 6204.0).
As can be seen unemployment in younger age groups has always been higher than older workers. This is to be expected simply because the youth have the least amount of training and skills compared to other workers. Prior to the 1970's however, youth unemployment was still very low being below 5%. Since then it has grown to be consistently 2-3 times average unemployment in other age groups with the rate as at April-2014 being 17.7 per cent compared to the Australian average of just under 6.0 per cent.
This fact is widely known, but it is rarely highlighted that it was not always this way. The implications of it are never discussed. But the inescapable conclusion of the very high unemployment levels, for young men and women in the 15-19 age group, relative to other sections of the work-force is that the price of their labour, relative to other labour, or to labour replacing capital equipment, is far too high. It is the inevitable failure of the regulators to get the relative prices right which causes unemployment. (One reason for the inevitability of failure is that these relative prices are subject to constant change.)
In order to understand more fully some of the mysteries of unemployment and the misery of those in states of unemployment or poverty, it is necessary to look beyond the labour market barriers to frequent employment, and to understand the incentives to participate in the welfare system. Australia, in the 1970s, saw dramatic increases in the incentives for youth and adults not to work, the result of both contrived increases in wages and increases in welfare benefits, which had the effect of both reducing the number of job offers to less skilled people and increasing the benefits they received in the event that they did not work.
In the United Kingdom and New Zealand the incentives not to work also increased dramatically around this time. The victims of artificially imposed wages were not those with high skills, good connections or those at the top end of the tertiary education system, since they were typically earning far more than any minimum wages imposed from Nauru House. The victims were, rather, the young, the less skilled, the aboriginal stockmen, the women attempting to rejoin the workforce after long periods out of work due to family obligations, and others who simply did not conform to the standards expected by employers obliged to pay high minimum wages.
In earlier times, so long as the minimum wages were modest, as indeed they were for much of the 20th Century in most countries, there was little by way of an unemployment problem, since those wage minima were largely irrelevant. But as union muscle increased, as the group setting wages increased their claims as to what constituted a 'fair wage', and as the welfare industry succeeded in negotiating very generous welfare, compensation and other terms and conditions associated with not working, so unemployment in the western world exploded.
The price for labour in the 15-19 age group is, of course, not a market price. It is a price set by regulation and through bodies which have statutory authority concerning entry into all manner of occupations. Boards which control rates of pay and conditions of work for young people who want to become gardeners, boiler makers, builders etc. In many cases if you want to enter a profession you must first become an apprentice. The price is not just a dollar value, although that is undeniably important. The price also includes intangibles such as the difficulties and frustrations of terminating an employment relationship if things do not work out.
All of the proposals for government remedies for youth unemployment are designed either to lower the effective price, or to raise the quality, of the young job-seeker, without acknowledging the source of the problem.
The fact is that young people have been priced out of the job market by regulators of all shapes and sizes, but notably the arbitral tribunals, acting under pressure from trade unions. Once that fact permeates the public consciousness, then dramatic political and institutional consequences follow.
I contended last week that, although the proposed welfare changes are admirable, before they can be properly implemented there needs to be substantial change in the ease of starting up businesses and hiring and firing people. Many youth (and other unskilled people) have had the bottom rungs of the employment ladder forcibly removed from them. Put the rungs back and the unemployment problem will solve itself. The welfare and the unemployment problems grew together. They should be unwound together.
I will say 40 of them were at easter (holy week here ) only supposed to be one public holiday ....they had the entire week off to get pissed & party 
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