Dr Ken Henry – Wise Words

‘I believe there is a special case for taking an interest in youth unemployment. It is concerning that more than one-third of the unemployed people in Australia are aged 15 to 24.’

In the 14 years leading up to the global financial crisis in 2008, youth unemployment had been trending down – from more than 380,000 (seasonally adjusted) in October 1992 to less than 160,000 in August 2008.

Strikingly, this is more than the total number of people, of all ages, who are employed in the state of Tasmania.

Australia simply cannot afford this level of youth unemployment.

Today, the number of those aged 15 to 24 who are unemployed has climbed back to around 260,000.

Unemployment is a key determinant of a country’s standard of living, which is conventionally measured by gross domestic product per capita. In fact, gross domestic product (GDP) is explained by three things: the number of people employed, the average number of hours they work and labour productivity. And the number of people employed, in turn, is determined by the participation rate (which measures the proportion of the population aged 15 or more that want to work) and the unemployment rate.

Meanwhile, average hours of work have been declining with an increase in part-time employment. In October 1992, a third of those aged 15 to 24 who had a job worked part-time.

Today, more than half of total employees aged 15 to 24 work part-time. (Part-time work has also been increasing for those aged 25 to 64, but at a much slower rate.) And in the 21st century, labour productivity has been growing more slowly than in the second half of the 20th century.

These trends in average hours worked and labour productivity are acting to reduce the rate of growth of GDP per capita. This wouldn’t matter for living standards if participation and unemployment trends were working in the opposite direction. But they are not. The participation rate peaked in 2010. Because of the ageing of the population it will continue to fall for several decades. All of this means that initiatives to reduce unemployment are going to have to do the heavy lifting in sustaining growth in GDP per capita.

Trends in GDP per capita are not only the key measures of trends in living standards. They are also the key determinant of trends in budget revenue, shaping the ability of governments to continue to fund things like the age pension, education, health, defence and infrastructure.

Of course, the relationship between youth unemployment and Australia’s GDP per capita is not the only reason for taking an interest in this subject. Most importantly, unemployment is a powerful source of ‘capability deprivation’. In essence, what this means is that young people who are not in the education system and who are denied work are deprived of the freedom to lead a life they would choose.

They are being denied the capability to participate fully in the activities of their community. In many cases, young people’s self-respect and dignity is eroded. This is true for all people who are unemployed, of course.

But for those who are young, unemployment can have a permanent impact by impeding the development of their talents and potential. These are essential ingredients for Australia’s youth to be able to make good choices throughout life. I believe these are compelling reasons to tackle the growing problem of youth unemployment in Australia.

Dr Ken Henry was Secretary of the Department of Treasury from 2001 to 2011.

This column first appeared in the Brotherhood of St Laurence's Youth Unemployment Monitor April 2014.