Budget Review 2016–17 Index

Dr Matthew Thomas and Geoff Gilfillan

Youth unemployment

The labour market for youth aged 15 to 24 years deteriorated substantially after the onset of the Global Financial Crisis in 2008 and has only recently shown signs of recovery. Australian Bureau of Statistics (ABS) data show that the youth unemployment rate rose sharply from its most recent low of 7.6 per cent in August 2008 (in seasonally adjusted terms) to 12.2 per cent in May 2009.[1] The youth unemployment rate then rose to 14.5 per cent in November 2014 but has since fallen to 12.0 per cent in March 2016. See graph below.

Unemployment rate for people aged 15 to 24 years (seasonally adjusted data)

Source: Australian Bureau of Statistics (ABS), Labour force, Australia, cat. no. 6202.0, ABS, Canberra, March 2016.

Young people appear to have borne the brunt of softening in the labour market since early 2008. In contrast to people in other age groups, employment for people aged 15 to 19 years contracted by 125,000 between January 2008 and March 2016 and employment for those aged 20 to 24 years only grew by 23,000. See graph below.

Change in employment by age group (original data) — January 2008 to March 2016

Source: Australian Bureau of Statistics (ABS), ABS, Labour force, Australia, detailed—electronic delivery, cat. no. 6291.0.55.001, ABS, Canberra, March 2016.

Youth employment measures

In response to the problem of youth unemployment, the Government introduced a youth employment strategy as a part of the 2015–16 Budget.[2] This year’s Budget includes a Youth Employment Package which consists of two major new youth employment measures and the revision of the Work for the Dole program. The Government has also abolished the Job Commitment Bonus. As such, the Government’s strategy to tackle youth unemployment can be seen as being consistent with its stated general approach to social welfare, under which ‘policies that are found to be effective will be continued or enhanced, while ineffective policies will be improved or ceased, with funding made available to new approaches’.[3]

The Job Commitment Bonus will cease from 31 December 2016, realising savings of $242.1 million over five years.[4] The Bonus, which was introduced by the Government as a part of the December 2013 Mid-Year Economic and Fiscal Outlook and legislated through the Social Security Legislation Amendment (Increased Employment Participation) Act 2014, was intended to provide an incentive for long-term unemployed job seekers to find and take up ongoing paid employment.[5] As was noted in the Bills Digest for the legislation that enabled the Bonus, the measure was an experimental one in Australian terms, and one for which the rationale and likelihood of success was unclear.[6]

The Government has also made changes to the Work for the Dole Program that are anticipated to generate savings of $494.2 million over the forward estimates period.[7] Under the measure, the most job-ready job seekers (Stream A job seekers) will be required to participate in Work for the Dole after 12 months’ participation in jobactive rather than six months.[8] This will give these job seekers a greater opportunity to gain employment or to participate in programs that may improve their employability before undertaking Work for the Dole, a program whose impacts in terms of employment outcomes is modest. According to the findings of a recent evaluation of the impact of the Work for the Dole program, conducted by researchers from the Australian National University’s Centre for Social Research and Methods, participation in the program resulted in only a 1.9 percentage point increase in job seekers’ prospects of gaining employment.[9]

The savings from the above measures are being redirected to ‘repair the Budget and fund policy priorities’.

The centrepiece of the Youth Employment Package is the Youth Jobs PaTH program. This program, which is to be established at a cost of $751.7 million over four years from 2016–17, is intended to provide job seekers aged under 25 years who have been in receipt of jobactive services for at least six months with real work experience, and to maximise their prospects of subsequently gaining employment.[10]

Under the program, following training of up to 6 weeks in basic employability skills, up to 120,000 job seekers will be offered internship placements of 4 to 12 weeks over a four-year period. Participation in the program will be voluntary, with those job seekers who do take part working for 15 to 25 hours per week.[11] Job seekers will receive $200 a fortnight in addition to their income support payment and businesses will receive an up-front payment of $1,000 for hosting job seekers. If the host businesses (or any other employers of job seekers aged under 25 years and in receipt of jobactive services for at least six months) offer young job seekers a job, they will be eligible for a wage subsidy of up to $6,500 for job-ready job seekers and up to $10,000 for disadvantaged job seekers. Under the changed wage subsidy arrangements discussed below, the subsidies will be paid on a flexible basis.

As long as young people are provided with quality work experience and acquire skills for which there is likely to be employer demand, the program could prove successful. Australian Council of Social Service CEO, Dr Cassandra Goldie is reported as having argued that the program is more likely than Work for the Dole to help young people into paid employment, and emphasised that ACOSS supports the belief that work experience can improve job opportunities.[12]

While there has been some criticism of the program on the grounds that it involves businesses paying participants around $4 an hour, an amount that is substantially less than the minimum wage of $17.29, this does not account for the fact that the payment is in addition to the job seeker’s income support payment.[13] That said, a number of commentators have also expressed concerns that without appropriate safeguards the program could be used by businesses to replace existing workers or as an alternative to recruiting young workers at the appropriate wage.[14] While, as noted above, ACOSS is generally supportive of the program, Cassandra Goldie shared these concerns, and observed that careful monitoring and protections would be needed to guard against the risks of worker displacement.[15]

It should be noted that it is difficult to tell from the budget papers how the Youth Jobs PaTH program will lead to a cost of $751.7 million, as the figures presented only add up to around $244 million.[16] The description of the wage subsidies component of the measure suggests that the remaining funding may be made up of existing wage subsidy funding, which has been reallocated from the jobactive program. If so, then the amount of the funding reallocated appears to be in the region of $300 million. The budget papers state that the Government will achieve savings of $204.2 million, and suggest that these will be gained as a result of the streamlining of wage subsidy payments, discussed below.

Under another of the Budget’s measures, wage subsidies are to be made more flexible, with the subsidies to be paid earlier and in a manner that better suits businesses.[17] The reform of wage subsidy arrangements is likely to improve employer take-up of the subsidies, which can help to improve long-term employment outcomes for job seekers.[18] However, the changes may also increase the risk of some employers taking on job seekers for shorter periods while the subsidy is available, and then either putting them off or reducing their hours when the subsidies have run out. Typically, wage subsidies are either structured with a relatively small up-front payment and most of the subsidy paid at the conclusion of the payment period or paid in regular instalments so as to avoid this problem. As such, use of the new wages subsidy arrangements by employers will need to be monitored and reviewed.

The Budget provides $88.6 million over the forward estimates period for the expansion of the New Enterprise Incentive Scheme (NEIS) and initiatives to encourage and assist young people into self-employment.[19] Under the NEIS, a person is paid an NEIS allowance that is equivalent to the basic single rate of Newstart Allowance for up to 12 months free of any job search or mutual obligation requirements, as long as the recipient is establishing a new business. The expansion of the NEIS to 8,600 places per annum, and the inclusion of people not in receipt of income support, is a positive step.[20] A number of evaluations of the NEIS have been conducted over the years, and, generally speaking, the findings of these evaluations in terms of self-employment outcomes and flow-on effects have been positive.[21]

 

 

All online articles accessed May 2016. 

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