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Climbing the jobs ladder slower: Young people in a weak labour market

Staff working paper

This paper was released on 27 July 2020.

The 2008 Global Financial Crisis and the end of the mining boom marked a downturn in the Australian labour market. While past downturns were marked by high unemployment, the unemployment rate recovered quickly and remained low until the COVID-19 crisis in 2020.

Instead, the weak labour market post-2008 was reflected in slow wage rate growth and in job seekers finding part-time work or work in less attractive occupations.

These two trends were particularly noticeable for people aged 15-34 (young people). Workers aged 20-34 experienced nearly zero growth in real wage rates from 2008 to 2018, and workers aged 15-24 experienced a large decline in full-time work and an increase in part-time work.

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  • Foreword
  • Media release
  • Contents
  • Podcast

Economists often talk of the economic ‘cycle’, but the terminology can mislead. Although downturns are often short-lived, their effects can be long-lasting for some groups and individuals.

This is particularly true in that most human of interactions, the labour market.

This paper investigates labour market scarring that might have occurred over the period 2008 to 2018 — specifically whether young people entering the labour market during and following the GFC had a harder transition into employment than those entering earlier, and whether that experience could have longer term impacts on the labour market outcomes for this cohort.

We show that from 2008 to 2018, young people had more difficulty getting jobs in the occupations they aspired to. And if they started in a less attractive occupation, it was even harder than before 2008 to climb the occupation ladder. This suggests that poor initial opportunities could have serious long-term consequences.

The data used pre-dates the COVID-19 recession, but the paper’s findings are of heightened salience in our present circumstances. Many young people have experienced unemployment recently, and are likely to face a reduced set of job opportunities as a result of the recession. This scarring could last some time. Also, while some young people might choose to pursue further study, and return to the job market when conditions are more favourable, this paper suggests that, if labour markets continue to be weak, additional education can lead to a mismatch between existing job opportunities and aspirations.

This staff working paper can be seen as part of the Productivity Commission’s research output on trends in incomes. After exploring recent trends in the distribution of incomes in Rising inequality? A stocktake of the evidence, the Commission has pursued a number of avenues to investigate trends in the earnings of young people.

The paper was originally prepared for presentation at the Reserve Bank of Australia’s Annual Conference to be held in April 2020. The COVID-19 pandemic interrupted the conference, but the central issue at the heart of the analysis, the scarring effects on young people of poor labour-market outcomes, has become even more relevant.

The authors are grateful to Jeff Borland and Bob Gregory, staff at the Australian Treasury and Ken Quach, Mabel Andalón, Melisa Bubonya, Marco Hatt, James Thiris, Henry Williams and other colleagues within the Productivity Commission for stimulating discussions and insightful contributions.

Michael Brennan

Young people suffer more in a weak labour market

Young people have been struggling to find employment in their desired occupation, even before the COVID-19 pandemic, and this could have a long-term effect on their career, according to a report released today by the Productivity Commission.

‘We have seen substantial increases in university graduates in Australia over the last ten years or so. Unfortunately, for many graduates that has just meant more competition to enter their chosen profession,’ Commissioner Catherine de Fontenay said.

The Productivity Commission working paper Climbing the jobs ladder slower: Young people in a weak labour market explores the consequences for young people of a weak job market and large increases in the number of university graduates since 2010.

The report found that after 2008, young people’s job prospects and the growth in their salaries were worse than those of workers aged 35 and over, and compared to young people prior to 2008.

While the Global Financial Crisis (GFC) affected Australia less than other countries, its after effects combined with the slowing of the mining boom led to a decade of relatively weak labour demand from 2008.

The weak labour market in this period was not characterised by the high unemployment that characterised the 1991 recession. Instead, there was increased part time employment, lower starting wages for young people and constrained choice in occupations despite increased education.

The Productivity Commission looked at the types of jobs that young people found after graduating from university or vocational education and training, from 2001 to 2018. Since 2008, a larger share of graduates found jobs that are lower on the jobs ladder, as measured by a scoring of occupations developed at the Australian National University. This in turn has affected their career progression.

For the graduates who found employment lower down the ladder, it was difficult to recover. Their share increased after 2008, and their prospects of moving to better jobs did not improve.

While young people’s career prospects might have recovered once the labour market improved, such improvement is now unlikely for some time, given the COVID-19 crisis.

Many young workers could face long term consequences in the form of occupations lower on the jobs ladder and lower salaries than they might have expected in the early part of the century.

This report is part of the Productivity Commission’s research on income distribution. It follows from the Commission’s report entitled Rising inequality? A stocktake of the evidence and precedes a report investigating slow growth in the incomes of young people since 2008, that is due to be released at the end of the month.

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  • Cover, Copyright and publication details, Foreword, Contents, and Abbreviations and explanations
  • Abstract
  • Introduction
  • The weak labour market is not reflected in employment rates
  • The weak labour market is reflected in occupational scores
  • The weak labour market is reflected in low occupational mobility
  • Conclusion
  • References
  • Appendix A
  • Appendix B

Commissioner Catherine de Fontenay and Professor Jeff Borland from the University of Melbourne discuss research on young people’s incomes and the role of labour markets. They discuss how difficult it is for many young people to climb the jobs ladder and the implications of that and of the weak labour market that prevailed before the COVID 19 pandemic started.

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