Oldies screw young in the labour market

If you're ever tempted to doubt that the world is run by older people who organise things to suit themselves and don't worry about any blowback on the young, consider how commonly employers resort to the practice of "natural attrition".

It's something businesses do when times are tough. They could lay off workers, but they choose a more considerate path: just stop hiring any new people, including replacing people who leave, and eventually get your numbers down to where you need them.

And all the oldies breathe a sigh of relief. Problem solved in the nicest possible way.

Except for one little thing: the oldies have just passed the buck to some unknown bunch of young people. What causes natural attrition to get quick results is the decision to abandon the annual intake of young people at the entry level.

For youngsters there's a form of bad luck that isn't widely recognised by those of us already ensconced in the workforce: to have the misfortune to be leaving school or university at a time when the economy has turned down and few employers are taking on recruits.

Kids complete their education bright-eyed and bushy-tailed, only to discover the world of work doesn't want them. It might take them a year, even 18 months, to get a proper, full-time job. That can be terribly dispiriting.

It's common at such times for young people to be caught in a trap where they can't get a job because they lack experience, but they lack experience because they can't get a job.

It's an appalling thing for the rising generation to get off on such a wrong foot. It can take years to recover, if you ever do.

At the time of the global financial crisis in late 2008 and 2009, we were all hugely relieved when, as it turned out, we escaped serious recession. The official rate of unemployment rose from 4 per cent to just 5.8 per cent before falling back.

We were all off the hook. Well, only the oldies. The truth is there was a sharp downturn and employers did react by going into natural-attrition mode, with some even moving briefly to four-day weeks.

Great. What few people noticed was that much of the burden of adjustment was shucked off on to that year's crop of education leavers. How much concern for their welfare? Not a lot.

We do hear a lot about the trouble some older people find in regaining employment should they lose their jobs. It's a genuine problem and one we should care about.

But the unemployment problems of the old seem to attract a lot more public attention – and sympathy – than the similar problems of the young.

Research by the Brotherhood of St Laurence using HILDA – the household income and labour dynamics in Australia survey – finds those aged 55 and over account for just 8 per cent of the unemployed, whereas those aged under 25 make up more than 40 per cent.

So unemployment is concentrated among the young. And, historically, the sad truth is it's concentrated among the less educated and less skilled.

In the modern technologically driven workforce, there are many fewer jobs for people who quit school early and for those who don't acquire post-school trade or tertiary qualifications. What unskilled jobs remain tend to be casual and occupied by university students or mothers.

In 2008, according to the Brotherhood's figures, 45 per cent of the unemployed had failed to complete year 12, with another 20 per cent having gone no further than year 12. That's almost two-thirds.

People with trade qualifications made up just 16 per cent of total unemployment, with those with university qualifications accounting for an unusually high 19 per cent.

In more recent years, unemployment has been rising slowly while, within that, the rate of unemployment among 15 to 24-year-olds has risen more rapidly. Among those teenagers who are either in jobs or actively seeking them, the rate of unemployment earlier this year was 20 per cent.

But now get this: by 2012, according to the HILDA survey, the proportion of the unemployed with uni qualifications had jumped to 25 per cent.

To me, that's easily explained: years of weak growth in the economy are leading many employers to engage in natural attrition, which is limiting job losses among established workers, but making it much harder for university leavers to find work.

Governments can't be blamed for the employment practices of businesses, but they can be held accountable for their punitive treatment of the young unemployed – even if they are reflecting the adult world's lack of sympathy for youthful job seekers. Oldies seem convinced that the young's only problem is that they don't want to work and so need to be starved back to the grindstone.

The dole has been allowed to fall way below the age pension so that it's now less than $260 a week for a single adult. The "youth allowance" is even lower. Now the ever-so-caring Abbott government wants to raise the age of adulthood from 21 to 25 and extend the non-adult waiting period from one week to four weeks.

And that's before we get on to the way successive governments' high immigration policy is allowing employers to neglect the training of young workers.

Why young voters cop this cruddy deal so meekly I don't know.

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Economic chaos of Whitlam years not all his fault

Gough Whitlam was a giant among men who changed Australia forever - and did it in just three years. No argument. The question is whether the benefits of his many reforms exceeded their considerable economic costs.

The answers we've had this week have veered from one extreme to the other. To Whitlam's legion of adoring fans - many of whom, like many members of his ministry, have never managed to generate much understanding or interest in economics - any economic issues at the time aren't worth remembering.

To his bitter, unforgiving critics - led by former Treasury secretary John Stone - his changes were of dubious benefit, in no way making up for the economic chaos he brought down upon us.

The truth is somewhere in the middle.

To his many social reforms must be added a few of lasting economic benefit: diplomatic and trading relations with China, the Trade Practices Act with its first serious attack on anti-competitive business practices and - the one so many forget - the Industries Assistance Commission, whose efforts over many years led eventually to the end of protection against imports, removed by the next Labor government.

Not all of his many social reforms have survived. The Hawke-Keating government removed remaining vestiges of his non-means-tested age pension and ended the failed experiment with free university education, which did little to raise the proportion of poor kids going to university, but cost a fortune and delivered a windfall to the middle class at the expense of many workers.

The best modern assessment of the Big Man's economic performance comes in the chapter by John O'Mahony, of Deloitte Access Economics, in The Whitlam Legacy, edited by Troy Bramston.

O'Mahony's review of the economic statistics tells part of the story: "The years of the Whitlam government saw the economic growth rate halve, unemployment double and inflation triple".

But that conceals a wild ride. By mid-1975, inflation hit 17.6 per cent and wage rises hit 32.9 per cent. The economy boomed in 1973 and the first half of '74, but then suffered a severe recession.

From an economic perspective, Whitlam did two main things. He hugely increased government spending - and, hence, the size of government - by an amazing 6 percentage points of gross domestic product in just three years.

Some have assumed this led to huge budget deficits. It didn't. Most of the increased spending was covered by massive bracket creep as prices and wages exploded.

Many of Whitlam's new spending programs should have come under his predecessors and would have happened eventually. Some can be defended as adding to the economy's human capital and productive infrastructure, others were no more than a recognition that our private affluence needn't be accompanied by public squalor.

From this distance it's hard to believe that in 1972 large parts of our capital cities were unsewered. That's the kind of backwardness Whitlam inherited.

The Whitlam government's second key economic action was to pile on top of high inflation huge additional costs to employers through equal pay, a fourth week of annual leave, a 17.5 per cent annual leave loading and much else.

Clyde Cameron, Whitlam's minister for labour, simply refused to accept that the cost of labour could possibly influence employers' decisions about how much labour they used.

From today's perspective, there's nothing radical about equal pay or four weeks' leave. But to do it all so quickly and in such an inflationary environment was disastrous.

When the inevitable happened and Treasury and the Reserve Bank jammed on the brakes and precipitated a recession, Labor's rabble of a 27-person cabinet concluded the econocrats had stabbed them in the back, panicked and began reflating like mad.

What Labor's True Believers don't want to accept is that the inexperience, impatience and indiscipline with which the Whitlam government changed Australia forever, and for the better, cost a lot of ordinary workers their jobs. Many would have spent months, even a year or more without employment.

But what the Whitlam haters forget is that Labor had the misfortune to inherit government just as all the developed economies were about to cross a fault-line dividing the postwar Golden Age of automatic growth and full employment from today's world of always high unemployment and obsession with economic stabilisation.

Thirty years of simple Keynesian policies and unceasing intervention in markets were about to bring to the developed world the previously impossible problem of "stagflation" - simultaneous high inflation and high unemployment - that no economist knew how to fix, not even the omniscient and infallible John Stone.

It was 30 years in the making, but it was precipitated by the Americans' use of inflation to pay for the Vietnam war, the consequent breakdown of the postwar Bretton Woods system of fixed exchange rates, the worldwide rural commodities boom and the first OPEC oil shock, which worsened both inflation and unemployment.

The developed world was plunged into dysfunction. The economics profession took years to figure out what had gone wrong and what policies would restore stability. Money supply targeting was tried and abandoned.

The innocents in the Whitlam government had no idea what had hit them; that all the rules of the economic game had changed. The point is that any government would have emerged from the 1970s with a bad economic record.

Malcolm Fraser had no idea the rules had changed, either. His economic record over the following seven years was equally unimpressive.

It took the rest of the developed world about a decade to get back to low inflation and lower unemployment. It took us about two decades. I blame the Whitlam government's inexperience, impatience and indiscipline for a fair bit of that extra decade.

My strongest feeling is that when the electorate leaves one side of politics in the wilderness for 23 years it's asking for trouble. It's Time to give the others a turn after no more than a decade.

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Teenagers suffering most from slow growth

I hate to say it, but the spectacular events that hit the headlines aren't necessarily the things most worth worrying about. The big news on the economy this week was the spectacular jump in the unemployment rate from 6 per cent to 6.4 per just during July. Not a big worry.

Question is, what does it prove? That the economy fell into a hole around the middle of the year? Doubt it. There's little other evidence that it did and a lot that it didn't.

That the slow upward creep in unemployment we've been seeing for about two years may have accelerated? Doubt that, too. Again, the other economic indicators aren't pointing that way.

(Indeed, some economists have been wondering if unemployment was close to peaking. So far this year employment has grown by an average of 15,600 jobs a month, compared with just 5100 a month last year.)

That the unemployment figures are volatile from month to month and this is an unexplained statistical blip that should be corrected next month? Seems a bit too big for that.

Truth is it's hard to know what the problem is. Easier to be sure when we've seen another month or two's figures.

But my guess is it's a once-only upward step in the measured rate of unemployment, caused by a seemingly small change in the questions that people in the Bureau of Statistics' monthly survey are asked so as to ascertain whether they've been "actively" seeking a job if they don't have one.

The change - made partly because of the switch to searching for jobs on the internet rather than at Centrelink - seems to have led to more people being classed as unemployed and fewer as "not in the labour force".

If this guess proves right, it's not so worrying. It doesn't change reality, just the way we measure it. In any case, we've long known that the official measure of unemployment is very narrow and understates the extent of the problem.

That's why the bureau publishes every quarter a broader measure of unemployment, which takes the official unemployment rate and adds the under-employed - people with jobs who aren't working as many hours a week as they'd like to - to give the "labour force underutilisation rate".

The figures for May show narrowly measured unemployment of 6 per cent, and an underemployment rate of 7.5 per cent, to give a broader measure of 13.5 per cent.

Less spectacular than this month's jump in the official rate but, to me, more worthy of worry is news that hasn't hit the headlines: the rapid worsening in teenage unemployment.

Whereas so far this year the trend rate of overall unemployment has risen by 0.2 percentage points, the trend rate for people aged 15 to 19 has risen by 2.8 percentage points to 19.3 per cent.

Note, this doesn't mean almost one youth in five is unemployed. Most people that age are in full-time education, so aren't in the calculation. Turns out about one in 20 of all 15 to 19 year-olds is unemployed and looking for a full-time job.

Many people have it in their heads that unemployment rises because people lose their jobs and employment falls. That's true only in recessions. It's rare for employment to fall - it fell only briefly even during the global financial crisis.

No, the main reason unemployment rises outside of recessions is that the economy isn't growing fast enough to employ all the extra people joining the labour force from education, as immigrants or as mothers rejoining.

That's what's been happening over the past two years. And young people - particularly those who leave school or training too early - have borne most of the burden of insufficient job creation. We should be doing much better by them than Work for the Dole and denying them benefits for six months to keep them hungry.

But there's nothing spectacular about this quiet suffering, so it doesn't hit the headlines. Much better to scandalise over factory closures, which surely signal the end of the world. So let's look at the facts on retrenchment, courtesy of a Bureau of Statistics study.

About 2 million people left their jobs over the year to February 2013 (the latest period for which figures are available). About 60 per cent of these left voluntarily and 21 per cent left because of their illness or injury, leaving 19 per cent - 380,000 - who left because they were retrenched.

That's a rate of retrenchment of 3.1 per cent. The rate hit 4 per cent in 2000, but then fell to a low of 2 per cent in 2008, just before the global financial crisis, then increased sharply to 3.1 per cent in 2010, where it has pretty much stayed since.

Over the year to 2013, all industries experienced retrenchments, but the most were in construction, 65,000; retailing, 40,000; and manufacturing, just under 40,000.

But the number of people employed in particular industries differs a lot so, judged by rate of retrenchment, utilities and construction come equal first with 6.4 per cent, then mining with 6 per cent, pushing manufacturing into fourth place with 4.5 per cent.

The rate of retrenchment is consistently higher for men because men tend to dominate those industries where retrenchment rates are higher, whereas retrenchment rates tend to be lower in industries dominated by women workers, such as education and health.

The likelihood of being retrenched falls as your level of educational attainment rises. We're more conscious of older workers being laid off but, in fact, retrenchment is greatest among workers aged 25 to 44.

And what happens to people who're laid off? For those retrenched over the year to February 2013, half were back in jobs by the end of the year, leaving 29 per cent unemployed and 21 per cent not in the labour force.

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