Young people will struggle with the side effects of the COVID-19 recession on the jobs market for years despite the nation’s rapid fall in unemployment, according to research that warns a rise in interest rates could exacerbate the problem.
The research, compiled by the e61 Institute in partnership with the Paul Ramsay Foundation, found concerns held early in the pandemic about the scarring effect of a recession were still valid due to the way young people were struggling to get “matched” to the right job.
Despite a strong rebound in the jobs market, research warns young people will suffer long-term effects from the COVID-19 recession.CREDIT:JANIE BARRETT
The national jobless ratefell to a 48-year low of 3.5 per centin June. The youth unemployment rate is now at 7.9 per cent, 3.7 percentage points lower than its pre-COVID level.
During the depths of the pandemic, Treasury, the Reserve Bank and labour market economists were fearful that high unemployment would have a long-lasting impact on young people seeking to get work.
The e61 research found young workers were less likely to transition to employment during COVID-19, partly due to the closure of sectors such as hospitality, the arts and recreational services.
Despite the recovery in the jobs market over recent months, the number of young people out of work for more than two years has not changed. COVID-19 also caused an increase in the number of students not completing study courses, with people from disadvantaged backgrounds the most likely to drop out.
More than one in 10 men aged between 20 and 24 were not working or studying during the pandemic, with a higher proportion of these from disadvantaged backgrounds.
E61 research director Gianni La Cava said while some parts of the jobs market were particularly strong, young people were still at risk of becoming stuck on the “early rungs” of the job ladder.
He said young people needed to be able to switch jobs in their formative years, matching their skills with the right position. But this had been hamstrung by the COVID-19 crisis, which was still a long way from being over.
“History teaches us that even mild economic downturns in Australia, such as the global financial crisis, can affect the lives of Australians for many years after,” he said.
“And, with interest rates rising, governments tightening budgets and net overseas migration expected to normalise, this could be as good as it gets for many Australian workers.”
Paul Ramsay Foundation acting CEO Kristy Muir said the study showed policymakers had to look beyond the headline unemployment figure and focus on the particular issues facing young people.
“While there’s a lot of media focus on the current demand for labour, recessions make it harder for young people to find the right match for their first job and can delay their transition into the workforce,” she said.
While unemployment has tumbled, some economists expect it to lift as the RBA increases interest rates to dampen inflationary pressures.
Capital Economics’ senior economist, Marcel Thieliant, said there was a real risk the RBA would lift interest rates by 0.75 percentage points when it next met on August 2. That would take the cash rate to 2.1 per cent, its highest level since 2015.
He said the falling jobless rate might force the bank’s hand. “The unemployment rate has now plunged to 3.5 per cent, a level that the bank only expected to be reached by the middle of next year. It will probably fall further over coming months.
“The second-quarter inflation data, due on 27th July, should show another very strong increase in consumer prices. Either way, we’re increasingly confident in our above-consensus forecast that interest rates will peak at 3.6 per cent.”
https://www.smh.com.au/politics/federal/young-people-will-struggle-from-covid-job-impact-study-20220721-p5b3hq.html
