Impediments to the employment of young people: Review of research

Youth employment remains an issue that should be high on public policy agendas, not just because official rates of youth unemployment are still unacceptably high. Other important reasons include the potential for 'scarring' effects, the high levels of 'hidden unemployment' not revealed in official unemployment data, and the possibility that youth employment is becoming increasingly concentrated in low quality, low skill, insecure jobs.

Four major impediments to higher youth employment are identified in this review. These are:

• the inability to maintain rates of economic growth sufficient to reduce unemployment without inducing inflationary pressures
• changes in the composition of demand for labour favouring more highly skilled workers
• systems for delivery of vocational education and training (VET) which remain poorly adapted to users' needs
• wage structures that prevent the market for youth labour from clearing

It is recognised that like adult employment, youth employment is sensitive to the overall level of economic activity. Scope to significantly raise growth levels, however, is limited by the likelihood of increased inflationary pressures.

Shifts in the composition of demand for labour have almost certainly worked against youth employment. While the changing industrial mix of employment does not appear to be of large importance, there is mounting evidence that labour demand is shifting in favour of more skilled workers. This will have worked to reduce both the number of relatively unskilled entry points into the labour market and the degree of substitutability between experienced (adult) and inexperienced (youth) workers. Both of these phenomena mean reduced employment opportunities for young people.

Changes in the skill composition of demand for labour suggest the need for increased levels of education and training. However, while participation in education has expanded, the principal driving factor appears to be lack of employment opportunities rather than the prospect of increased rewards for education. Moreover, the expansion in education has been concentrated in basic education; there has been very little change to levels of participation in vocational education.

The lack of growth in participation in vocational education among young people would appear to reflect, at least in part, evidence of low returns to vocational qualifications, both in terms of earnings and future employability. It is argued that this reflects the pre-occupation of training providers with traditional trades-based skills.

The lack of growth in participation in vocational education is worrisome, because research suggests that what employers value most?with the exception of basic numeracy and literacy?are skills and abilities that typically cannot be acquired at school. It is thus perhaps not surprising that there appears to be increasing agreement that vocational education needs to begin at secondary school, a realisation which is reflected in growth in the incidence of work placement programs within schools. Expansion of such schemes, however, is limited by:

• perceptions that vocational education is for low-achievers
• the cost such schemes impose on employers

The demand for youth labour will be affected by employer preferences for such labour, and it is often argued that increased competition from adults combined with the changing nature of work have reduced the relative attractiveness of youth. There is, however, no quality data either to support or reject such claims.

A substantial body of literature exists, both in Australia and overseas, demonstrating that unemployment benefits impact significantly on unemployment rates. The magnitude of these effects, however, are quite small. A more significant disincentive to work may be provided by the indefinite nature of benefit eligibility.

The level of youth employment can also be expected to be influenced by the attitudes and expectations of young individuals. Any change in such attitudes over time can, therefore, be expected to impact on youth employment. Unfortunately, no study appears to have been undertaken into this issue, at least not one employing a large sample of young people and covering an extended time frame.

While not uncontentious, it is argued that the structure of youth wages and labour costs continue to represent a barrier to achieving higher levels of youth employment. The major factor driving changes in the cost of youth labour, however, are not changes in award rates, but changes in the structure of the youth labour market. In particular, higher rates of participation in education have actually reduced the average quality of inexperienced labour, but without any compensating reduction in wages.

One response to the decline in full-time employment opportunities in the youth labour market has been a marked rise in part-time and casual employment. While this has helped cushion the impact of declining numbers of full-time jobs, it is often argued that such employment may actually be detrimental to long-run employment prospects. Again, this is an issue where convincing evidence does not exist. However, it would appear that, if anything, part-time employment, at least while at school, assists future career development. Part-time (especially part-time casual) employment may well bring fewer benefits to early school leavers and, indeed, possibly promote further the marginalisation of these people in the labour force.

Perhaps the main conclusion to be drawn from this review is that despite widespread consensus that there are insufficient employment opportunities for young people, we still do not know enough about the factors that impede employment. Some of the most important questions that are in need of more investigation include:

• What factors have been responsible for the shift in the composition of labour demand toward an emphasis on skills and experience?
• Is it improvements in basic education or in the school-to-work transition that are most important in enhancing the employment prospects of young people?
• Have employer preferences for youth labour altered over time in a way that has been detrimental to youth employment?
• How significant a disincentive to job search is the indefinite nature of eligibility for unemployment benefits?
• Have the attitudes and expectations of young people changed over time in a way that has been detrimental to youth employment?
• To what extent do attitudes of the unemployed reflect responses to the unemployment experience as distinct from other exogenous factors (such as rising expectations)?
• Do non-wage costs represent a significant barrier to greater levels of youth employment?
• Does part-time and/or casual employment for young people hinder or assist future labour market achievement?