[Highly educated and ambitious, yet unemployed: a whole generation of young is entering the labour market with little prospect of success. The implications go way beyond individual tragedies as economies with lasting high levels of youth unemployment risk social instability.]
In both the United States and Australia, there is a growing feeling that tertiary education is no longer worth investing in. The reason for skepticism on the part of parents and students is partly a matter of supply and demand; there are now far too many graduates as compared to the number of available jobs – and unemployed youth are lining up at Centrelink.
In 2013 the Australian Bureau of Statistics (ABS) found that 25% of Australians aged 15 to 64 years had a bachelor’s degree or higher qualification. Yet only 68% of employed people aged 20 to 64 years were working in a field of relevance to their highest qualification, indicating the existence of a mismatch between tertiary qualifications and successful employment prospects in the field of one’s choice.
The problem is not restricted to generalist degrees such as the Bachelor of Arts. Even graduates of professional degrees like law have in recent years struggled to obtain work in their field, with one recruiter suggesting that ‘it is the worst time in living history to be a law graduate’. According to media reports, 64% of recent Australian law graduates were not practicing law between 2010 and 2011.
Although according to the ABS only 3% of graduates overall were unemployed, this doesn’t mean graduates are working in a field of their choice. The situation in the US is particularly bleak, with a report from the Center for College Affordability and Productivity claiming that half of America’s recent college graduates work in jobs that do not require a college degree. As an illustration of their findings, the authors report that 15% of taxi drivers had at least a bachelor’s degree in 2010, a dramatic increase since 1970 when the figure was 1%.
The youth unemployment rate (that is, for those aged 15 to 24) in Australia for October 2013 was approximately 13%. In the US, the corresponding rate is nearly 20%. Nevertheless, politicians appear to have no hesitation in pushing more public funding for colleges and universities, and in encouraging education for its own sake without contemplating whether there will be a job at the end of the line. The previous Australian government under Prime Minister Julia Gillard, for instance, set an ambitious goal of having 40% of young Australians holding a bachelor’s degree by 2025. And US President Barack Obama wants the highest proportion of college graduates in the world by 2020.
Young people, regardless of whether they are college educated, often have a common disadvantage when entering the job market: a lack of experience and skills as compared to those who are older. In economic terms, this makes younger workers worth less on the marketplace – they cannot demand high salaries when starting out because they have less bargaining power. And sometimes, their lack of experience and skills combined with average or mediocre grades is such that they will struggle to find any employer willing to hire them, for months and even years despite being willing to learn and improve.
In addition to this proximate cause, there are underlying structural and government-imposed barriers that prevent young people from transitioning from study into employment. One important contributing factor is the rate of taxation in a society; the higher the rate of taxation, the higher the financial burden on businesses and the less likely they are to expand and create jobs. In Australia and the US, the rate of corporate taxation is significant enough to act as a disincentive for those companies faced with the prospect of paying it. The rate in Australia is a flat 30% while the highest nominal rate in the US is 35%.
Excessive regulation can have a similar effect as taxation because it forces businesses to bear additional costs in order to comply with government policy; they may need to hire a lawyer or accountant just to navigate their obligations, for example. Regulations that dictate the circumstances in which employers can fire their employees are an added disincentive to hiring, because employers are reluctant to take on board employees when the law makes it difficult to fire them at a later stage without being exposed to costly claims for unfair dismissal by the employee.
Perhaps the most well-known policy having the effect of discouraging employment growth, however, is the minimum wage. In Australia the national full-time minimum wage is $16.37 per hour, while in the US the rate is $7.25 per hour. This minimum wage, if strictly enforced, has the effect of discouraging employers from giving unskilled employees a chance at gainful employment. This is because, as economist Thomas Sowell points out, ‘when minimum wage levels are set without regard to their initial productivity, young people are disproportionately unemployed -- priced out of jobs’. Sowell continues: ‘Countries with minimum wage laws almost invariably have higher rates of unemployment than countries without minimum wage laws’. Some job is better than no job, yet the minimum wage prevents employees from getting valuable experience that could later be used to obtain a better paying position.
Finally, the education system itself can be faulted for ill-preparing young people for the real world of work. Government agencies often set a standardized curriculum that is then implemented and taught at schools. Yet this educational program could be criticized for not sufficiently preparing students for the ‘real world’ due to the lack of corporate and industry input into the curriculum. The concern is that students are not being taught the things that will really equip them to provide services that employers want, such as how to market themselves or how to run a business.
The consequences of youth unemployment are manifold. People who are unemployed do not have the positive benefits that may be associated with employment such as social interaction and a feeling of self-worth. Secondly, if it is difficult to find a job in the formal marketplace, many young people may instead turn to the blackmarket for jobs – including working for drug cartels or engaging in other illegal activities for income. This has widespread social effects that can be expected to lead to the degradation of morals and instability. The problem is particularly visible in developing countries such as Afghanistan (where the unemployment rate is 35%) and Sudan where the large number of child-soldiers suggests that at least some young people are turning to terrorist groups for sustenance. However developed nations experience the effects of youth unemployment in a milder form through street gangs and property damage (graffiti).
It would seem that part of the solution to youth unemployment is to adopt a realistic approach to college education by honestly assessing whether it is appropriate for everyone. Instead of encouraging everyone to go into debt for the sake of paying for a degree that may not result in obtaining employment in a field of their choice, it would be better for many to avoid higher education altogether and instead try for a trade such as plumbing or carpentry. For those who do decide to go into higher education, there should be a strong emphasis on gaining practical work experience while studying – whether through internships or some other means – so that students are better prepared for life after graduation.
Ultimately however, it is government policy that must be changed. Governments cannot continue to keep funding universities. Producing an endless amount of graduates will only result in an oversupply and therefore unemployment; it would be better to take a hands-off approach and let the private sector decide how many students to train in a particular discipline, rather than having such decisions made for political reasons without reference to market demand.
Governments should also significantly reduce or eliminate taxes on business, because these directly discourage companies from expanding and hiring more workers. As for the labour market itself, there should be complete deregulation.
Youth unemployment is a scourge on any society, not just for its economic effects but also for the psychological impact it has on the young and their families. It is imperative that a new approach be formulated that takes into account the barriers placed in the way of young people by government institutions and policies. Each individual case of unemployment has a distinct personal cause that can often be helped by career counselling or training, but when dealing with aggregates the only way to convincingly help large numbers of young people aged between 15 and 24 is to change the system in which they operate. It is time to make the ‘rules of the game’ more fair for those just starting out and looking for a foothold in the labour market.
[Originally published in Indian Link newspaper, 22 April 2014]