Why Young People in Australia Are Facing a Generational Crisis

Pre-COVID, Art of Smart asked a group of students in Year 10, 11 and 12, what their biggest fears were for their future. 

Their answers surprised me. 

While I was expecting answers like, not getting a high enough ATAR, or missing out on getting into a specific degree at university, instead, students shared that some of their biggest concerns were:

• Being unable to find a job after going to university
• Not being able to afford to buy their own home
• Finding a way to stay mentally healthy and resilient

Since COVID, things have deteriorated for young people even more and Australia is facing a generational crisis for young people over the next decade and beyond.

In this 3-part series, I’ll unpack why, and what Australian can do about it.

• Part 1: Why Young People Are Facing a Generational Crisis
• Part 2: Why The Answer to You Unemployment Isn’t University
• Part 3: How to Rapidly Scale Up Youth Entrepreneurship in Australia

Part 1: Why Young People Are Facing a Generational Crisis

So, why are young people facing a crisis, and what about it makes this a generational crisis, with a long-lasting legacy?

In Part 1, I’ll unpack the following:

• Why More young people will graduate high school than ever before in Australia
• Falling university graduate employment outcomes in Australia
• Upwards tending youth unemployment and underutilisation since the GFC
• How the COVID Recession has disproportionately impacted young Australian
• How the COVID Recession will impact youth unemployment outcomes
• The compounding impact on young people’s ability to generate wealth
• The potential flow-on impacts on rising mental health concerns in young people

Let’s dive in 👇

More young people will graduate high school than ever before in Australia over the next decade

Data from the Australian Bureau of Statistics (H/T to Andrew Norton) shows that there will be an increase in the 17-year-old population by approximately 16%, or an additional 50,000 people each year over the next decade.

Why is this happening? 

In 2002 Howard Government implemented the Baby Bonus, which has created a demographic bump 18 years later.

University graduate employment outcomes have been falling in Australia

At the same time as our high school graduate population is increasing, pre-COVID, 27% of university graduates were unable to find a full-time job upon graduation. [Source]

Additionally, on average it takes 4.7 years for a graduate who has left full-time education in Australia to find full-time work. [Source]

The current calculation of the 73% employment rate for university graduates can also be a little misleading. If you graduated with a degree in Science, but then find full-time work in retail, this appears to count as employed for this data.

After all, we all know that barista with an undergraduate degree…

As more students enter university (due to growing numbers demographically) and fewer students postponing tertiary education due to COVID’s impacts on both travel and the job market, it’s likely that graduate employment outcomes will continue to fall.

Why has this been falling?

This is a complex problem, but summarised is a mixture of:

1. Changing world of work and the skills required by employers
2. Technology development and globalisation causing entry-level roles to be offshored, or automated.
3. Increasing competition for roles, with growing student demographics, and increasing tertiary education completion rates.

This has created an underlying structural issue with a mismatch of skills of graduating students and demand from employers, which the GFC, as a cyclical economic issue exacerbated.

Youth unemployment and underutilisation has been trending upwards over the last decade since GFC

Youth unemployment figures jumped significantly during 2009 when the GFC hit, and remained elevated until 2015, with a gradual decline to around 12%. Note, however, that the decline to 12% only represented a return to the levels of youth unemployment that occurred DURING the GFC!

Overall, during this period youth unemployment was between 2.4-3x higher than overall unemployment in Australia.

While you might be thinking that youth unemployment around 12-16% doesn’t sound so bad, if we consider however youth underutilisation (which is unemployment & underemployment) a more bleak picture emerges.

Pre-COVID, close to 1 in 3 young people were unemployed or underemployed according to the Foundation of Young Australians.

With more students graduating from high school each year over the coming decade, EVEN without a recession and impacts on the labour market, things weren’t looking good.

COVID Recession has disproportionately impacted young Australians.

Lockdowns and restrictions on customer numbers have impacted particularly heavily on industries like retail, hospitality, and entertainment, all large employers of young people.

The April Labour Force seasonally adjusted data shows that in one month alone, an estimated 213,000 young people aged 15-24 lost their jobs. This represented 35% of the almost 600,000 Australians that lost work in April alone.

The outcome of this has been an official youth unemployment rate that has risen to over 16% in 2020, settling at 13.9% by Jan 2021.

What this doesn’t reveal however is the fact that many young people have also simply given up searching for work and are therefore not included in the official unemployment data. This is because to be considered unemployed you have to be ‘actively seeking work’.

This means that the effective youth unemployment rate now is therefore likely A LOT higher than the 14-16% rate.

Furthermore, recessions themselves impact young people often the worst.

COVID Recession will negatively impact youth employment outcomes for the next decade

Data from the Productivity Commission report on the impact of the GFC on the labour market showed that while the job market recovered fairly quickly for 30+ years olds, this wasn’t the case for the 18-29-year-old segment.

Whenever there is spare capacity in a labour market (i.e. higher levels of unemployment), you can hire more experienced and skilled people at a lower cost. This is because more people are applying for the same job (including those with more experience), and therefore this places downward pressure on wages.

This means that it’s more difficult for recent university or high school graduates to find work, as they have fewer skills and experience when competing for limited job opportunities.

This is certainly happening in 2020 in Australia, with as a result of COVID, 106 applicants for EVERY entry-level job. [Source]

The impact of this is that with fewer employment opportunities, young people post-GFC found jobs that were below what they would have expected to obtain pre-GFC with their level of education and skills.

This is based on the idea of an Occupational Score. Certain degrees and qualifications have a particular occupational score based on earning potential and skill level required. Graduates in an effort to find work were having to take on work in roles with a lower occupational score.

This created something called Labour Market Scarring.

Because less were in work, and those in work were in roles with a lower Occupational Score, overall young people earned less money (which as I’ll discuss below has compounded impacts on wealth creation over the long term).

Furthermore, it also made it more difficult for them to catch up later on.

If you accepted a job with a lower Occupational Score than what would have been expected based on your degree qualification, when you applied for new roles as part of your career progression, companies were more reluctant in considering you for a role, because of the assumption that you weren’t up to standard (due to your prior work history in a lower Occupational Score role).

In other words, there is a negative signalling effect that means that if as a young person you start in a lower Occupational Score job than expected, it’s considerably difficult to recover later on as the job market improves. You get locked into your career trajectory and have less upward mobility.

The incredibly concerning thing is that the impact of the GFC was considerably more muted than COVID. We didn’t enter a technical recession and had a quick bounce back due to strong Chinese demand for commodities.

COVID has had a significantly greater impact on the economy, and it’s therefore likely that the Labour Market scarring for young people will be even more significant than what occurred after the GFC. Labour Market Scarring lasted 10 years post-GFC. With COVID it could last even longer.

This will also have a significant compounding impact on young people’s ability to create wealth through superannuation, buying a home and investments.

With only 50% of 25-year-olds in full-time jobs according to Foundation of Young Australians, the ability of young people to accumulate sufficient savings for purchasing a house, or investing in super is significantly impacted.

Our own home is the largest source of household wealth in Australia according to ACOSS and with median house prices over the 25 year period from 1993 to 2018 increasing by 412% or $460,000 for houses, and $392,000 for units (Source), it’s become more challenging for young people to get into the property market, and this is exacerbated by worsening employment outcomes.

Data also shows for example, that if you put an extra $200 away per month in super from the age of 25, assuming a 6% return, by the time you reach 65, these extra contributions will have grown this creates an increase in the value of your super by the time you retire of $398,398.

In other words, if you’re not in a full-time job at 25 (which is 50% of young people), there is the potential for significant financial disadvantage for you over the long term in terms of wealth creation.

A potential flow-on impact of all of this is rising mental health concerns (which have already been rising post-GFC).

There have also been rising youth mental health concerns post GFC, with the 2019 Mission Australia and the Back Dog Institute report on youth mental health finding a 5.5% rise over a 7 year period in psychological distress among young Australians. Source

This means that pre-COVID almost one in four young people were experiencing mental health challenges, and COVID has just, unfortunately, exacerbated this.

While many factors contribute to this, it’s not unreasonable to identify that a person’s inability to find purposeful, fulfilling work impacts their mental health.

In fact, a meta-study of 485 studies and 267 995 people conducted by researchers at the University of Manchester revealed that there is a very strong correlation between job satisfaction and mental and psychological problems, with the strongest correlation between job satisfaction and burnout, depression and anxiety. Source

Overall, the outcome of all of this is…

• There is more supply of young people in the labour market in Australia than ever before
• Australia will have more young people graduating with tertiary qualifications
• At the same time there will be less demand for young people by employers due to a COVID recession, the fact that COVID has accelerated digital transformation & automation reducing hiring needs and the fact employers can hire more experienced people due to the spare capacity in the market
• This is eroding university graduate employability outcomes and increasing youth unemployment and underemployment
• The COVID recession will create labour market scarring for at least the next decade meaning that young people will earn less, and have less upward career mobility.
• Less earning potential will constrain wealth creation for young people impacting their living standards longer term
• Less career fulfilment for young people will contribute to increasing mental health challenges.

So, what is the government doing about this impending generational crisis?