The impact of the Global Financial Crisis on youth unemployment

Abstract

Australia was one of the few OECD countries to emerge from the Global Financial Crisis (GFC) without facing a recession, usually defined as negative GDP growth for two consecutive quarters. However, the (overall) unemployment rate did increase following the GFC and has still not returned to pre–GFC levels. Unemployment rates for young people went up much more dramatically and remain high. This article investigates the impact of the GFC on youth unemployment and long-term unemployment. To anticipate our results, we find that the youth unemployment rates increased significantly owing to a fall in aggregate demand, although youth wages had been falling relative to adult wages. These findings do not support the commonly heard claim that youth wages are pricing young people out of the market.

Keywords

Youth unemployment Global Financial Crisis minimum wages replacement rates youth labour markets

Get full access to this article

View all access options for this article.

References

Australian Bureau of Statistics (ABS) (2013a) Employee earnings, benefits and trade union membership – mean weekly earnings. Cat. no. 63100TS0002. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6310.0August%202013 (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2013b) Labour force Australia. December. Cat. no. 6202.0. Canberra, ACT, Australia; Commonwealth of Australia. Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Dec%202013?OpenDocument (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2014a) Australian labour market statistics. July. Cat. no. 6105.0. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/ausstats/abs@.nsf/mf/6105.0 (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2014b) Australian National Accounts: National income, expenditure and product. June. Cat. no. 5206.0. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5206.0Jun%202014 (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2014c) Labour force Australia. November, Table 02. Labour force status by sex – seasonally adjusted. Cat. no. 6202.0. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Nov%202014?OpenDocument (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2014d) Labour force Australia. November. Cat. no. 6202.0. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Nov%202014?OpenDocument (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2014e) Labour force Australia, detailed – electronic delivery. Cat. No. 6291.0.55.001. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.001Nov%202014?OpenDocument (accessed 10 March 2015).

Australian Bureau of Statistics (ABS) (2014f) Labour force Australia, detailed, quarterly. November. Cat. No. 6291.0.55.003. Canberra, ACT, Australia: Commonwealth of Australia. Available at: http://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003 (accessed 10 March 2015).

Australian Government (n.d.) Fact sheet. Learning or earning: new education and training requirements for 15–24 year olds. Available at: http://deta.qld.gov.au/resources/pdf/compact-fs-young.pdf (accessed 16 Febaruary2015).

10.

Booth

(2014) Wage Determination and imperfect competition. IZA discussion paper no. 8034, March 2014. Bonn: IZA.

11.

Borland

Tseng

Y-P

(2011) Does ‘work for the dole’ work? An Australian perspective on work experience programmes. Applied Economics 43(28): 4353–4368.

12.

Bray

(2013) Reflections on the evolution of the minimum wage in Australia: options for the future. Paper, HC Coombs Policy Forum, May. Canberra, ACT, Australia: Crawford School of Public Policy, Australian National University.

13.

Card

Krueger

(1994) Minimum wages and unemployment: a case study of the fast-food industry in New Jersey and Pennsylvania. American Economic Review 84(4): 772–793.

14.

Card

Krueger

(1995) Myth and Measurement: The New Economics of the Minimum Wage. Princeton, NJ: Princeton University Press.

15.

Clark

Joubert

Maurel

(2014) The career prospects of overeducated Americans. NBER working paper w20167, May. Cambridge, MA: National Bureau of Economic Research. Available at: http://www.nber.org/papers/w20167 (accessed 10 February 2015).

16.

Commonwealth of Australia (2015) House of Representatives, Standing Committee on Economics. Reserve Bank of Australia annual report 2014. Hurstville, NSW, Australia.

17.

Cuervo

Crofts

Wyn

(2013) Generational insights into new labour market landscapes for youth. Research report 42. Melbourne, VIC, Australia: Youth Research Centre, Melbourne Graduate School of Education, University of Melbourne.

18.

Daly

Nguyen-Hong

Eldridge

. (1998) Youth Wages and Employment (Productivity Commission Staff Research Paper). Canberra, ACT, Australia: AusInfo.

19.

Doiron

Gorgens

(2008) State dependence in youth labor market experiences, and the evaluation of policy interventions. Journal of Econometrics 145(1): 81–97.

20.

Dube

(2011) Book Review: David Neumark and William L. Wascher, Minimum Wages, Cambridge, MA and London, MIT Press, 2008. Journal of Economic Literature 49(3): 762–766.

21.

Dube

Lester

Reich

(2010) Minimum wage effects across state boundaries: estimates using contiguous counties. Review of Economics and Statistics 92(4): 945–964.

22.

Economic Policy Institute (2014) Over 600 economists sign letter in support of $10.10 minimum wage. Available at: http://www.epi.org/minimum-wage-statement/ (accessed 5 March 2015).

23.

Eurofound (2014) Social Situation of Young People in Europe. Luxembourg: Publications Office of the European Union.

24.

Federal Reserve Board (FRB) (2014) In the Shadow of the Great Recession: Experiences and Perspectives of Young Workers. Washington, DC: Board of Governors of the Federal Reserve System. Available at: http://www.federalreserve.gov/econresdata/2013-experiences-and-perspectives-of-young-workers-201411.pdf

25.

Flatau

Dockery

Stromback

(2008) The economic and social circumstances of Australian young people aged 15–20 years. Australian Fair Pay Commission, Research report no. 1/108. Canberra, ACT, Australia: Commonwealth of Australia.

26.

Heckman

(2007) Comments on ‘Are protective labor market institutions at the root of unemployment? A critical review of the evidence’ by David Howell, Dean Baker, Andrew Glyn and John Schmitt. Capitalism and Society 2(1): 1–4.

27.

Hérault

Kostenko

Marks

. (2012) The effects of macroeconomic conditions on the education and employment outcomes of youth. Australian Journal of Labour Economics 15(1): 17–36.

28.

Howell

(ed.) (2005) Fighting Unemployment: The Limits of Free Market Orthodoxy. Oxford: Oxford University Press.

29.

Howell

(2011) Institutions, aggregate demand and cross-country employment performance: alternative theoretical perspectives and the evidence. In: Hein

Stockhammer

(eds) A Modern Guide to Keynesian Macroeconomics and Economic Policies. Cheltenham: Elgar, pp. 165–190.

30.

Howell

Baker

Glyn

. (2007) Are protective labor market institutions at the root of unemployment? A critical review of the evidence. Capitalism and Society 2(1): 1–73.

31.

International Labour Organisation (ILO) (2010) Global employment trends for youth (Special issue on The Impact of the Global Economic Crisis on Youth). August. Geneva: ILO.

32.

Junankar

(ed.) (1987) From School to Unemployment? The Labour Market for Young People. London: Macmillan.

33.

Junankar

(2004) Employment effects of minimum wages: evidence from a quasi-experiment, by Andrew Leigh: a preliminary critique. In: ACTU (Australian Council of Trade Unions) Minimum Wages Case. Tag Number 7 in Composite Exhibit. Melbourne, VIC, Australia: Australian Industrial Relations Commission Safety Net Review.

34.

Junankar

(2011) The global economic crisis: long term unemployment in the OECD. IZA Discussion Paper No. 6057, Bonn: IZA.

35.

Junankar

Wood

(1992) The dynamics of unemployment: an analysis of recurrent unemployment. In: Gregory

Karmel

(eds) Youth in the Eighties: Papers from the Australian Longitudinal Surveys. Canberra, ACT, Australia: Department of Employment, Education and Training and Centre for Economic Policy Research, ANU, pp. 282–304.

36.

Junankar

Waite

Belchamber

(2000) The youth labour market: anecdotes, fables and evidence. Economic and Labour Relations Review 11(Suppl.): 159–186.

37.

Kahneman

(2011) Thinking Fast and Slow. New York: Farrar, Straus and Giroux.

38.

Leigh

(2003) Employment effects of minimum wages: evidence from a quasi-experiment. Australian Economic Review 36(4): 361–373.

39.

Lewis

Mclean

(1998) The youth labour market in Australia: a survey. Australian Journal of Labour Economics 2(2): 158–172.

40.

Manning

(2003) Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton, NJ: Princeton University Press.

41.

Manning

(2010) Imperfect competition in the labor market. In: Ashenfelter

Card

(eds) Handbook of Labor Economics, vol. 4B. Burlington, NJ: Elsevier Science, pp. 973–1041.

42.

Marcus

Gavrilovic

(2010) The Impacts of the Economic Crisis on Youth: Review of the Evidence. London: Overseas Development Institute.

43.

Marks

Hillman

Beavis

(2003) Dynamics of the Australian Youth Labour Market: The 1975 Cohort, 1996-2000. Melbourne, VIC, Australia: Australian Council for Educational Research.

44.

Mavromaras

Sloane

Zhang

(2013) The scarring effects of unemployment, low pay and skills under-utilisation in Australia compared. IZA discussion paper no. 7440. Bonn: IZA.

45.

Metcalf

(2008) Why has the British national minimum wage had little or no impact on employment? Journal of Industrial Relations 50(3): 489–512.

46.

Miller

Volker

(1987) The youth labour market in Australia. Economic Record 63(3): 203–219.

47.

Morris

Wilson

(2014) Struggling on the Newstart unemployment benefit in Australia: the experience of a neoliberal form of employment assistance. Economic and Labour Relations Review 25(2): 202–221.

48.

Mortensen

Pissarides

(1999) New developments in models of search in the labor market. In: Ashenfelter

Card

(eds) Handbook of Labor Economics, vol. 3. Amsterdam: Elsevier, pp. 2567–2627.

49.

National Bureau of Economic Research (NBER) (n.d.) The NBER’s Business Cycle Dating Committee. Available at: http://www.nber.org/cycles/recessions.html (accessed 16 February 2015)

50.

Neumark

Wascher

(2007) Minimum wages and unemployment. IZA Discussion Paper Series No. 2570. Bonn: IZA.

51.

Neumark

Wascher

(2008) Minimum Wages. Cambridge, MA and London: MIT Press.

52.

Nickell

Layard

(1999) Labor market institutions and economic performance. In: Ashenfelter

Card

(eds) Handbook of Labor Economics, vol. 3. Amsterdam: Elsevier, pp. 3029–3084.

53.

O’Brien

(2006) The youth labour market in Australia – implications from Work Choices legislation. Department of Economics, Working paper 06-08. Wollongong, NSW, Australia: University of Wollongong.

54.

Organisation for Economic Cooperation and Development (OECD) (2013) The OECD Action Plan for Youth-Giving Youth a Better Start in the Labour Market. Paris: OECD. Available at: http://www.oecd.org/employment/Action-plan-youth.pdf (accessed 12 February 2015).

55.

Organisation for Economic Cooperation and Development (OECD) (2014) Employment Outlook. Paris: OECD.

56.

Organisation for Economic Cooperation and Development (OECD) (2015) LFS by sex and age – composition. OECD.StatExtracts. Available at: http://stats.oecd.org/Index.aspx?DatasetCode=STLABOUR (accessed 12 March 2015).

57.

Organisation for Economic Cooperation and Development (OECD) and International Labour Organisation (ILO) (2014) Promoting better labour market outcomes for youths, Report on youth employment and apprenticeships prepared for the G20 Labour and Employment Ministerial Meeting, Melbourne, Australia, 10–11 September 2014.

58.

Overseas Development Institute (ODI) (2010) The Impacts of the Economic Crisis n Youth: Review of the Evidence. London: ODI.

59.

Sewell

(2013) An analysis of youth labour markets. Bachelor of Commerce, Honours Thesis. Sydney, NSW, Australia: The University of New South Wales.

60.

Stewart

(2007) The inter-related dynamics of unemployment and low wage employment. Journal of Applied Econometrics 22(3): 511–531.

61.

Watson

(2004) Minimum wages and employment: comment. Australian Economic Review 37(2): 166–172.