Teenagers and the labour market

CHAPTER 7

It is generally believed that teenagers have an especially difficult time finding jobs.  Certainly the unemployment rate among teenagers has been higher than that of adults for a very long time, and the discrepancy has increased since 1970.  The causes of youth unemployment are numerous, complex, and inter-related:  it is not possible to lay the blame on any single factor, such as junior award wages, recession, married women, unemployment benefit for school leavers, and so on -- although all these play their part.  This paper briefly examines some of the factors influencing teenage unemployment.

THE SITUATION

Table 1 shows that unemployment rates for all age groups have increased greatly since the 1960s, those for young males most of all.  Although the 1984 teenage figures of 22.1 per cent for males and 19.7 per cent for females are certainly much too high, when considered in terms of the proportionate increase over the period they do not seem wildly out of line.  From 1966 to 1984 the 25+ male unemployment rate increased roughly sevenfold;  the same period saw an almost ninefold increase in the male teenage rate.  Nine against seven.

TABLE 1
Unemployment rates by age and sex, 1966 to 1984 (per cent)

Year	Males			Females
	15-19	20-24	25 +	15-19	20-24	25 +
1966	2.5	1.4	0.9	4.0	2.8	2.1
1971	3.2	1.8	0.8	4.3	2.6	2.2
1976	12.7	6.5	2.4	15.8	6.3	4.0
1982	16.4	11.3	4.2	17.1	8.8	5.1
1984	22.1	14.3	6.2	19.7	10.3	5.7

Source:  Bureau of Labour Market Research, Youth Wages, employment and the labour force, Research Report No.3, AGPS, Canberra, 1983, Table 1.2.

In fact the number of teenagers in full-time employment has been in decline since the second half of the 1960s, although this did not show in the unemployment statistics until the mid-1970s because it was masked by declining teenage labour force participation rates (due to more teenagers staying in the education system) and, at least during the 1970s, by strong growth in part-time employment of teenagers. ⁽¹⁾  A decline in full-time teenage employment at the same time as a disproportionate increase in teenage unemployment suggests that, at the same time as labour force participation became more attractive to teenagers, teenagers became less attractive to employers.

WORK OR STUDY

Once the years of compulsory schooling are past, every young person is faced to some extent with the decision whether to continue in education or join the labour force.  (Obviously, parents will in most cases play a major part in this decision.)  Education and labour force participation do not between them quite cover the field:  in the past, very many women and not a few offspring of wealthy families never had or sought paid work in their lives.  Such abstention from the labour market is now quite out of fashion.  Virtually everyone, male or female, expects to work for a substantial proportion of his or her life.

Nevertheless, by no means all teenagers in the labour market (that is, working or looking for work rather than studying or being supported by their parents) are there because of economic necessity.  Very many teenagers have a degree of choice as to whether or not they participate in the workforce.  It is therefore reasonable (for an economist, second nature) to assume that the choice is influenced first by the attractiveness of employment and second -- inversely -- by the unattractiveness of unemployment.  Crudely, increased wages will attract more teenagers into the labour market regardless of whether there is any increase in the number of jobs available.

Similarly, an increase in unemployment benefits makes the dole less unattractive and thus encourages more people to join the labour market.  This was a noticeable effect of the Whitlam government's very large increases in unemployment benefit, as Gregory and Paterson found:

[I]f benefit payments relative to earnings had not changed over the 1970s, then in May 1978 unemployment would have been 14 per cent lower than it actually was.  It appears that the beneficiary stock would have been about half its actual size over the latter part of the decade if benefit payments relative to earnings had not risen. ⁽²⁾

It makes little economic difference whether a jobless teenager is classified as "unemployed" or "not in the labour force", but there can be significant effects on expenditure on unemployment benefits, on the psychologically important unemployment totals, and hence on the inferences that can legitimately be drawn from the unemployment statistics.  This in turn can lead to government economic policy being based on false premises.

INCENTIVES FOR UNEMPLOYMENT

The mere availability of unemployment compensation to people who have never been employed provides an incentive for teenagers to leave school and go on the dole:  the unemployment benefit available to 16-year-olds is a very tidy sum of pocket money in a middle-class home and a useful extra income in a poor one.  Most countries' unemployment support schemes require a qualifying period of employment before any unemployment benefit is payable;  this is not the case in Australia where one can, in theory, sign on for the dole immediately on leaving school and continue to draw it until becoming eligible for the old age pension.

In addition, it seems anomalous that the state should offer more direct financial support to teenagers who leave school early than to those who finish school or go on to higher education.  There is plenty of room for argument here.  Under the present system, students at most government-provided educational institutions get their education more or less for nothing, and this constitutes a large subsidy;  a subsidy, moreover, to those whose studies will on the whole give them higher incomes throughout their working lives.  It is possible to argue that this makes it only fair that there should be less direct, cash payment to students than to non-students.  On the other hand, one can argue that the nation has a strong interest in having a well-educated population;  and that the cash payments to non-students encourage individuals with comparatively short time-horizons to end their education early, and thereby make it more likely that they will need unemployment benefits and other welfare support throughout their lives.

At present, however, it is assumed that parents will support their children throughout the school years and -- given the parental means test on Tertiary Education Assistance Scheme payments -- also largely throughout tertiary education;  yet once children leave school or drop out of college the government takes over.  The teenage dole in its present form places a premium on unemployability.  It also places a premium on dishonesty:  a substantial proportion of teenagers who receive unemployment benefit also engage in some form of paid part-time work, without reporting it to the employment service (which would lead to a reduction in the amount of dole received).

SCHOOL-LEAVERS

In spite of the alarming statistics, most school-leavers find jobs within a few months, compared with a few weeks in the 1960s. ⁽³⁾  One reason teenage unemployment has almost always been higher than adult unemployment is simply that teenagers are very much more likely to leave or lose jobs -- for whatever reason -- than adults.  This is a much more important cause of the high teenage unemployment rate than the time it actually takes school-leavers or other teenagers to get jobs. ⁽⁴⁾

During the first twelve months or so in the workforce, the typical school-leaver undertakes a lot of job-changing until his options narrow down to one or two occupations.  This behaviour used to be embraced by the term frictional unemployment, though it is often referred to now as job search behaviour.  The models devised by economists emphasise the benefits and costs of job search (often in an unemployed status), with school-leavers in particular subject to very large benefits (namely a whole lifetime in a preferable job) from initial job-changing. ⁽⁵⁾

In the early 1970s, it took teenagers less time than adults to find jobs (in other words, their spells of unemployment were on average shorter). ⁽⁶⁾  By the end of the decade, the situation was reversed, and it took longer for teenagers than adults, although the margin was not great. ⁽⁷⁾  All this is consistent with and lends support to the suggestion that teenage unemployment is always higher than adult unemployment because of teenage job-searching, but that job-searching has recently been taking longer both because of generally scarce vacancies and because of competition from adult women.

FULL- AND PART-TIME

While there are fewer teenagers in full-time jobs now than there were in the late 1960s, there are many more now in part-time jobs.  Between 1976 and 1982 the increase in part-time employment compensated for the continuing decline in full-time employment, so that teenage employment/population ratios remained steady.  If benefit recipients work part-time, their benefit begins to be reduced once they earn more than a few dollars a week, at the rate of 50 cents for each extra dollar earned;  with higher earnings the benefit is reduced dollar for dollar;  in addition income tax becomes payable.  There is evidence that these high marginal "tax" rates have helped discourage the unemployed from taking part-time work. ⁽⁸⁾  Most of the new part-time jobs have gone to school-children or other full-time students working after hours. ⁽⁹⁾

SETTING JUNIOR WAGES

The Whitlam years saw significant increases in many junior award wages relative to corresponding adult wages. ⁽¹⁰⁾  As with the increases in the level of unemployment benefit, this compression of adult/junior relativities encouraged young people into the labour market (it was at this time that teenage labour force participation rates reversed their long decline).  In addition, since the cost to an employer of a junior increased relative to that of an adult, it became less attractive to take on juniors when unemployed, experienced adults were available.

State or Commonwealth industrial tribunals set wages for most jobs in Australia, adult or junior.  Award wages account for some 95 per cent of all junior ordinary time earnings. ⁽¹¹⁾  It is not obvious, however, that much attention is often given to the task of determining appropriate wage levels for junior employees.  Most awards that specify junior rates do so by stipulating various percentages of the adult rate for junior employees of various ages.  Three principles seem to have governed most past consideration of junior wage rates:  "work value", "needs", and -- to a much lesser extent -- "capacity to pay". ⁽¹²⁾

With the exception of the New South Wales Industrial Commission there have been no benchmark decisions setting out the manner in which these principles should be considered in determining junior wage rates.  This implies that the central issue of the appropriate relationship between junior and adult wage levels has not been addressed directly.  As a result, the actual junior/adult wage relationships determined by tribunals appear to have contained a substantial element of arbitrariness. ⁽¹³⁾

It is also difficult to see anything other than arbitrariness in the ACTU's policy on junior/adult wage relativities.  In the late 1960s this called for 16-year-old employees to be paid 50 per cent of the adult wage, for 17-year-olds to get 75 per cent and for 18-year-olds to get the full adult rate.  By the end of the 1970s, ACTU policy had become 70 per cent at 16 and 85 per cent at 17.  There were similar changes in ACTU policy on tradesman/apprentice relativities.  Over the same period, the ACTU has endorsed the so-called "principle of equal pay for work of equal value", to be applied regardless of age.  It is hard to divine the meaning the ACTU attaches to the "principle":  a free labour market can be relied on to relate employees' remuneration to their value to their employers, but the ACTU favours neither a free labour market nor a close linkage between individuals' output and their pay.  Rather, work value "is a subjective concept which incorporates notions of productivity, arduousness, responsibility, status and so on". ⁽¹⁴⁾  If there is any logical or intellectual basis to ACTU policy on adult/ junior and tradesman/apprentice relativities, it can only be as an arbitrary expression of some concept of generalised relative work values, for it is inconsistent with the "principle of equal pay for work of equal value" in either the free market sense or the ACTU's sense.

"FREE" DISCRIMINATION

Rigorous application of this principle, if it is possible at all, is likely to disadvantage women, minorities, and the inexperienced, especially at times of less than full employment.  No employer will take on relatively unproductive workers if he can get better at the same price.  The more effectively minimum wage controls are enforced, the less incentive there is for employers to provide jobs for people who may not be profitable at the arbitrarily determined minimum rate of pay.  The adverse effect of minimum wage requirements on minorities has been emphasised by two black American economists, Walter E. Williams and Thomas Sowell, who argue that employers are tempted to discriminate because members of unfavoured groups are unable to offer a "compensating difference" by taking a lower wage.  Minimum wage controls also disadvantage the less attractive as individuals, not merely as members of some group:

As wage relativities have been compressed in recent years in the cause of more equal wages, so the inherent inequalities in workers' skills, aptitudes, energy and experience have meant that the least able have been pushed onto the unemployment scrap-heap.  The enormous irony of unemployment is that the great Australian egalitarian influence has produced this new inequality in jobs. ⁽¹⁵⁾

INTERNATIONAL COMPARISON

Australian junior wage rates are very high by international standards.  According to its Australian managing director, the fast food chain McDonald's finds that average junior wages in Australia are fourth highest in the world.

It is hard to compare rates of pay, and relative rates, around the world but in a situation like McDonald's where the work environment and physical tasks are identical from country to country we have the best possible opportunity. ⁽¹⁶⁾

Table 2 shows what McDonald's junior employees get in various countries.  It is noticeable that the Australian figure is closer to those of Sweden and Switzerland, with their very high per capita gross national products, than to that of a more obviously comparable country such as Canada.  The low rates in prosperous France, Germany and Japan are also interesting.

TABLE 2
McDonald's Junior employees (average hourly rates *)

Country	$A
Sweden	6.57
Denmark	6.43
Switzerland	6.37
Australia	5.98
Holland	4.93
England	4.49
United States	4.29
New Zealand	4.25
Spain	4.14
Canada	4.09
France	3.46
Germany	3.37
Japan	2.77

* Average hourly rate is total weekly payroll divided by total manhours employed (excluding management but including all junior, casual and part-time, employees). Payroll cost includes holiday pay and penalties but excludes cost of payroll tax and workers compensation premiums.

Source:  P. Ritchie, "Barriers to youth employment", Review, vol 30 no 2 (Winter 1984), p. 68.

EDUCATION

It is not within the scope of this chapter to examine the controversy about educational standards in the detail it requires.  It is nevertheless worth pointing out some neglected aspects of the controversy.  Although there is no doubt that educational standards are important, and some evidence that they have fallen, it is not the actual standards achieved in school that are relevant here so much as employers' perceptions of those standards.  These perceptions are not fixed and absolute, but are subjective and conditioned to some extent by the facts of the labour market.  An increase in junior wages relative to adults' requires employers to get more value out of their junior employees, and thus will tend to raise the standard required.  In other words, more is expected of a filing clerk in 1985 than was expected in 1958.  Unless employers are conscious of this -- and the author submits that often they are not -- they will perceive a decline in the standard of potential filing clerks and other job applicants.  Similarly, young people now must compete for jobs with adult women -- more experienced if not better educated -- to a much greater extent than in the past.

MARRIED WOMEN

It is noticeable that full-time employment of teenage girls has declined much more steeply than that of boys.  The decline was accompanied by a strong increase in full-time employment of adult women. ⁽¹⁷⁾  Social changes have made it more likely that women will continue to work after marriage; ⁽¹⁸⁾  even before sex discrimination laws came into force, few employers any longer dared dismiss their female employees when they married.  Thus jobs which had traditionally been held by girl school-leavers now tend to be retained by women.  Married women, remaining in or returning to the labour force, compete with teenagers for their traditional jobs, a competition in which teenagers have been handicapped by their inexperience and by the required level of award wages, which make them, or make them appear, less value for employers' money than adult women.

Even in the public service, where wage relativities between adults and juniors would not be expected to have much effect on decisions as to which applicant to employ, the proportion of teenagers declined by about a third in all states and territories between 1971 and 1981.  This cannot be explained only by "staff ceilings" and the tendency of people to hold on to safe jobs in a recession.  Between 1966 and 1982 the proportion of teenagers in base-grade recruits to the Commonwealth Public Service fell from more than three quarters to well under half.  In the same period, the proportion of adult female recruits increased from less than an eighth to nearly half. ⁽¹⁹⁾

CONCLUSION

Changes in junior award wages and unemployment benefit in the 1970s increased the rewards of teenage labour market participation compared with continuing education.  The wage increases also reduced the return to employers from junior employees relative to adults.  Social changes increased the cost in terms of personal discontent and consumer goods forgone of married women abstaining from the labour market.  Economic recession produced a large stock of experienced, unemployed adults and few job vacancies.  However distressing, high teenage unemployment is not surprising.

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ENDNOTES

1.  Bureau of Labour Market Research, Youth wages, employment and the labour force, Canberra, AGPS, 1983, pp 3-14.

2.  R.G. Gregory and P.R. Paterson, The impact of unemployment benefit payments on the level and composition of unemployment in Australia, Centre for Economic Policy Research Discussion Paper 11, Canberra, ANU, 1980, p 26.

3.  J. Nurick, Too few jobs:  why governments can't cure unemployment, Policy Paper No. 2, Perth, Australian Institute for Public Policy, 1984, p 61;  see also Australian Bureau of Statistics Labour Force publications 6202.0, 6203.0 and 6204.0.

4.  R.G. Gregory and W. Foster, The contribution of employment separation to teenage unemployment, Centre for Economic Policy Research Discussion Paper 31, Canberra, ANU, 1981.

5.  W. Merrilees, "An economic framework for explaining teenage unemployment", Australian Bulletin of Labour Vol 7 No 1 (December 1980), p 27.

6.  P.K. Trivedi and G.M. Baker, Unemployment in Australia:  duration experience and recurrent spells, Centre for Economic Policy Research Discussion Paper 45, Canberra, ANU, 1982, Table 6B, p 19.

7.  ibid., pp 16-19.

8.  R.G. Gregory and R. Duncan, "High teenage unemployment:  the results of atypical labour supply behaviour", paper presented to the 8th Conference of Economists, Melbourne, 1979.

9.  Merrilees, op. cit. p 24.

10.  Bureau of Labour Market Research, op. cit. pp 49-56 and Appendix C.

11.  P. Stricker and P. Sheehan, Hidden unemployment:  the Australian experience, Institute of Applied Economic and Social Research, University of Melbourne, 1981, p 67.

12.  For a discussion of these principles in relation to junior wage setting see:  D. Pitman, The determination of junior wages in Australia:  needs, work value and employment, Conference Paper No. 26, Canberra, Bureau of Labour Market Research, 1983.

13.  Bureau of Labour Market Research, op. cit. p 37 (emphasis in original).

14.  Pitman, op. cit. p 9.

15.  P. Samuel, "The real story on unemployment", The Bulletin, 6 November 1979, p 19.

16.  P. Ritchie, "Removing barriers to youth unemployment", Review, vol 38 no 2 (Winter 1984), p 68.

17.  Bureau of Labour Market Research, op. cit. p 5, Figure 1.2.

18.  "Economic pressures" towards the two-income family are in reality social, the result of aspiration toward the consumer good life.  The prevalence of single-parent families -- abandoned, separated, or the traditional unmarried mother -- is equally the result of social changes (although the relationship has become complicated as, for example, changes in divorce law, themselves the result of social pressures, have themselves contributed to further social change).

19.  A. Stretton and D. Kalisch, "Teenage unemployment in the public sector:  where have all the jobs gone?", Bulletin of Labour Market Research, No 11 (June 1984), p 16.