Coronial inquiry: post-Covid inter- and intragenerational inequality in Australia

01 December 2020

Overwhelmingly, our values unite Australian generations. Before and during the Covid-19 pandemic, the top issue that kept millennials and gen Zers awake at night was the welfare of their family, before subsequent concerns for their career prospects and their long-term financial future (Deloitte 2020). In Australia, we have a longstanding covenant of trust that one generation will look after the next—but our young generations currently stand at the edge of an economic ravine. If we don’t act to address structural policy problems as part of our response to Covid-19, Australia’s intergenerational inequality will widen cavernously, erode social cohesion and present insurmountable budgetary problems for generations to come.

Through no fault of their own, most millennials’ and gen Zers’ debuts into the labour market were bedevilled by two ‘once in a lifetime’ economic crises. Data collated since the 2007–08 global financial crisis (GFC) shows that youth labour market scarring that occurred in the aftermath of the crisis has had long-term consequences for youth unemployment, underemployment, wage growth, quality of jobs and career progression. The challenge for policymakers now is to develop labour market interventions that will minimise the long-term consequences of the Covid economic recession for young people. By critically analysing how the GFC affected young people, we should be able to proactively identify red flags and apply lessons learned over the past decade to our plans for the post-Covid recovery.

While Australia avoided an economic recession during the GFC, young people experienced the highest rates of job losses of any age group in the decade since that event (Gilfillan 2016). For those who were able to find work, job quality has been inferior in terms of security and hours of work available (Watson 2018). In 2018, approximately three-quarters of workers under the age of 20 were employed casually. Workers in their 20s and early 30s had slightly more job security: 42% and 18%, respectively, were employed casually (AiGROUP 2018). Rampant casualisation and underemployment continued into 2020, when 18.2% of young people were looking for more work before lockdown in March—more than double the level of any other age group (Birch 2020).

Fast-forward to May 2020, when youth unemployment was 16.1% (ABS 2020). Once restrictions were put in place, the hospitality, arts, retail and recreation industries, which collectively employ 45% of young people, were the first and worst hit. Job losses in those sectors were exacerbated by the fact that more than half of hospitality staff and over a third of retail, arts and recreation employees are casuals (Birch 2020). The change over the past decade towards more insecure and casual employment (BSL 2018) not only created the perfect conditions for young people to be disproportionately affected by an economic recession in 2020, but also placed younger workers in a weaker bargaining position (Watson 2018, de Fontenay et al. 2020). That weakened position played out in stagnant wages and in income trends of younger households either stalling or backsliding, while income growth has continued to strengthenfor households headed by people aged over 55 (Wood & Griffiths 2019).

While the impact of the Covid recession on overcasualised sectors is undeniable, the GFC experience should also raise alarm about sectors with ‘higher scored’ jobs (Watson et al. 2018). After the GFC, young people had more difficulty getting jobs in the careers they aspired to, instead opting for ‘lower scoring’ jobs or work in less attractive occupations (Watson et al. 2018). A lower starting point isn’t necessarily a problem if young workers can improve their occupational score relatively quickly. However, young people who obtained a lower scored job in the post-2008 labour market were more likely to remain on a low-scoring job trajectory (Watson et al. 2018). While some may choose to retrain and pursue further education, and return to the job market when conditions are more favourable, the Productivity Commission has suggested that, if youth labour markets fail to strengthen, the growth in the number of available jobs won’t be large enough to absorb the increased supply of highly educated or qualified workers (Watson et al. 2018). For example, young people who graduated between 2013 and 2014 obtained work in lower scored occupations than earlier cohorts, and people aged 25–34 with bachelor’s degrees in 2018 were substantially worse off in 2018 than the same age bracket in 2001 (Watson et al. 2018).

The consequence of this is that highly skilled people who have to temporarily move down the job ladder or work in casual jobs while searching for graduate jobs create more competition in lower scored jobs (Watson et al. 2018). In the context of the Covid economic recession, in which lower scored and casualised jobs have been slashed, too much competition for jobs due to lack of supply will lead to bottlenecking and drastically increased long-term unemployment (Watson et al. 2018).

While past policy decisions have contributed to increased pressure on young people, we can learn from those lessons to redress the problem. Youth labour market interventions should be based on the specific obstacles to employment that young people are facing in the post-Covid-19 economic recovery (Eichhorst & Rinne 2015). The Covid recession is unique among previous postwar recessions because it has been caused by a supply shock, not a demand shock (Popov 2020). Traditional activation measures implemented by governments to promote youth labour market participation, including job search assistance and mutual obligations, won’t be an effective solution if there’s insufficient supply. In theory, industrial policies that promote restructuring and eliminating bottlenecks in the supply of jobs by transferring labour resources from the contracting industries, such as tourism and recreation, to expanding industries, such as health care or PPE manufacturing, could be beneficial (Popov 2020).

However, that strategy won’t address the issue of stagnated career progression for people who choose a subjectively less attractive occupation out of necessity. One example of a short term resolution of this issue is the Canada Summer Jobs program. Since 2009, the Canadian Government has funded a summer work experience program that encourages not-for-profit organisations, public-sector employers and small businesses to create high-quality summer job opportunities for students aged between 15 and 30. Long-term, high-quality job creation will be the key to improving wages and job security and avoiding unproductive competition between higher and lower skilled people resorting to already scarce lower quality jobs.

If we don’t take action to prevent the youth labour market scarring that occurred after the GFC reoccurring, the time-honoured covenant of generation-on-generation progress is under threat. Existing intergenerational inequality will only widen. While older generations are better prepared to weather a weaker labour market because they’re more likely to have other sources of income (Wood & Griffiths 2019), millennials and gen Zers haven’t been able to accrue an equivalent security nest egg. The Grattan Institute found that all age groups over the age of 35 had more wealth in 2014 than the same age groups in 2001. The average household headed by a 33–44-year-old was $80,000 better off, and the average household headed by a 65–74-year-old was $215,00 better off. Meanwhile, people aged 25–34 had less wealth (Daley & Wood 2014). Home ownership has also significantly worsened: for young people aged between 25 and 34, it fell from 51% in 2001 to 37% in 2018. Most of the growth in household wealth is in property and superannuation assets. Alongside the housing boom, compulsory superannuation and tax benefits that encourage further superannuation contributions have substantially increased the wealth of households nearing retirement (Collard 2000). In the context of the federal government’s superannuation drawdown scheme, under which more than 500,000 people under the age of 35 have withdrawn money from their superannuation accounts, policymakers are currently failing to consider the long-term consequences of short-term fixes. After taking into account inflation and the cost of living, a 25-year-old who withdraws $20,000 now will be between $80,000 and $100,000 worse off in retirement. A 35-year-old who withdraws $20,000 will be at least $65,000 worse off. Industry analysis has shown that the aggregate loss of savings for Australians under the age of 35 is more than $44 billion. The impact of this policy decision on the nation in the long term will be devastating.

One argument sometimes raised to justify policy that entrenches intergenerational inequality is that increased wealth for older Australians will trickle down to younger generations through intergenerational gifts and bequests to children (Wood & Griffiths 2019). However, those larger inheritances are more likely to go to those who are already well off. If a generation does relatively well, the inheritances that its members leave to their children in fact increase inequality in subsequent generations and exacerbate intragenerational inequality (Daley & Wood 2014).  Ultimately, this will widen the gap between young people whose families are in a position to support them compared to those whose families aren’t. Alongside its budgetary impacts, that erodes much-needed social cohesion within the younger generation.

The Covid recession has supercharged intergenerational inequality in Australia. As a critical priority for the coming years, policymakers must evaluate the scarring effects of an economic recession on the youth labour market and develop appropriately adapted labour market interventions to address the widening ravine in outcomes. Otherwise, intra- and intergenerational inequality will calcify the most egregious gorges of inequity in Australia resulting from a negligent failure of leadership at a critical time.

References

ABS (Australian Bureau of Statistics) 2020. Labour force, Australia, May, online.

AiGROUP 2018. ‘Casual work and part-time work in Australia in 2018’, June, online.

Birch C 2020. ‘Young Aussies lose out in COVID-19’, bluenotes, 28 April, online.

BSL (Brotherhood of St Laurence) 2018. Part-time purgatory: young and unemployed in Australia, December, online.

Collard D 2000. ‘Generational transfers and the generational bargain’, Journal of International Development, 3 July, 12(4):453–462, online.

Daley J, Wood D 2014. The wealth of generations, Grattan Institute, December, online.

Deloitte, Deloitte Global Millennial Survey 2020, online.

Eichhorst W, U Rinne U 2015. Promoting youth employment through activation strategies, IZA research report no. 65, IZA Institute of Labor Economics, June, online.

Gilfillan G 2016. Developments in the youth labour market since the GFC, research paper, Australian Parliament, 31 August, online

Popov V 2020. ‘How to deal with a coronavirus economic recession?’, SSRN, 20 May, online.

Watson I 2018; de Fontenay C, Lampe B, Nugent J, Jomini P 2020. Climbing the jobs ladder slower: young people in a weak labour market, staff working paper, Productivity Commission, 27 July, online.

Watson I 2018. Life course research using sequence analysis: insights into the youth labour market. Social Policy Research Centre, University of New South Wales, 13 March, online.

Wood D, Griffiths K 2019. Generation gap: ensuring a fairer go for younger Australians, Grattan Institute, 18 August, online.