The effect of the COVID-19 recession on the youth labour market in Australia

This paper explores in detail the effects of the economic recession associated with the [Coronavirus Disease 2019] COVID-19 pandemic on the youth labour market in Australia. We first posit a conceptual framework to identify the potential channels through which the COVID-19 recession may impart scarring effects on young Australians. The framework is based on both historical and international evidence about the labour market outcomes of young people during recessions. Such scars work through four channels: (1) losing the next rung on the job ladder - lower mobility and match quality; (2) delayed labour market entry; (3) investing in the right skills - human capital and skill loss; and (4) psychological scarring. We then use this conceptual framework to examine the labour market outcomes of young Australians during the initial economic shock in 2020 and the subsequent recovery in 2021. We look for early evidence of COVID-related scarring in the Australian youth labour market using a range of timely and granular datasets, including the Household Income and Labour Dynamics in Australia (HILDA) Survey, and the Longitudinal Labour Force Survey (LLFS). In our analysis, we define young people as those aged between 15 and 24 years. Disadvantaged people are defined as those in the bottom decile of the 2011 Socio-Economic Indexes for Areas (SEIFA) index of economic resources. We measure disadvantage at the individual level, rather than by geographic region, to capture the fact that levels of disadvantage vary within regions.

Through this analysis we identify four specific groups of young Australians that have not shared in the benefits of the economic recovery and are most vulnerable to such long-term scarring effects. Policies should thus be designed to consider the needs of: (1) young workers who are not well matched to their jobs; (2) young people who have not been working for a sustained period, including the long-term unemployed and those not in the labour force; (3) young people who have not been working and not studying, particularly men aged between 20 and 24 years; and (4) young students who have been disproportionately affected by school closures and the shift to remote learning. A companion paper, 'Preventing scarring in the post-pandemic youth labour market' [available in VOCEDplus at TD/TNC 149.520], examines the potential policy responses to mitigate these impacts on the youth labour market. Taken together, this research is expected to provide an evidence base for policy actions to mitigate the scarring effects of the pandemic on the employment outcomes and welfare of young Australians.

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