Politics

Junk Explained: Why Recessions Hit Young People The Hardest

"I wish I had good news on this, but certainly recessions hit the young the hardest."

recession

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The Roaring 20s one hundred years ago will forever be linked with a “Golden Age” of glittering decadence, Gatsby-esque hedonism and social upheaval — a decade bookended by the Spanish Flu pandemic, and the Great Depression.

Unfortunately for this generation we’ve skipped over the fun bit and landed smack bang in the middle of the painful part.

Today Australia officially entered a recession, and young people are being told to brace themselves for the impact. We’re not just talking about the impacts we’re already seeing (rising unemployment, sluggish wage growth,  inaccessible housing options), but the impacts on our bank accounts that will continue to bite years after the recession is “over”.

Here’s what you need to know about how it might affect you.

First Up, What’s A Recession?

Australia is officially in its first recession for almost three decades. It’s not as bad as the Great Depression of the 1930s, but it’s worse than the recession of the 1990s.

As a rule of thumb, a recession is when Australia’s economic growth goes backwards for two consecutive quarters.

Economic growth is tied to its gross domestic product (GDP), which is the value of goods and services produced by a country — stuff like exports, household spending, government spending and business investment.

Our economy declined by 0.3 percent in the March quarter; today we found out the June quarter contracted by 7 percent, the worst fall on record.

For comparison, the 1990s “recession we had to have” saw the economy shrink by 1.3 percent.

We already knew this was coming — today’s official GDP figures just confirmed what we expected.

That’s because coronavirus restrictions came into effect towards the end of the March quarter, which means the economy was going backwards before the worst of the pandemic.

The figures from today also don’t reflect the massive economic hit from Victoria’s second wave, so prepare yourselves for more bad news down the track.

What Can Young People Expect?

Dr Andrew Leigh has been there — he graduated high school during the last recession.

The Federal MP is now the Shadow Assistant Minister for Treasury and Charities, and spoke to Junkee about what the news means for young people.

“I wish I had good news on this, but certainly recessions hit the young the hardest,” he said.

You’re probably already feeling the impacts of this.

If you’re out of work, it’s going to be harder to find a job. If you’ve landed a job, you’re unlikely to get a pay rise. If you’ve kept your existing job, you might see your hours or pay cut.

Dr Leigh himself graduated in 1990, when Australia was entering its last recession. While he went on to further study — to be an economist — his friends and classmates who entered the labour market faced a huge struggle to find work.

“I was certainly very influenced by seeing the human suffering that accompanied the early 1990s recession,” he said.

“The fact that it was the fault of these external circumstances and yet classmates of mine were paying the price, it really moved me away from any notion that life is all about how hard you work and your kind of moral character.

“Sometimes bad luck just comes along and hits people. That’s what happened to people who left school in the early 90s, and it’s what’s happening to people who are leaving school today.

“It’s the responsibility of policy makers to take the edges off that bad luck, even if we can’t make it go away.”

Even with government subsidies like JobKeeper, we’ve seen huge employment losses — for the first time in 60 years, less than half our national income is going to employees (despite company profits rising by 11.4 percent — thanks JobKeeper).

Despite those lost wages many households saw their income increase thanks to welfare payments like JobSeeker, which saved us from falling further into the hole.

We know that low-income earners are more likely to increase discretionary spending (good for the economy!) when they get a financial boost, whereas high-income earners are more likely to tighten the purse strings (bad for the economy!).

That’s why people are arguing that cutting those welfare payments (which the government is planning to do this month) would be a very bad idea.

How Does A Recession Make Inequality Worse?

Australia’s unemployment rate is currently at 7.5 percent — it’s expected to reach 10 percent by Christmas.

That’s particularly bad news for young people because of a little thing called economic scarring. We’ve done a bit of an explainer on this phenomenon before, which you can read more on here.

Simply put, economic scarring refers to the long-term consequences that a downturn can have on people just entering the workforce.

Basically, you’ll be earning less (for longer), which puts you on the back foot compared to previous generations. You’ll also be more likely to accept a lowly-paid job, or a job beneath your qualifications, which means it takes longer to climb the career ladder. This affects workers’ earning potential for years after a recession has officially ended.

“Unemployment takes twice as long to come back down as it did to go up, because employment relationships, like emotional relationships, are easier to break than they are to create,” Dr Leigh said.

“Right now we know that there’s 13 or 14 job seekers for every available job, so it’s an incredibly tough time to be looking for work.”

So… Back To University, Then?

Anything you can do to upskill in the current climate is a great idea — vocational training, online learning, university study, it should all be on the table. But, as with everything, it’s not that simple.

As you might recall, in June the government decided to hike the price of some uni degrees to try and funnel people into certain more “employable” fields. That’s seriously limited students’ choice, especially those interested in humanities (the cost of which will more than double).

Dr Leigh called that a “crazy decision”.

“This is the worst time to be curtailing opportunities to do vocational studies or go to university. We’ve got to be opening up those places because there’s not the jobs available, so people need to train,” he said.

“Capping places and rising prices I think, to me, shows that the government don’t see this through the eyes of young people. They don’t realise what it’s like for a young person to be, in some cases, effectively shut out of the labour market. In that environment the moral obligation of those who are in government is to create other pathways, provide people with other productive things to do.”

What About Welfare?

In Question Time yesterday the Prime Minister was asked why the government is cutting JobKeeper. This month the wage subsidy will fall from $1,500 to $1,200 a fortnight, and less for people working less than 20 hours a week.

In response Scott Morrison said they’re hoping to see fewer businesses having to rely on JobKeeper to pay staff wages.

“And we will continue to calibrate these measures, as we have always done, in response to the economic circumstances that we face. And that has been one of the haul marks of the government’s response: To be balanced, to be carefully considered, to understand what can be sustained over the short, medium and longer term, to put in place the supports that Australians need but to also ensure that when businesses are in a position to employ again that they can do so.”

In short: they’re not ruling out cutting income support.

Groups are also continuing to fight for a permanent increase to JobSeeker. The dole rate was effectively doubled by the coronavirus supplement, but come September 25 that payment will drop from $550 a fortnight to $250.