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Frozen wages, insecure jobs, struggling youth, rising inequality, shrinking unions … join the dots

People finishing tertiary education can now expect to take 4.7 years on average to find full-time work. Reuters/Jose Manuel Ribeiro

Frozen wages, insecure jobs, struggling youth, rising inequality, shrinking unions … join the dots

If you’ve been following the news about the Australian economy, you could be forgiven for thinking the country is in dire straits. The latest ABS data paints a grim picture as wage growth in the private sector hits a decade low of 2.1%. More than 750,000 Australians are unemployed, with more stuck in insecure or casual work arrangements. We’re also donating A$128 billion-a-year worth of unpaid overtime.

The picture grows darker still when we look to the next generation. A Foundation for Young Australians report recently found that, on average, Gen Y lose 4.7 years between finishing tertiary education and finding full-time work. Youth unemployment is just shy of 13% and a Committee for Economic Development Australia report warns that automation could replace 40% of all jobs by 2025.

School-to-work transitions have always been characterised by periods of instability; new entrants to the workforce are expected to learn skills, earn respect and prove their value before achieving stability. However, the labour market deregulation policies of the 1980s and 1990s have contributed to young people in the 21st century remaining in precarious positions for much longer than their parents.

An entry-level job becomes a career, savings become subsistence, weekend shifts become lifelines.

Smoothing the transition

Active labour market policy doesn’t have a minister or a portfolio. Rather, it is a cluster of policies designed to get unemployed people back into work, preferably into industries experiencing labour shortages. More art than science, it usually contains some mix of reforms centred on education (secondary, tertiary and vocational), income support and employment services.

Young people are more likely to be employed in insecure work arrangements. These jobs are usually characterised by an underutilisation of skills, low wages and lack of permanency.

This work is also more likely to balance with higher education. Research shows this has a negative impact on a person’s health and can increase the risk of mental health issues.

Therefore, policy reform has the potential to empower or entrench an entire generation.

Looking North

The Nordic countries have experienced similar (and in the case of Sweden, much greater) levels of youth unemployment. Yet they’ve managed to keep their young people active, engaged and healthy.

While conservative analysis often highlights the liberalising reforms of centre-right governments, the “Nordic Model” remains a comprehensive yet surprisingly fluid style of welfare state.

There’s an academic description that uses jargon like “universalism”, “decommodification”, “socialisation of economic risk” and “decreasing wage-dependency” – but these buzzwords fail to capture the experience.

Sweden still has unemployed job seekers, but the support they receive minimises the harm done. Reuters/TT News Agency

In reality, it means every citizen – young or old, female or male, doctor or dockworker – has the same access and entitlements. If you lose your job to corporate reshuffling or a downturn, you receive a living wage while you look for work for up to two years. State-run employment services direct you to industries where jobs are available. If you’re Swedish, chances are you’ll have one of the shortest working weeks in the world.

World-class education is free. Vocational training is matched to labour shortages and entitles students to a generous study allowance.

The private sector is thriving in the region, according to the latest Global Competitiveness Report. Sweden and Finland are listed in the top ten most competitive economies.

It’s no utopia. There are still plenty of problems, but if you value a secure labour market, then there is much to admire.

The elephant in the room

Almost 70% of all Nordic citizens are union members, including a majority of employed young people. Compare this to the 14.4% of Australians who carry union cards, with only 8% under 25.

However, this statistic doesn’t tell the whole story.

As Harvard-trained economist turned politician Andrew Leigh found, this trend applies to most social groupings. “Social capital”, or the way we invest in our communities, has changed over time. People aren’t joining churches, sports clubs or political parties in the same way as previous generations.

But this doesn’t mean that people don’t have beliefs, aren’t playing sports, or don’t care about politics.

So if you’re starting to think there might be a connection between collectivism and equality, surprisingly the International Monetary Fund (IMF) agrees with you.

Not known for flying the union flag, the IMF recently reported that high union density strongly predicts low income inequality. Similarly, the World Bank has found that countries with high income inequality have the lowest ratings of overall life satisfaction. Given these statistics, it is important to recognise the role unions play in reducing inequality.

We get what we pay for

The Nordic Model operates under something called the Ghent system, where unions are responsible for income support rather than private firms or public institutions. This may sound outlandish, but if you’ve got an industry super fund, then you have a Ghent-style pension fund.

You pay a little, your employer pays a little and the government pays a little.

Similarly, Nordic countries can afford progressive labour market policy because they aren’t afraid to pay their taxes. The region pays the highest income tax. Indirect taxes are also high, with Denmark paying 25% tax on goods and services.

So, in some ways, it’s as simple as you get what you pay for. The Nordic countries have managed to achieve stability and security by valuing smooth labour market transitions, acting collectively to protect their economic rights and paying their fair share.

What does this mean for Australia? It comes down to what we really value. Are we happy for young people to pay the price for global economic downturns, or do we want to give them a hand up as they navigate a turbulent labour market?

In other words, while the picture we’re painting for our economic future is dark and grim, we have to remember that it’s in our power to change the colours.


Shirley will be on hand for an Twitter Q&A between 9:30 and 10:30am AEDT on Friday, November 27, 2015. Post your questions on Twitter using the hashtag #AskAnExpert.