Twin shocks set young Australians back decades

While the pandemic has been hard on everyone, it will be the younger generation who will bare the brunt of its impact. (Photo by Victor He on Unsplash)

Younger Australians are facing decades of lost earnings by the dual shocks of the Global Financial Crisis (GFC) and the Coronavirus recession if the Government continues its current economic recovery plan, experts warn.

With the pandemic far from over and the worst of the recession yet to be felt, the Morrison government is already signalling its intent to return to fiscal conservatism after months of high stimulus spending.

While the Jobseeker program – a lifeline for so many out of work – has been extended until March next year, it will be much longer than that until younger generations recover to pre-lockdown levels of earning and employment.

“When I was on (Newstart), I was basically stressing about whether I can pay rent or whether I can eat food.”

Many “twenty-somethings” like Menna McAlpin*, who lost their hospitality job once the lock down came into effect, came to depend on the payment, and were relieved it was almost doubled from the pre-Covid amount.

“(Jobseeker) has actually been a liveable wage,” they said, “but it’s anxiety inducing the thought of the payment basically halving and having to live off $500 a fortnight again with the prospect of no jobs being available for anyone.”

Employment consultant Melanie Xu helps people navigate the Jobseeker systems and gain employment.

Many of her clients who had been on Jobseeker – or as it was previously known, Newstart – have found the increased amount of support a huge relief in their lives and for their mental health.

“The rate before was well below the poverty line,” Ms Xu says. “As someone who has been on Jobseeker payment myself, it’s not enough to even pay rent.”

“When I was on (Newstart), I was basically stressing about whether I can pay rent or whether I can eat food.”

The last time unemployment benefits were raised in real terms was 1994, when the Keating Government raised Newstart by $2.95 a week above inflation. The Howard Government then tied the payment to inflation in 1997, where it has stayed ever since.

As wage growth continues to outpace inflation in Australia, each year recipients of Newstart fall further and further behind.

If Newstart had increased only in line with inflation from the time unemployment benefits were first introduced in 1945, recipients would only be receiving $90 instead of the roughly $278 a week they did before the Jobseeker increase.

At this pre-Covid rate, the unemployment payment was more than 30 per cent below the accepted poverty line in Australia, and it is to this level Scott Morrison has said he wants the rate to return as quickly as possible.

With the economic recovery turning out much slower than the government had hoped, boosted unemployment benefits will be needed by many Australians for years to come.

Thousands of unemployed men march to see WA Premier Sir James Mitchell in 1931, at the height of the Great Depression.

Direct comparisons to the Great Depression are difficult to make as GDP was not widely used as a measure of economic activity 90 years ago, but we do know unemployment went as high as 32 per cent in Australia in 1932.

While the national rate of unemployment of 7.4 per cent is the worst in 22 years, youth unemployment has risen to almost 14 per cent as of April.

“Young people most likely don’t have the privilege of being in cushy office job and being able to work from home during a pandemic.”

The contraction of the job market will impact university graduates for years to come as they are forced to compete with more experienced candidates for even entry level jobs.

“It’s not only that these jobs aren’t there,” says Ms Xu, “It’s just going to be going to be setting back that sort of employment block that much further as well until the industry continues to grow.”

Even earning that degree has been made more difficult as universities, denied access to Jobkeeper payments, have culled staff in alarming numbers.

In an effort to encourage enrollment in STEM subjects, the federal government has announced it will significantly decrease subsidies in degrees in social studies and the arts, many of which tend to have a predominantly female student base.  

Women also make up more than 60 per cent of the unemployed in Australia as well.

In 2019, American economist Kevin Rinz published a paper which found the generation entering the workforce as the GFC occurred took about ten years to recover the same employment levels they had seen pre-GFC.

This ‘Millennial’ generation, defined as people born between 1981 and 1996, never fully recovered their earning potential, and still earned 13 per cent less than they had in the same jobs before the crisis.

Comparatively, ‘Baby Boomers’ (born between 1946-1964) saw a  reduction of only six per cent over this time.

“It’s not how the modern economy works.” 

It may not seem like much, but earning over ten per cent less on a career delayed more than a decade amounts to thousands of dollars in lost earnings over the course of their lives, as well as stunted retirement savings or superannuation.

Now as the younger generation has barely recovered they are being hit again by an even bigger recession, and it is the generation below them, Generation Z, who are now facing similar problems as they start their careers.

“Young people most likely don’t have the privilege of being in cushy office job and being able to work from home during a pandemic,” Mx Xu said.

“Nine out of ten people that I speak to from the hospitality industry are under 25.”

Despite the impact of recessions on younger Australians, Treasurer Josh Frydenberg has indicated he will be taking inspiration on our economic recovery from former world leaders like UK Prime Minister Margaret Thatcher and US President Ronald Reagan.

Top of his wish list will be to slash corporate tax rates and industrial regulations. Shadow Treasurer Jim Chalmers says this prospect  “should send a shudder down the spine over every Australian worker.”

Nicknamed “Thatcherism” or “Reaganomics”, this controversial economic theory argues economic growth is best achieved through minimal government intervention or spending, and encouraging businesses to re-invest back into the economy through a minimal tax rate.

Wealth inequality during both of these administrations grew significantly, and critics of the theory, including University of Melbourne Professor of International Relations Dr Anthony Walter, say it’s simply not the way forward.

“I think (Frydenberg) may be living in the past,” Dr Walter said. “The idea that governments can just get out of the way and the economy can be essentially a market based one in which government plays very little role is a fantasy of the few remaining neoliberals left.”

“It’s not how the modern economy works.” 

Reagan’s policies were at the heart of current US President Donald Trump’s controversial tax cuts in 2017, where the corporate tax rate was cut from 35 to 21 per cent. The hope was that corporations would re-invest these savings back into their businesses, thus promoting growth.

The following year, only 20 per cent of the total expenditure by Fortune 500 countries was spent on new equipment or research and development. The remaining 80 per cent, over $800 billion, was spent on stock buybacks or paying out dividends, beating the previous record set by corporate bailouts following the GFC.

Increased spending on buybacks can artificially increase a company’s stock price, without the company actually having to build anything, and executive’s bonuses are often tied to share price.

When Scott Morrison was Treasurer, he was quick to praise Trump’s tax cuts, and as Prime Minister was able to pass a $158 billion dollar tax cut package in 2019.

Despite campaigning on bringing the national budget into surplus and the current massive deficit, the Morrison government seems determined to cut the corporate tax rate even further.

The other half of supply side economics is a slashing of government spending on social services, not just things like today’s Jobseeker program, but education, health and other publicly funded areas.

 “One of the factors in terms of younger people, and the emergence of a growing underclass in Australia,” Dr Walter said, “is just poor education and poor worker training.”

“People are not well equipped, in many cases, for the shift towards the knowledge economy. These things are not managed well by the market.”

This graph shows the Boomers coming of age in the 70’s to be the largest population block in the developed world today. As such, they hold great political power.

Across the western world, Baby Boomers represent the biggest population block, and therefore hold great political power through their sheer numbers.  Because of this, Dr Walter says, they have been able to consistently vote for policies and shape the economy to best represent their interests at each stage of their lives.

This has had the effect of making countries like Australia increasingly conservative as its population ages, and has enabled older generations to continue to generate wealth at the expense of people entering the job or property market.

“This is a kind of Boomer problem. (They) became wealthy from the 1970s through competitive processes,” Dr Walter said, “above all negative gearing.”

“These sorts of middle-class tax benefits had the effect of being very popular among the middle class … and made it very difficult for reformist parties like the Labour Party to back away from those kinds of tax giveaways, but it obviously had the effect of screwing over the younger generation.”

For instance, Labour’s plan to scrap franking credits – where shareholders are entitled to a credit on share dividends for tax the company had already paid – are widely considered to be one of the defining issues which contributed to their defeat at the ‘unlosable election’ last year.

Between 1981 and 2016, home ownership rates in Australia among 25 to 34-year-olds fell from more than 60 per cent to 45 per cent. While programs such as the ‘First Home Buyers Grant’ have been implemented to attempt to offset this trend, it is clear it has had little impact.

The Liberals’ controversial $700 million ‘Homebuilders Scheme’ is said to be an investment in the construction industry to help weather the lockdown, but critics say it is a targeted program aimed at families earning under $200,000 per year, building or renovating a house of up to $750,000.

In other words, the voting base of the Coalition.

Even the Master Builders Association has said the money would be much better spent on social housing and would achieve the same goals of supporting the building industry.

Dreams of home ownership, or any kind of financial security, are a long way off for people like Mx McAlpin. For years they have been watching – and feeling – intergenerational wealth disparities grow.

Even before the pandemic, they were feeling left behind by the economy and successive governments. Only now the stakes are even higher, and the fragility of the system is exposed.

“I have more long-term concerns as well of being able to find work which allows me to live a good life and do the things I want to do without having to work for the rest of my life,” they said.

“I just feel like it’s a symptom of the neoliberal society that we live in today, that puts private property before the people.”

Having now absorbed two catastrophic economic shocks in the last 12 years and staring at a government now desperate to cut off stimulus, younger Australians are facing a very bleak economic future indeed. 

*Menna McAlpin identifies as non-binary, and uses they/them pronouns and the non-gendered Mx honourific.