Reduce youth unemployment through improved regulation – e.g. of penalty rates, taxis

With overall unemployment creeping up to 6%, unemployment among 15 to 24 year olds, which tends to be naturally higher anyway and ends up even higher when the economy slows, has increased to over 15% and has re-emerged as a significant policy issue (e.g. see this Brotherhood of St Laurence report). While much of the recent increase in youth unemployment is cyclical, there are a range of regulations that limit employment opportunities for young people. These regulations impede the efficient operation of markets and prevent the realisation of substantial gains from trade, at a cost of forgone GDP, household incomes and jobs. Reforms to these regulations could result in a signficant boost to employment opportunities for young people. Let’s consider three examples: penalty rates, retail trading hours and taxi licensing.

I’ve previously posted on the impact of penalty rates on the hospitality and tourism sectors:

Hospitality suffering under IR regime

Tourism sector needs IR reform

It’s possible there could be signficant employment gains among young people if penalty rates were reformed and there was greater scope for them to be negotiated away as part of enterprise agreements. Let’s hope the current review of modern Awards makes some bold recommendations on reform.

Another area of potential reform is retail trading hours, as I’ve posted on many times – e.g.:

OBPR recommends fast-tracked review of trading hours restrictions

Obviously, longer opening hours for shops could boost employment opportunities for young people.

On taxi licensing, I’d note that current licensing arrangements restrict the number of taxis on the road, raising prices and generating economic rents (i.e. super, above-normal profits) for owners of the licences, which are valued at around $500,000 each (see the Black & White Cabs website). If the taxi industry were largely deregulated, so any number of new licences could be purchased from the Government at a nominal fee, there would be a huge increase in taxis on the road, a significant reduction in fares (see the analysis in the Productivity Commission’s research paper Regulation of the Taxi Industry), and greater employment opportunities, many of which could be taken up by young people. There would still need to be some regulation, of course, around safety, but restricting the number of taxi licenses isn’t necessary to ensure public safety. (Hat tip to Brad Rogers for getting me excited about the potential economic gains from taxi deregulation.)

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5 Responses to Reduce youth unemployment through improved regulation – e.g. of penalty rates, taxis

  1. Katrina Drake says:

    I suspect youth unemployment in the 15 – 24 yo age range is considerably worse than the official 15%. There is considerable hidden under-employment in this range with double degrees graduates in engineering, teaching, and law all employed full-time as taxi drivers, shop assistants, and and waiters.

    • The Happy Hillbilly says:

      And whom are heavily reliant on penalty rates to make ends meet. If penalty rates were erased, significant portion of the workforce – many of them at the low end of the income spectrum – would take a significant pay cut. This would affect existing employees, not just prospective ones. Imagine suddenly finding that you are unable to pay the rent.

      Would abolishing penalty rates really lead to better employment outcomes overall? After all, you’re only giving to capital with one hand after having taken the same amount away from labour with the other. The busniness owner will be left with more power to consume only because workers will be left with less power to consume the firms output. It isn’t creating wealth, merely re-distributing it upwards.

      Whether or not any employment gains were forthcoming would have to be closely examined. I recall an argument being made that workchoices had resulted in employment gains but when looked at critically, it was hard to see any proof. The country was already undergoing a long economic boom driven by the biggest private sector debt and the biggest mining investment expansions in history. Unemployment fell before workchoices was introduced. It fell while workchoices was in place. And it continued falling after workchoices was consingned to the dustbin. It was difficult to seperate correlation from causation under such circumstances.

      In general, I doubt that gains made by one set of consumers that come at the identical expense of another set of consumers are going to have any positive impact on the employment situation.

      • Gene Tunny says:

        Thanks for your comment, HH. The problem we are now seeing with penalty rates is that they are forcing some restaurants to open less frequently which clearly means less activity in the sector overall, a lower level of hours worked, possibly jobs, and incomes. It’s not just a transfer from one group to another, but a loss of economic activity.

    • Gene Tunny says:

      Yes, I think that’s true. It certainly was the case when I was at uni, although conditions were much worse then with unemployment at 8-9% if I recall correctly. Thanks for your comment Katrina.

  2. stephen says:

    Oh dear, you are going to solve the employment crisis by deregulating the taxi industry ….. been there done that …, it doesn’t work . Why has taxi regulation been proven to be required ?
    Just a couple of salient points like …. the market fails without it.
    Labour psycology does not evaporate for the sake of a couple of dollars …. until people are starving. That is not the sort of society we have … or want.

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