How to bolster youth employment

Using the fourth quarter figures, we see that the gap between the unemployed and the employed is a minimum of $693 per fortnight. The young person whose productivity is not worth $1,508 per fortnight must be unemployed and so receive only $815. That is $693 per fortnight less.

Young people, in their first job, are often not the most productive employees. They may not have acquired the essential work practices of punctuality and reliability. They may not know how to do everything and will require the time of supervisors to teach them. They will not be as proficient; they will take longer to do many tasks. Their productivity is lower and they may not be worth $1,508 per fortnight. They will not be employed. There will be no job.

But if the employer were able to offer a wage that was commensurate with the employee's productive output then there would be a job. The employee would be on the ladder and able to develop her skills and soon advance to a better job at a higher wage. What could be wrong with that? Well two things. Firstly, the employee is open to being taken advantage of – being paid less than she is worth - and secondly, she will not earn enough to live on. Let us deal with this one at a time.

The first problem is known as monopsony. Monopsony power exists when one buyer faces little competition from other buyers for that labour or good, so they are able to set wages and prices for the labour or goods they are buying at a level lower than would be the case in a competitive market. An example might be a small town with only one major employer. But it is not the case, in general, in a large city where there are multiple employers and where those who pay well will attract the best employees. Good baristas are hard to find.

If you do not believe this, examine the basis of your prejudice. Do you believe that employers, as a class, are scoundrels? If we wish to create jobs, then we must honour the entrepreneur.

The second problem relates to a confusion between a wage and an income. If our society considers that a person's fortnightly wage, from their own exertions working to the best of their ability, is insufficient for them to live on, then we have an obligation to top it up. We may do that through charity or taxation. We should not expect that this is an obligation for the employer.

This brings me to my conclusion. The JobCreator program.

Unless we can unwind the minimum wage construct, and also make it easy to fire the non-performing or dishonest employee, then there will be too few jobs for our youth and they will be unemployed and never progress up the ladder. But I appreciate that unwinding minimum wage laws may be politically impossible.

I have an alternative. Let us create a scheme administered similarly to the JobKeeper scheme, that is, through the existing tax system. For twelve months, let us pay every employer $300 per fortnight for every new employee under the age of 25 added to the payroll after 27th September. Let us call it JobCreator.

For the entry-level employee we effectively lower the minimum wage by 20 percent. Here is an incentive for employers to create more jobs for young workers. It gets them out of the gangs and into the workforce, onto the first rung of the ladder, at a cost of about half the Newstart allowance.