Women, the young bear brunt of economic ‘scarring’
Young people, school leavers, those in part-timework or self-employed hit hardest
Inthe economic battle against Covid-19, there washopewe might all “behomefor Christmas”; a hope thatwage subsidies, a v-shaped bounce, a team of fivemillion and“kindness” would suffice.
But that hope is fading fast. Ifwe are going to behomeby Christmas, as Treasury outlines in its Pre-election Economic and Fiscal Update (Prefu), it’smorelikely to be Christmas 2024 than 2020.
In theprefu, Treasury time and time again refers to the risks of economic “scarring”.
Thismeans that the recovery couldbecome beset with serious issues that inhibit long-term growth.
It communicatessomeof the heart behind what economists call “hysteresis”, a process by which longlasting economicharm can occur to firms and individuals even as result of a relatively short economic shock. Thesewounds arise frommany sources.
Somecomefrom the skills and income loss from periods of unemployment.
Adownturn can alsomean workers are less able tomoveup the career ladder into better paid and moreproductive work.
Someof it arises because of a loss of productive capacity by firms as knowledge spillovers slow down.
Someof it occurs because people are less likely to take a risk onstarting newfirms or are slower to pivot towards what theeconomyneeds.
Sometimes it’s just that business investment falls, as profits fall leading to less growth.
Theoverall impact is ahumancost that is high and often concentrated oncertain groups.
Unfortunately if previous research is accurate it’s often young people in the early stage of their careers, school leavers and people in part-time work (oftenwomen) or the self-employed whobear the brunt of the scarring and continue to be affected for years afterwards.
Both major parties are saying the answer lies in hiring subsidies and infrastructureprojects.
These policieswill help thosewho are most at risk of long-term unemployment but theseprojects are not always a perfect fit for those most at risk.
Thegovernment must be intentional in its focus onthose most likely to sufferpersistent negative scarring.
Weneed to think creatively about howfirms might engage with job seekers, be they recent graduates or womenre-entering the labour market looking for part-timework.
Oneconcrete policy could be to makepaid internships or study scholarships for employees a claimable business expense.
Astudent or someonevying for an internship gets a paid internship or a person could receive a payment from a firm to study in an area the business needs.
The business is supported todo this by being able to claim part or most of the expense against its tax bill.
In both cases, firms andpotential workers start their paid relationship earlier and careers are established.
Interns get paid andgain experience.
Firms can take a riskon training someonewithout bearing the full cost.
The coming months and years are a time for creativity and a focuson those most at risk.
The overall impact is a human cost that is high and often concentrated on certain
groups.