Youth unemployment impacted by offshoring of jobs

Youth unemployment rates are roughly double the average and the latest statistics show no improvement.

A high minimum wage and the lingering effects of the GFC have been suggested as possible reasons. However, one important factor that seems to be ignored is how micro-globalism effects youth unemployment.

As I argued in my 2013 publication The Third Wave, employment in Australia is being adversely affected as white collar roles shift to Asian labour hubs. My current estimates indicate that Australian businesses now have around 75,000 staff in the Philippines, with roughly 3000 new roles created every month.

Of course this does not mean that 75,000 Australian jobs have been lost. Businesses who hire staff in low-cost Asian hubs tend to have more employees than they would in Australia. For example, in order to improve customer services and foster quicker response times, they may hire twice as many customer service representatives in the Philippines. This is possible because two offshore staff may cost half as much as one Australian doing the same job. Thus it is reasonable to assume that the number of new roles created offshore translates to half the number of job losses in Australia.

These numbers are not yet enough to significantly affect our overall employment rate, so why is youth unemployment so stubbornly high? Currently, there are approximately 2.6 million Australians between the ages of 15 and 25. Around 1.6 million of these are not studying or otherwise excluded from the workforce. 

ABS statistics from 2010 indicate that approximately 12% of young people were employed in administrative roles; the exact roles that are increasingly being shifted offshore. More and more employers are realising they now have a choice between paying $36,000 to $45,000 a year for a  low-skilled administrative assistant in Australia, or hiring a person with 10 to 15 years’ experience offshore for around $10,000 to $12,000 a year. (I include overheads in both these estimates).

While some look only at the bottom line (cost related to output), other businesses see the savings in wages as a secondary issue to the value of employing highly experienced staff. The time, effort, and cost of training a young unskilled person to reach a level of proficiency that benefits the business cannot compare to the minimum training required by someone already competent in the field. This is just one reason why small businesses are increasingly looking offshore for staff; they don’t have the time or money to train young staff, and they can’t afford experienced Australian staff.

University graduates are not immune from this phenomenon. Those with a degree in drafting, accounting, IT or law will still require time and training before they are productive in their first job. Yet all of these roles can be efficiently done by experienced offshore personnel.

The high minimum wage is certainly a contributing factor to youth unemployment in Australia but reducing it is unlikely to stop the flow of jobs offshore when quality of work and training time are taken into account. It is only a matter of time before these issues contribute to the continuing rise of youth unemployment.