CHART: Why Australia's Budget Is So Hard On Young People Without Jobs

The budget was tough this week in many ways but none more so it seemed than young unemployed people, especially those who have been without a job for a long time.

While the measures seem aimed at breaking the cycle of long-term unemployment, the cutting of benefits for six months, followed by six months in the work for the dole scheme – before an additional six months without benefits if the unemployed person doesn’t find work – seem brutal.

But data out today from the ABS gives an indication as to why the government may be targeting long term unemployed.

While long term unemployment has ticked up marginally over the past few years, there seems to have been an explosion in those unemployed for more than 52 weeks but less than 104 weeks.

Over the past year this cohort has had a monthly average of approximately 144,000 unemployed people per month compared to an average of around 118,000 the previous 12 months and a monthly average of 111,000 in the three years to April 2012.

The ABS has reported strong growth in unemployed rates for those below 24 years of age, so it suggests this rise in the long-term unemployed is mainly among young people.

This explains the force of the government’s policy response.

While the cause of the government’s policy response is clear, from a behavioural economics point of view a scheme where the benefits expire would seem preferable to one which just takes them away.

Giving a time-bound point where benefits will end is still a strong incentive to find a job. But doesn’t hit the unemployed person between the eyes straight away by taking away benefits, which in some cases might make it hard to stay fed and clothed, making it harder to find either a job or – worse – get the motivation for a job.

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