Unstable employment while you’re young can set you up for a wage gap later in life – even if you eventually land full-time work

As they kick off their careers, young people often have to navigate a maze of short-term and casual jobs.

In Australia, many of them also wish to work more hours than their current jobs allow, leading to a situation called “underemployment”.

Casual employment and underemployment often go hand in hand. But just how common are these experiences during Australians’ early careers, and what effect do they have on their future wage prospects?

Read more: It's getting even harder to find full-time work. So more people are taking second part-time jobs

Setting the trajectory of young people’s careers

Early underemployment, casual employment and joblessness can greatly impact an individual’s career prospects later in life. Our 2023 study, assessing data from the Household Income and Labour Dynamics in Australia (HILDA) Survey, explored this issue in depth.

A large number of young men (22.5%) and women (19.4%) were found to have experienced underemployment when they first started their careers.

But Australian women, more so than men, endured extended and repeated periods of underemployment.

This year, we explored these trends in a further study, analysing 20 years of data from the HILDA Survey to find out the common career paths young Australians take as they start working.

We started by looking into how often young people encounter a combination of casual work, underemployment, periods of not working and unemployment in the early stages of their careers.

Read more: HILDA data show women's job prospects improving relative to men's, and the COVID changes might have helped

Our research revealed a stark reality:

• Only 44% of young workers in our study had secured permanent jobs matching their working hours preferences within five years of graduating. The more than half that remained were dealing with employment situations that fell short of their ideal.

• Of this underemployed group – the majority of whom were women or had lower levels of education – 21% were stuck in a cycle of short-term and casual jobs, and 18% experienced careers marked by periods out of work and unemployment.

Finding a stable and satisfying job early on is a steep challenge for young Australians.

Underemployment creates a pay gap

Is moving between jobs while young good or bad for future earnings?

One argument is that switching between different short-term jobs during early careers can actually help young people gain work experience in different roles, give them time to explore their preferences and skills, and learn about better job opportunities. Ultimately, this can improve job matching and lead to higher wages later in life.

However, another argument is that when young people move randomly between jobs, companies or industries, it can slow down the rate at which they learn and grow. This is because they might not stick around at any one place long enough to really build up their experience.

We explored this issue in Australia and made three central findings.

1. Young Australians facing underemployment and casual employment at the start of their careers earn lower hourly wages on average. Even those who end up in permanent positions but are underemployed earn about 85 cents for every dollar earned by their peers in full-time permanent jobs.

2. This wage gap – between those with stable jobs early on and those who face early career challenges – does diminish over a 10-year period.

3. For young people who are primarily unemployed or inactive at the very start of their careers, wage penalties not only continue, but get worse over time. Importantly, among this group, men experienced the most significant wage penalties.

These findings tell us that jobless, underemployed youth face the heaviest career and wage penalties in later life.

What’s next?

A positive sign is the fact that the wage gap between young people in stable jobs and those facing instability closes over a 10-year period. However, this result does not fully address concerns about the uncertain career paths young people face.

Our study ultimately revealed that young people who cycle through short-term jobs and underemployment suffer wage penalties for a significant portion of their careers. These penalties have implications for their lifetime earnings and cumulative wages.

Addressing such lifelong setbacks requires us to create a more inclusive labour market that accommodates underemployed workers and those with non-standard employment experiences. This could mean introducing policies that promote job security, fair wages and benefits for workers in non-traditional jobs.

Think tank Per Capita suggests that better integrating underemployed workers into the workforce could significantly improve economic growth and national productivity.

So how do we help underemployed and jobless people find better jobs?

In many ways, underemployed jobless youth face the biggest career and wage penalties later in life. They often fall into precarious employment situations because their skills do not match what employers need, or because they don’t have the contacts, networks and connections to find appropriate job opportunities.

To deal with youth unemployment, we need better tools that enable us to show young people where the best jobs are, and also guide them on the best pathways to stable and secure jobs.

Many advanced tools that match skills to jobs are either not currently accessible without a paid subscription, or not effective enough at matching young people with the right job. Governments, industries and employment services should prioritise building new free tools that can facilitate better job searches and transitions between occupations to enhance workforce readiness for all Australians.

Read more: Half a million more Australians on welfare? Not unless you double-count