For Hockey the result underscored the "deep resilience" of the Australian economy and proved wrong the "clowns out there talking about recession and dark clouds". The number of Australians out of work could reach well over 800,000. Credit:Diane Diederich But there's a hidden crisis that he didn't talk about: long-term unemployment. Like an alarm bell, the Fairfax-Lateral Economics wellbeing index released on Friday reveals the scale of the Abbott government's long-term unemployment problem. It shows the wellbeing cost of long-term joblessness has ballooned to nearly $4 billion a quarter.

The report's author, economist Nicholas Gruen, is surprised long-term unemployment is not getting more attention. "I've spoken to senior business and government people who regard themselves as well informed on the economy – indeed they're frequently offered up as economic pundits – and most are quite unaware of this new surge in long-term unemployment or its huge economic costs," he said. The number of people out of work for more than a year climbed to more than 190,000 last month – the highest for 16 years. The number of people out of work for more than a year climbed to more than 190,000 last month – the highest for 16 years. One in every four Australians now looking for a job is in the long-term unemployed category – before the global financial crisis,the ratio was just one in eight. Long-term unemployment exacts a terrible human cost. Study after study has shown those who have been out of work for a year or more tend to become socially isolated, and at much greater risk of mental illness, heart disease and many other health problems. It also makes people very unhappy.

Economist Nicholas Gruen says we should talk about inheritance and carbon taxes. Credit:Jesse Marlow Tony Nicholson, the executive director of welfare agency the Brotherhood of St Laurence, says economic change, especially the growing importance of knowledge jobs, has created a structural long-term unemployment problem. "We are not just talking about the cyclical unemployment we might have seen in previous decades," he said. The jobs that used to soak up a lot of young job seekers are just not there any more. Innes Willox, chief, Australian Industry Group "In the economy's transition to being more based on the services and knowledge industries, we are generating new jobs but they are not picking up the unemployed. The new jobs being generated privilege people with skills, qualifications and experience."

Nor is the burden of long-term unemployment being shared equally across the community. Young people struggling to enter the workforce have been hard hit. In April, more than 58,000 people aged between 15 and 24 years had been looking for work for more than a year. "The jobs that used to soak up a lot of young job seekers in manufacturing and lower level construction are just not there any more," says the chief executive of the Australian Industry Group, Innes Willox​. "Those who are emerging from school or training without skills don't have a lot of places to turn." But older workers have not been spared. When Marcia Keegan, an economist with consultancy SGS Economics and Planning, analysed patterns of unemployment she discovered older workers tended to remain out of work longer than younger people. She found a quarter of those aged 45 to 64 remained unemployed for more than a year, compared with only 15 per cent of people aged under 44. There is also a spatial disparity to long-term unemployment, with some outer urban areas and regional communities disproportionately affected. "If you don't live on the outskirts of our major cities or in our regional centres you don't encounter this on a day-to-day basis," says Nicholson. "But if you do get into those regions it stares you in the face…we are going to find whole cohorts of people, and whole regions, where there are large numbers of unemployed who have mainstream aspirations that they can't achieve."

In decades past, Australia has traditionally had to deal with short, sharp rises in unemployment. The conventional response has been to slash interest rates and allow the budget balance to worsen as dole payments rise and tax revenue falls. But this phase of rising unemployment has been different and traditional tools for managing unemployment, especially lower interest rates, don't seem to be getting the same traction. The jobless rate has slowly ratcheted higher as the economy lumbers at a below trend rate of growth in the aftermath of the mining boom. The budget papers predict the unemployment rate will rise to 6.5 per cent during the next 12 months, a level not seen in Australian since early last decade. That is likely to push the number of jobless Australians well over the 800,000 mark. The last time Australia had that many people looking for work was in late 1994 as the economy recovered from deep recession. **** While policies targeting families and small business have taken centre stage in the Abbott government's second budget last month, it did quietly acknowledge Australia's growing employment challenges. On budget night Hockey admitted the government "knows there are many Australians who want a job and can't get one" and announced a suite of measures to help job seekers. The centrepiece was a $330-million youth employment strategy, which includes a "transition to work" program for young job seekers in areas of high youth unemployment. Assistant Employment Minister Luke Hartsuyker​ says that under the scheme, community workers will provide intensive support to jobless young people to ensure they are "job ready".

The program will be rolled out in about 40 regions. "Rather than just telling young people they have to go out and get a job, we have to be much smarter than that," he says. "This program will be designed to meet local needs and engage with young people." The government will also overhaul the existing $1.2 billion wage subsidy scheme designed to assist a broader range of job seekers. Older workers who have been out of the workforce for an extended period will be targeted by the changes. Under the more flexible scheme, employers who hire a job seeker aged over 50 will be eligible for a $10,000 subsidy over 12 months. "Quite clearly we've got an issue where there has been an increase in the number of people long-term unemployed," Hartsuyker acknowledges.

But will it work? The chief executive of the Australian Council of Social Service, Cassandra Goldie, says the employment initiatives in the budget are welcome but warns they will be "nowhere near enough". Goldie says a much more comprehensive "jobs plan" is urgently required. "The government has essentially restored some of what was defunded last year," she said. "If we don't take this much more seriously it will be a legacy that will be with us for many, many years." There is widespread agreement that the problem of long-term unemployment will not easily be solved.

Willox, who speaks for a cross-section of Australian business, says there is a growing frustration that those coming out of schools and training institutions are not well enough equipped for the workforce. "Many employers have real concerns about levels of literacy and numeracy among those who are emerging from schools," he said. "We have to get back to basics in those skillsets to get people work-ready." Nicholson says long-term unemployment is not just bad for people, it is bad for an economy that will have to tap the productive potential of every worker as the population ages. "This is a major economic problem for us all," he says.