Churn and burn: how not to solve unemployment

In his recent book, The New Deal at Work, Peter Cappelli explains how the United Parcel Service tackled the problem of high turnover amongst drivers of their delivery trucks:

"Loading trucks is a simple task, but one with a high injury rate. In the past, it was handled by individual drivers, and it was thought to have been the least pleasant aspect of the driver's job. By unbundling it from the tasks of drivers, UPS reduced the turnover of drivers, who are difficult to replace, while intensifying it among the new truck loading positions. Turnover in those jobs averages an amazing 400 percent per year."

Many people think that high turnover in unskilled jobs is largely a problem of flaky workers and a welfare system which makes non-work an attractive option. However there are two reasons for thinking that this isn't the whole story.

On one side there is evidence that some employers are turning to a 'churn and burn' model for their unskilled workforce. These new jobs are better described as 'exit level' than 'entry level'. Like the UPS loading jobs new positions in places like call centres have such high work intensity, such oppressive surveillance, and such limited opportunities for advancement, that it is difficult to stay in the job for long without burning out. Sooner or later a truck loader risks being injured on the job, while call centre workers face psychological stress - coping with a relentless stream of often frustrated and sometimes abusive callers (think about how you felt the last time you called your bank). Added to this are many temporary positions which are created to cover peaks in demand - jobs where limited tenure is built into the position and employers have little incentive to think about the longer term interests of their employers.

On the other side are the new more aggressive forms of welfare reform. There is a trend in countries like the US, Australia and the UK to deter claims for income support and push those currently on the rolls into whatever work is available. In the TANF (Temporary Assistance for Needy Families) program of the US welfare system (where most claimants are single mothers) they talk about 'diversion' - a system designed to turn would-be claimants away from the welfare system and back into the labour market. Instead of handing the claimant an application form they are handed the contact details for a job vacancy. Added to the system of front-end deterrence is a battery of measures designed to make claiming welfare more trouble than it's worth - workfare programs, job clubs and intensive case management. Tony Abbott, the Australian minister for employment, seems attracted to this kind of model. In March last year he told diners at a CEDA lunch:

"It's not that unemployed people aren't generally serious about finding work. It's more the mismatch between what they're seeking and what they're likely to find. Most job seekers want full-time, well paid work. Instead many entry-level jobs are part-time and comparatively poorly paid, at least to start with."

Abbott argues that welfare agencies need to combine 'help and hassle'. Welfare recipients need to understand that they can't be picky about the jobs they take. To make this position more palatable Abbott suggests that bad jobs eventually lead to good ones - but do they?

Research by Victoria University's Yvonne Dunlop found that under the Labor government's Working Nation regime some job seekers seemed to be caught in "a trap of low pay and no pay." Dunlop's analysis and that of other researchers found that many of the most disadvantaged job seekers were being churned through welfare, government job programs and bad jobs. There is some evidence that the current welfare to work system encourages this pattern.

The findings from years of research into government training programs, work experience programs and job clubs show that large proportions of those placed in work after leaving the programs are unemployed again within months. For example, one evaluation of the previous government's Jobstart wage subsidy program found that three months after the subsidy ended, between 70 and 80 percent of workers were no longer with the employer who claimed the subsidy. Some of these job seekers moved on to other jobs while around half of all Jobstart participants were out of work again.

A welfare-to-work system which focuses on placements and short term retention can encourage service providers to target high turnover occupations - the kind of jobs where employers tolerate a churn and burn pattern and are almost continuously hiring. Vacancies can arise when a firm or industry is expanding but also when it turns over its workforce while holding total employment steady. Few businesses can expand indefinitely so welfare to work agencies have an incentive to form their ongoing relationships with high turnover employers.

Churn and burn may be fine for students who need to supplement their incomes or for second earners in a household. They may even offer an opportunity for long term welfare recipients to prove their commitment to work and demonstrate their skills before moving on into better, more stable work. However what those stuck on welfare most need are jobs which are 'learn and earn' rather than churn and burn. Jobs where they learn skills their employer needs and - in a spirit of true mutual obligation - are rewarded with access to the ladder of opportunity, a chance for higher pay and better job security.