Unemployment, inequality and public responsibility

The overriding problem has been the overall lack of jobs and the structural changes that have occurred have merely exacerbated this situation.

The mainstream response calls for even more labour market flexibility and is epitomised by the 1994 OECD Jobs Study. But the Federal government’s market-type systems of employment services and training recently praised by the OECD do not create paid-work opportunities. Full employment has been replaced with full employability as the legitimate goal of government. Research from a number of countries suggests that training programs do not reduce unemployment but rather reshuffles the queue.

The orthodoxy argues that, with the unemployed now more work ready as a result of the Intensive Assistance offered through the Job Network, further reductions in award pay conditions and a push towards more common law settlements of industrial disputes will help generate new jobs. The current push in Australia towards substantially relaxing unfair dismissal legislation is in this vein.

The proposal to reduce the relative wage of the unemployed (less skilled) is really just the traditional wage cutting argument that was discredited during the Great Depression. Research fails to substantiate the hypothesis that wage inflexibility accounts for the joblessness of the least-skilled. Research also fails to find "wage elasticities" large enough for relative wage cuts to represent a cure.

The accompanying welfare attacks on the unemployed merely reinforce the underclass status that joblessness has brought.

What can be done about it? A renewed commitment to full employment requires the Federal government to abandon its obsession with budget surpluses, which really just squeeze the wealth of the private sector. Only net government spending can fill the expenditure gap left by the private sector.

Further, the whole thrust of active labour market policy is predicated on the belief that the long-term unemployed represent a structural bottleneck that can only be addressed by supply initiatives like training and welfare reform. But the long-term unemployed benefit from long periods of demand expansion because firms will lower their hiring standards and pay the training costs rather than leave positions vacant. Several studies have found that long-term unemployment is not a separate problem from unemployment in general.

Further, the government must increase its own employment. What is not often noted is the impact of the decline in public sector employment growth in Australia. In 1973, the public employment share was around 3 per cent higher than it is now. That amounts to more than 600 thousand jobs being lost today. In both Australia and the USA, labour force growth and private employment growth have averaged around 1.9 per cent per annum since 1970. The major difference between the countries is that public employment growth in the USA has been proportional to labour force growth whereas in Australia public employment growth has averaged a paltry 0.6 per cent per annum. This difference translates into our higher unemployment rate.

While a vibrant private sector is essential for a healthy economy it will never provide enough work for those who want it. Public sector job creation is the only way we will return to full employment and reduce economic inequality. The countries that avoided the high unemployment in the 1970s (like Japan, Switzerland, Austria, Norway) all maintained a sector that acted as an employer of the last resort.

During the 1950s and 1960s, the public sector played this role in Australia with many labour intensive opportunities being always available to absorb the low skill workers when private sector demand was slack. The abandonment of that capacity is largely why we have had persistently high unemployment and the rising inequality.

A positive step would be for the Federal Government to replace Work for the Dole, which the Department of Employment and Workplace Relations admits is a welfare compliance program, with a Job Guarantee instead. The extra cost of paying the unemployed the safety-net wage is not high and the wasted labour could be given jobs in community and environmental development areas. The gains in self-esteem and independence would alone be worth the change.