Social policy for the ‘good society’

[comments presented at the Australian Social Policy Conference, Sydney 30 September 2015]

The ‘golden triangle’ of a good welfare state consists of:

1. A labour market that minimises inequality and maximises mobility;
2.  A social security system that minimises poverty and maximises economic participation;
3.  Community services that strengthen solidarity and target disadvantage.

To achieve the ‘good society’ we still need to strengthen each of these three foundations and integrate them in response to individual and community needs.

It helps to give an example: I’ve been researching ‘activation’ or employment participation policies for people of working age on income support.

Over the last 25 years, Governments have re-written the welfare contract:

In return for income support, people are now expected to take steps to secure paid work where they can, and Government in turn is expected to invest in supports that improve their capacity to do so.

This brings to the fore three factors that have always shaped well-being for people in a vulnerable position in labour market: adequate income support, access to jobs (keeping in mind that labour market participation was always a benefit requirement), and the services required by people disadvantaged in the labour market (which in the past were rarely offered).

Every country does activation differently: it’s a site for the inevitable political contests over work and welfare. Every country has its policy strengths and weak links.

In Australia, wage inequality is too high but labour mobility is relatively good. We have an unusual combination of high minimum wages, greater reliance on part time employment (so that employers can use low skilled labour more productively) and in-work benefits (people receive income support and family payments when in low paid part-time jobs). This set-up is far from perfect, but it works better than labour markets that underpay people or exclude them completely. For example, a full time worker in the United States receiving the minimum wage has to work five days to earn as much as a minimum wage earner in Australia receives in three.

The weak links in our labour market for low skilled workers are high levels of casual work, decline of union presence in workplaces, and lack of protection for the large number of temporary workers from overseas (backpackers and students), which undercuts minimum wages.

The weakest link in the social security system is the low level of Newstart Allowance for those out of paid work: at $37 a day, which is towards the bottom of unemployment benefits in OECD countries.

In employment services it’s the lack of investment in the 70% of recipients have been on Newstart for more than 12 months. The main public investment here is Work for the Dole (a traditional ‘workfare’ program), which is more about pushing people away from income support than drawing them towards secure employment.

The solution to these problems is not just a matter of more benefits and more investment – the system has to be restructured so that the benefit system, labour market, and employment services are mutually reinforcing.

At least three changes are needed:

1. We assume unemployed people should come to the labour market, not the other way round.There is much talk of incentives for unemployed people when its employers who need to be incentivized. A tighter labour market, better regulation of pay for low skilled work, wage subsidies for economically excluded workers would do much more to reduce unemployment than adjustments to benefits to improve work incentives. Employment service providers should have better resources and incentives to work more intensively with employers.
2. We divide social security for people of working age into pensions for those supposedly ‘unable to work’ and the much lower Newstart Allowance for those ‘able to work’. Newstart is over $260 a week less than the pension for a single adult. By implication, those able to work are less ‘deserving’ of income support, even where their financial needs are the same.‘Unable to work’ a very antiquated notion. We should move away from these old distinctions and base rates of payment on need rather than distance from employment.

   This idea owes much to the principles of ‘basic income’ (and Australia comes closer to that ideal that most countries), but I prefer Tony Atkinson’s version in which payments are still linked to workforce participation. If income support is not closely connected with the labour market, then economic exclusion may be entrenched.

   If we move away from outdated notion that some people are ‘unable to work’ participation requirements can be better adjusted to individual circumstances, especially caring roles. This does not imply that the social security system should regulate family care. Rather, caring roles should be taken into account when deciding economic participation requirements.

3. Governments guarantee people basic income support but not the employment assistance they need.In the name of cost-efficiency and flexibility, employment services in Australia are purchased from non-government providers based on employment outcomes. This sounds like a good idea – given the poor historical performance of public employment services in assisting people with labour market disadvantage. But over time employment services have been reduced to the lowest common denominator: the minimum of job search assistance required to get those who are ‘easiest to place’ over the line, while the rest languish for years on unemployment benefits.

   The present employment services system is all about process rather than content. We’ve lost sight of what it is that employment services should provide: the regular work experience, training and other services that many people need to improve their job prospects. No one is taking clear responsibility to provide them.

   We need to ensure the Government does not repeat that mistake as it experiments with the ‘investment approach’ to social disadvantage which is now under consideration.

These three issues are all connected: we won’t have adequate income support without labour market participation, and participation won’t be effective without a substantial investment in employment supports, and a change in the way the labour market treats low-skilled workers.