If JobSeeker was cut, would people be out there picking fruit?

Dr Peter Davidson (Senior Lecturer, UNSW Sydney) 13/9/20

This is the unabridged version of my article published on the Conversation on 23/9/20:

https://theconversation.com/if-jobseeker-was-cut-the-unemployed-would-be-picking-fruit-why-thats-not-true-145951

I’m not sure which does the most harm: the cut of $150pw in Jobseeker Payments due on 25 September or the volley of media reports about unemployed people refusing jobs that precede it.

This narrative is jarring when there are 19 people unemployed or underemployed for every job vacancy and just 3% of employers report they are recruiting yet can’t find enough applicants. Are unemployment payments really that cosy, now that they’ve almost doubled to $562 a week? [1]

Unemployment payments for a single adult are currently 84% of the fulltime minimum wage after tax ($669pw), though few workers in entry-level jobs are paid exactly the minimum wage.

Recent US research that surprised many economists suggests a replacement rate at this level need not discourage employment. A COVID-related $600pw increase in Unemployment Insurance did not stop people from returning to work, even though 70% were making more on UI than their previous wage. Unemployed workers generally prefer paid work, and in any event are usually required to search for it.

But not everyone gets the minimum wage

We know from many Inquiries that temporary migrants and young locals are often underpaid in hospitality, retail and crop-picking jobs.[2] Could it be that employers in industries with thin margins (squeezed by dominant players like the big retailers) and a ready supply of labour have grown used to offering cash-in-hand payments of $10-$20 an hour?

In piece-work systems like crop picking where pay is tied to output, there’s no legal requirement to pay minimum wages. A labour hire firm recently complained that people weren’t taking up their offer of ‘at least $500pw’ (two-thirds of the minimum wage) to pick strawberries.[3]

It’s not just the pay that discourages people from taking up these jobs: you must be fit and able to travel for a limited period of paid work. This won’t work for many people on Jobseeker, including the 24% with disabilities, 38% aged 45 or over, and 10% caring for children.

There are solutions to under-payment and high turnover in horticulture, hospitality and retail jobs. Reducing our over-reliance on working holiday-makers and international students to fill entry-level jobs is the first step. Otherwise, employers won’t do what it takes to attract workers, and local workers will remain wary. It’s about trust as well as money. More direct contact between the employers and unemployed people and less reliance on labour hire would help. Expanding and improving the Seasonal Worker Program would benefit both farmers and Pacific Islander communities, and New Zealand’s Recognised Seasonal Employer scheme are options to consider.

What about incentives to work part-time?

Before the changes on 25 September, Jobseeker Payment was reduced by 50c per dollar earned above $53pw, then 60c up to $128pw, cutting out completely for a single adult at $544pw. This means Jobseeker tops up minimum wages until you work four days a week at the minimum wage.

Former social security official David Plunkett’s models (@DPlunky) inform us that before COVID, you gained a net $100-$200 for working 1-3 days a week, rising to $269 on the fourth day (when Jobseeker expired). Since the $275pw Coronavirus Supplement was introduced, net gains declined slightly to $100-$175 for the first three days, before dropping to $5 on the fourth. The problem here isn’t the higher unemployment payment – it’s the sudden-death cut out of the Supplement as soon as the last dollar of Jobseeker Payment expires.

This flaw could be fixed by tapering the Supplement out gradually (a better move than increasing the ‘free area’ to $150pw to encourage short-hours work as the government proposes). Adjustments to tax offsets for unemployed people would also help make part-time jobs more worthwhile, notwithstanding higher unemployment payments.[4]

Net gain from working one to five days a week at the minimum wage

Days worked per weekonetwothreefourfive
Gross earnings ($pw)151302452603754
net gain – pre-COVID19 ($pw)100159198269385
net gain – August 2020 ($pw)981451755121

Source: David Plunkett

Conclusion

There’s no need to force people to choose between poverty and entry-level jobs. If, for example Jobseeker was increased permanently to the pension rate, it would be around 70% of the minimum wage after tax.

Incentives for part-time work can be improved by reforming income tests and tax. Beyond that, the answer to periodic labour shortages, exploitation and high turnover in entry-level jobs is to improve entry level jobs.


[1] National Skills Commission, Jobs in Demand, July 2020; ABS Labour Force, July 2020.

[2] Fels A & Cousins D (2019), Report of the Migrant Workers’ Taskforce. Australian Government, Canberra;
 Berg L & Farbenblum B (2017), Wage theft in Australia. Migrant worker justice initiative. In 2017-18 over 800,000 temporary visas with work rights were issued (Wright C & Clibborn S (2020), A guest-worker state? Economic and Labour Relations Review 2020, 26(3) pp465–473).

[3] Steve Austin, Radio interview with Jim Chalmers, ABC Brisbane Drive Monday, 31 August 2020. The Horticultural Award prescribes that piece rates must enable an ‘average competent worker’ to earn at least 15% above the minimum wage.

[4] For 3 day’s work, tax of $56pw is payable post COVID, compared with $22pw previously.

Job Guarantees: Do they work?

Suddenly, the idea of a “job guarantee” is back in vogue.

Lawyer, academic, land rights activist and founder of the Cape York Institute Noel Pearson has come out of it favour of it, University of Newcastle labour market specialist Bill Mitchell has a document before the prime minister, and the Per Capita think tank is pushing for a youth-only guarantee.

The idea is that the government would make an unconditional job offer at a minimum wage to anyone willing and able to work. There would be no need for the Newstart unemployment benefit (now called JobSeeker).

The buffer of jobs on offer would “normally be small and would shrink as private sector activity recovers”.

It is not widely known that it’s been tried before, by the Keating government in 1994. The scheme was limited to the long-term unemployed, making it more manageable than a scheme that offered employment to everyone who was unemployed.

Working Nation

The centrepiece of Working Nation, unveiled by Prime Minister Paul Keating in February 1994, the so-called “Job Compact” guaranteed subsidised employment for six to 12 months to everyone who had been unemployed for more than 18 months.

This article draws on my research into what happened, including interviews with senior government officials from that time.

By late 1993 300,000 people had been reliant on unemployment payments for more than 12 months.

The idea was that paid work experience in regular jobs would improve their chances of securing unsubsidised jobs by renewing their confidence and skills, and instilling confidence in employers about their ability to work.

We started off wanting to guarantee the long-term unemployed a job. We thought that’s what this agenda was all about (official, department of prime minister and cabinet)

The original plan was for most of the job placements (70%) to be offered through a private sector wage subsidy scheme, Jobstart, which had a good record for placing people in ongoing jobs.

The other jobs would be provided through the New Work Opportunities program (which offered community organisations a 100% wage subsidy to employ people fulltime for six months) and Jobskills (which offered a combination of part time paid employment and training run by community organisations).

When fewer private employers than expected took on Jobstart wage subsidies (134,000 in 1995) the job guarantee could only be fulfilled by expanding public and community sector jobs (to 123,000 positions).

As has been the case in other overseas public sector job creation schemes, these jobs often turned out to be very different to mainstream jobs, reducing transitions to unsubsidised jobs.

And as the number of subsidised jobs ballooned, their quality declined. And instead of case managers matching jobs and experience to needs, the process became a conveyor belt.

There was some dissatisfaction even within the department of prime minister and cabinet about how it was going. It appeared to be going the [old] way of not treating people as individuals, just putting people into any program that was coming along (official, department of prime minister and cabinet)

And the language of the program became increasingly punitive.

You often start with a great idea and later it gets modified. Focus groups showed the public were really down on the unemployed and sole parents. That got reflected back in the ‘reciprocal obligation’ language, which was not how we originally had it (official, department of prime minister and cabinet)

Only one third of the participants were in unsubsidised jobs three months after the subsidies ended. The official evaluation of the “net impact” of the program (the extent to which it increased the probability of employment) was a 28% improvement from Jobstart, 11% for Jobskills and 4% for New Work Opportunities.

‘High cost, low outcomes’

The Job Compact was expected to reduce the number of people on unemployment benefits for more than 18 months by 50% in its first year, but the actual decline was less than 20%.

The official evaluation pointed to its “high cost and low outcomes”, and concluded it was “not the most appropriate strategy for assisting the long-term unemployed”.

It said subsidised public sector jobs should be created only to help “the most disadvantaged clients who may not meet the job readiness requirements of many private employers”.

 

Right now, 700,000 people have been on unemployment benefits for more than a year, making the case for some sort of large-scale investment in paid work experience and training strong.

Subsidised jobs can help reduce long-term unemployment, as shown by the success of the Future Jobs Fund in the Britain and small-scale wage subsidy schemes in Australia.

Britain’s Conservative Government has just announced plans to generate 350,000 subsidised community jobs for unemployed young people.

But Australia’s experience with the Job Compact shows guarantees are no panacea.

Subsidised jobs help, but they’re no panacea

When subsidised jobs schemes are scaled up to offer jobs to everyone who is unemployed, their costs increase and their quality and their impact on future employability diminish.

We will need large-scale programs to create jobs, and we should offer the 700,000 people who are already long-term unemployed all the help they need to secure them.

But that needn’t always mean subsidised jobs. Many who are unemployed will benefit from training, others from their employment service provider partnering with an employer to skill them up.

Higher unemployment is a price we’ve paid to control the virus. It will take a mix of measures to ensure that cost is only temporary.

A Basic Income for Hard Times: Australia’s new Jobseeker Payment

Also published as: Davidson, Peter, (2020),  A Basic Income for Hard Times,  Austaxpolicy: Tax and Transfer Policy Blog,  7 May 2020, Available from: https://www.austaxpolicy.com/a-basic-income-for-hard-times/

In an emergency, governments improvise. Two new systems of income support have been announced in just over a week to keep us going as much of the economy shuts down. On 30 March, the Government announced a $130 billion wage subsidy scheme to keep people employed. This followed the announcement on 23 March of a $66 billion income support package for people who lose their jobs. That earlier package is the subject of this article.

Its centrepiece was a new payment dubbed a ‘welfare wage’ that draws us into the unfamiliar terrain between our traditional income support system and the unemployment insurance common to other OECD nations. It doubles the Jobseeker Payment (formerly Newstart Allowance) for single adults to around $560 a week via a new ‘COVID Supplement’, and extends the increase to existing recipients of employment-related and student payments.

There are tensions between these two systems. Income support (pensions and allowances) is designed to meet basic expenses for people in families with few resources. Unemployment insurance compensates individuals for a loss of income from employment, and isn’t as strictly means-tested.

With large parts of the economy shut down by governments to protect our health, both are needed (along with the wage subsidies), and fast. So the new income support package must meet conflicting objectives and be simple to administer. By what magic can we pull this off?

Closer to a Basic Income, but not a universal one

The welfare-wage brings us closer to a ‘Basic Income’ scheme: a minimum income floor that covers essential living costs, extending further up the family income scale than traditional income support. When it was announced, the welfare-wage (like the Jobseeker Payment) was confined to singles earning up to $27,000 and couples on up to $50,000. A week later it was extended to people whose partners earned up to $80,000.

This is not a ‘Universal’ Basic Income, which extends to everyone and (for that reason) is unlikely to be high enough to cover essential living costs.

An idealised Basic Income would guarantee that different types of families can reach the same minimum living standard unless they face exceptional costs. In addition to the minimum cost of supporting a single adult, it should take account of the largest variable costs: an extra adult or children in a family, and housing costs.

Our traditional income support system fails to do  this.

The Jobseeker Payment for single unemployed people is just $282 a week, $190 less than the pension– similar needs, vastly different payments.

Over a million migrants, who are for the most part unable to leave Australia now, are excluded from income support should they lose their jobs. They include many temporary migrants, asylum seekers, and people on bridging visas while their applications for permanent residency are processed.

The maximum rate of Rent Assistance for private tenants on low incomes is $70 a week for a single adult, less than a quarter of rents for a one bedroom flat in our three largest cities.

Plugging the gaps

The first step is to patch these and other gaps in the safety net. The COVID Supplement, which the Government indicates will expire in September 2020, doubles the Jobseeker Payment for singles and extends to each partner in a couple. This is welcome news to those struggling on Newstart, and will help middle income-earners with higher spending commitments who face a sharp drop in income if they are laid off.

Yet from a Basic Income perspective, the COVID Supplement opens up fresh anomalies. Based on research by Saunders and Bedford on the minimum costs of low-income households, a couple without children needs 1.5 times the income of a single adult to reach the same living standard, a sole parent with two young children needs twice the single rate, and a couple with two children needs 2.2 times the single rate.

The COVID Supplement, when combined with existing social security payments, strongly favours couples without children, who receive 1.8 times the single rate. A sole parent with two children fares relatively poorly at 1.5 times, while a couple with two children receives 2.2 times the single rate. This is due to couples receiving twice the single COVID Supplement instead of 1.5 times (as for pensioner couples), and the absence of a COVID-related allowance for children.

Basic living costs and social security payments for different unemployed families (May 2020)

Sources: Saunders P & Bedford M (2017), New Minimum Income for Healthy Living (MIHL) Budget Standards for Low-Paid and Unemployed Australians, Social Policy Research Centre, UNSW Sydney; Department of Human Services (2020), Guide to government payments, April 2020.
1. Includes Jobseeker Payment, Family Tax Benefit & Energy Supplement & Rent Assistance. (pension rates added for comparison – refers to Age and Disability Pensions and Carer Payment – Rent Assistance & Energy Supplement are also included in these amounts).
2. In 2016.
3. Children are aged 8-11 years.

All things equal, families with children or high rent payments are likely to face greater hardship than others who lose their jobs. Improved child and rental supplements would help (the maximum rate of Family Tax Benefit Part A already extends, in part, to families with two children on up to about $90,000 so an increase in this payment would help many middle-income families).

The COVID Supplement does not apply to pensions. From a social insurance perspective, it might be argued that in contrast to people losing their jobs, their financial situation won’t change much. Yet it’s likely that the cost of essentials will rise and indexation won’t compensate until after the event.

From a pure Basic Income perspective, a single person with a low income would receive the same amount altogether whether on a pension or allowance payment. Similarly, after the emergency, the single Jobseeker payment would be the same as the pension.

An equitable income floor

In designing its welfare-wage, the government has sensibly ‘started at the bottom’ – those at risk of destitution and those already on Newstart who face it daily. Gaps and anomalies in the new income support ‘floor’ could be solved by extending income support to new and temporary migrants and, at the cost a bit more complexity, by offering additional support to families with children, private tenants, and people on pension payments based on their relative needs.

An equitable income floor, together with the wage subsidies, could shield most low and middle income households from financial hardship arising from either a lack of income, or a sudden large drop in income. This should be backed by policies like the JobKeeper Payment that keep as many people as possible employed, and wider economic and employment policies to keep job opportunities open for those already unemployed, and young people unfortunate enough to enter the labour market in these hard and extraordinary times.

 

You get what you pay for: Danish & Australian employment programs neglect long-term unemployment

Denmark is an international leader in employment programs. It spends far more than most countries on employment assistance for unemployed people. Since its activation (‘activering’) reforms in the 1990s, it has a proud record of keeping unemployment low and especially reducing long-term unemployment. Contrary to neoliberal orthodoxy, the Danes achieved this despite having one of the highest unemployment benefits in the OECD.

A new report finds that changes announced in 2016 shifted the efforts of Municipal employment services away from the more disadvantaged and longer-term unemployed people towards others who were ‘easier to place’ in jobs.

I was there completing by PhD fieldwork in 2013 when those programs were reviewed, and warned that the proposed changes could weaken employment services for people unemployed long-term. That warning was based on experience of the transition from the Job Network to Job Services Australia in Australia.

So this is a story of two countries, performance-based funding of employment services, and how the best paid plans can go astray.

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The great unravelling, Part 4: Neoliberalism and its discontents

 

This is the fourth part of my blog on neoliberalism. It goes back further in time (a few centuries in fact) to trace the origins and revival of neoclassical economics. I ask the following questions:

  • What is neoliberalism?
  • Where did it come from?
  • What explains its ascendancy in the 1980s?
  • And its decline in the 2010s?

The star-studded cast of this blog includes Adam Smith, Karl Marx, Jeremy Bentham, Alfred Marshall, Friedrich Hayek, John Maynard Keynes, and Milton Friedman.

Here’s the rap versionKeynes Vs Hayek rap (just kidding, but hey this is good!), and a two minute slideshow version from Robert Skidelsky.

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The great unravelling: demise of the neoliberal centre, part 3: Neoliberalism in Australia

This is the third part of my blog on neoliberalism, which asks the following questions:

  • Were the economic policies of the Hawke-Keating governments neoliberal, or simply pragmatic?
  • Was ‘Fightback’ a triumph of neoliberalism or the beginning of its decline?
  • Did it advance or retreat under Howard and Costello?
  • What’s left of neoliberalism?

The star-studded cast of this blog includes Dani Rodrick, John Quiggin, Bob Hawke, Paul Keating, Paul Kelly, Alan Bond, John Hewson, John Howard, and Peter Costello.

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Is the Job Services Australia model ‘made for measure’ for disadvantaged jobseekers?’

Peter Davidson, presentation at ‘Employment Services for the Future conference’, Centre for Public Policy, University of (Melbourne, February 2013).

Two-thirds of recipients of Newstart Allowance have been unemployed for more than a year.Long term unemployment is associated with poverty, poor health, and higher levels of structural unemployment. As the population ages and gaps emerge in the paid workforce, Australia will have an opportunity to solve one of our worst social problems and meet one of our most pressing economic needs at the same time.

While sustained economic growth is essential to reduce long term unemployment, it is not sufficient. Evidence from Australian and international program evaluations suggest that employment services can improve the job prospects of people unemployed long-term.

Australia’s largest public employment program, Job Services Australia (JSA), is under review and a revised program is expected to be announced this year.

 This paper attempts to answer the following three questions:

  • What forms of employment assistance are most effective in reducing long term unemployment, based on recent international evidence?

‘Activation’ of unemployed people can reduce long term unemployment by requiring and assisting people with reasonable good job prospects to search for employment more effectively. Activation on its own is not sufficient. People who are unemployed long term or at risk of it usually face specific hurdles to employment such as low skills, a lack of work experience, or disabilities. Broadly speaking, paid work experience (using wage subsidies) in regular jobs and substantial vocational training (preferably linked to a job) are relatively effective in overcoming these barriers to employment while very short training courses (for example, less than three months) and ‘make work’ schemes, whether paid or unpaid (work for benefits) are relatively ineffective. That said, the international evidence suggests that successful interventions are generally those which are tailored to individual needs (of jobseekers and employers), rather than standardised.

  •  Are resources in the JSA system effectively targeted to assist long term unemployed people?

Australian and international evidence suggests that it is generally cost-effective to target the most intensive help towards people who are unemployed for one to three years, since fewer of this target group would find employment without assistance. The JSA system shifted resources from people unemployed long term towards those people unemployed for less than a year who were assessed as at-risk of long term unemployment. As a result, providers are typically funded to interview a person unemployed for one to two years every two months and purchase only $500 worth of work experience or training, on average. While not conclusive, the evidence suggests that this shift of resources reduced the effectiveness of the program in assisting those who were already unemployed long-term.

  •  Does the JSA system encourage efficient investment in work experience, training and other supports needed by long term unemployed people?

Overall Australian public investment in labour market assistance has been low – about half average OECD levels – since the Job Network was introduced in 1998. Within this pool of funds, Australia spends relatively more on job search assistance and less on work experience and training programs for unemployed people. While in theory outcomes-based funding of non-Government employment services should encourage cost-efficient investment in disadvantaged jobseekers, in practice it has rewarded providers who concentrate on low cost job search assistance rather than patient investment in work experience and training. Since the late 1990s, Governments have directly funded their preferred forms of work experience and training to fill some of the resulting gap in employment assistance.

In the Job Network period, a ‘work for benefits’ scheme (Work for the Dole) was favoured over vocational training, and this was reversed with the introduction of JSA. If funds invested in Work for the Dole (a relatively ineffective program) were replaced by substantial vocational training linked to employment opportunities, this would likely have improved the effectiveness of employment assistance. However, providers were only resourced to purchase relatively ineffective short courses and faced pressure to place people in readily-available State Government-funded courses to meet jobseeker activity requirements at low cost. Average employment consultant caseloads were over 100 which left little room for individualised assistance.

Under these conditions, the JSA program was likely to have a similar net employment impact to the Job Network, since the basic design of the two programs was otherwise similar. Average ‘gross’ employment outcomes following participation in JSA were at first similar to those of the Job Network, with just under 50% of participants in employment three months after leaving the program. Average employment outcomes fell after the GFC and declined further during 2012, but this is likely to be due to adverse labour market condition rather than changes in employment assistance.

The conference presentation concludes with a brief assessment of the Government’s restructure of Job Services Australia, which was not available at the time of writing.

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The great unravelling – Demise of the neoliberal centre (Part 2): The odd couples

In Part 1 of this series on ‘the demise of the neoliberal centre’ we examined the outcome of the Australian elections in May. Surprising all, the conservative Coalition won narrowly.

Despite talk of ‘Trump conservatives’ in Australian politics, a basic difference between recent Australian and US (and indeed UK) politics is that this election was won by the party promising stability, not radical change.

And yet – recent elections in all three countries reveal new fault lines in the old two-party systems dominated by a liberal-conservative bloc and a social democrat-labourist bloc, and between the economic prospects and ideological outlook of inner city, outer urban and country people.

In the US and UK, this has led to a radical break with the neoliberal economic policies championed by the very same countries in the 1980s. In place of free trade and (more) open borders, the Trump administration promises to ‘build a wall’ against Latino migrants and Chinese products. In the UK, the Conservatives, once champions of British membership of the European Union, has changed its mind, and the political divide between ‘remainers’ and ‘leavers’ is as bitter as that between Conservatives and Labor.

In Part 2, we ask why those two countries broke with the liberal economic order, and who supports the main advocates of aggressive nationalism in each country.

In future blogs, we’ll move from politics to economics to examine neoliberalism (what it is and where it came from), recount the shift to neoliberal policies in Australia; and then move on to political philosophy (the contest between conservatism, liberalism and social democracy); to assess what might replace the 30 year neoliberal consensus that has prevailed in many, but not all, western nations.

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The great unravelling: the demise of the neoliberal centre Part 1: Australian election surprise

When an election result is as unexpected as Australia’s in May 2019, the battle to explain it can be as fierce as the campaign itself.

The victorious Liberal-National Coalition claims the opposition Labor Party underestimated the aspirations of the working and middle classes to grow their income and wealth. Labor leaders either accept they ran a poor campaign to promote a crowded policy platform, or claim that right-wing parties and the right-wing press misled voters over its contents.

Sounds like the usual ideological tussle between Right and Left.

Yet for many analysts, there’s more to the story.  They point to the disruption of politics in the US and Europe by the newly-assertive ‘alt-right’. There’s talk of  ‘Trump Australians’. Could the same factors and forces that led to the election of Trump and Britain’s vote to leave to EU be at work in Australia? Has a disaffected working class living beyond our major cities abandoned the parties of the Left and parked its votes with the far-right?

Yes, we’re witnessing a structural break in western politics, but all is not quite as it seems!

In this series of blogs, I examine the demise of the ‘neoliberal centre’ in western politics since the Great Recession of 2008, the rise of aggressive ‘tribal’ conservatism, and the struggle of traditional parties of the Right and Left to come to terms with all this.

To understand what’s going on, we need to retrace history with the help of economics, politics and sociology. It’s a journey we need to take to avoid being taken hostage by forces we don’t understand.

Part 1 kicks off with a quick run-down of what we know about the 2019 Australian election (as at July 2019, two months later), the disruption of Australian politics since the Great Recession (or Global Financial Crisis), and points to similarities and differences to the American and British experience.

In future blogs, we’ll explore international politics (why have two leading countries in the Anglosphere seemingly turned their backs on neoliberalism?); economics (what is neoliberalism and where did it come from?); and political philosophy (the contest between conservatism, liberalism and social democracy); to assess what might replace the 30 year neoliberal consensus that has prevailed in many, but not all, ‘western’ nations.

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