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.

  Continue reading →

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.

Continue reading →

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.

Continue reading →

Presentation at Melbourne Institute Public Economics Forum

Canberra, Tuesday 6 September 2016

Peter Davidson

Presentation to Jobs Australia conference, Hobart, November 2017, Peter Davidson

This is the final in my four part series on basic income. In Part 3, I highlighted potential impacts of  different basic income options on the labour market and social security system.  This demonstrated that basic income schemes can have adverse unintended consequences, especially for low paid workers.  In this final Part 4, I examine three possible responses to these dilemmas:

(1) a means-tested Basic Living Income;

(2) a less strictly means-tested ‘life cycle’ Living Income; and

(3) a set of smaller Supplements to meet particular costs.

These could be combined to form a two-tier Basic Income scheme with a base rate of payment to meet general living costs and a supplementary tier to meet additional costs. Continue reading →

In part 1 of this series on Basic Income, we travelled back in time to England on the eve of the industrial revolution in search of the first Basic Income scheme. When capitalism supplanted the traditional master-and-servant system of pre-industrial England, the Speenhamland system of local benefits for rural workers was replaced by the brutalities of the New Poor Law that denied benefits to ‘able-bodied’ unemployed people so that the factories had a ready supply of labour.

In the 20^th century, the labour movement and social reformers learned from the past that under capitalism, the labour market, politics and social welfare are intertwined. They built a ‘welfare state’ on a foundation of universal suffrage, full employment, labour regulation, universal social services, and social security for people lacking enough income to live decently.

In part 2, we identified challenges to the modern welfare state including precarious employment, attempts to wind back social spending, and the increasingly harsh treatment of people relying on working-age social security payments which recalls the Poor Law distinction between ‘deserving and undeserving’ poor. This has led to new questions about whether, and how, a Basic Income scheme might be part of the solution.

This piece (Part 3) examines the structure of the ‘social minimum’ (minimum incomes) in Australia, and explores the implications of replacing parts of this system with different kinds of Basic Income.

The three pillars of the social minimum

Income support is only one element of the ‘social minimum’ – the set of social guarantees that underpin income security in wealthy capitalist societies. The three pillars of a decent minimum income are the family, labour market regulation, and the welfare system, broadly defined.

Figure 1 shows trends in key components of the social minimum income in Australia.

Figure 1: Wages, benefits and pensions for a single adult ($ per week, adjusted for inflation)

Sources: ACOSS (2017), OECD StatExtracts; Department of Social Services
Note: Minimum wage for a fulltime worker, excluding overtime. Average weekly ordinary-time earnings in main job for men and women. Family payments for two children (one of primary school-age, the other of preschool age), including maximum Rent Assistance.

Over the last two decades, the social minimum has lagged behind growth in average full-time wages. This has contributed to growth in poverty and income inequality. Figure 1 shows:

1. Newstart Allowance (unemployment benefit) is very low (currently $38 a day) and has not increased above inflation for over 20 years. The last ‘real’ increase was a $2 a week rise from the Keating government in 1994.

2.Minimum wages have barely increased in real terms for two decades, and there is a reasonably consistent relationship between them and Newstart Allowance rates.

3. Consistent with Poor Law principles, allowances for those deemed ‘able to work’ are much lower  than pensions for those deemed ‘unable to work’.
4. Apart from pensions (which are indexed to wages), the social minimum is falling behind wider community living standards, proxied here by the average full-time wage. That is, the benefits of rising productivity and living standards have largely been denied to unemployed people and minimum wage-earners for two decades. Their living standards were effectively frozen in an era when the internet was in its infancy.
5. Family payments for those with low incomes rose in real terms during the 2000s but have since declined. This is due to the removal of their indexation to wages in 2009 and subsequent decisions to freeze maximum rates of payment.

Back to a Basic Income?

A Basic Income scheme alone cannot guarantee that everyone in or out of paid work has a decent income. Critics of universal basic income are right to warn that replacing employment, wage and welfare protections and services with a minimum income guarantee is risky. It risks a repeat of the Speenhamland experience that powerful interests pull the new system down, arguing that it’s too costly and work incentives and the ‘dignity of work’ would be diminished. Another risk is that income protections in the other pillars of the social minimum – especially wages and human services – would be adjusted downwards.

A better question to ask is whether a Basic Income, together with reforms to strengthen the other pillars of the social minimum, could ensure income security for all.

Much depends what kind of Basic Income scheme is introduced. Some options are:

1. A ‘living income’ (which people can live on in accordance with general community expectations – that is, above poverty levels) to replace the present social security system. This has two variants – an income-tested payment and a universalone.
2. An ‘income supplement’ which is not enough to live on, but supplements wages or social security payments to give people more flexibility to negotiate a more uncertain labour market, help with extra costs (such as a disability or retraining) or to combine employment with other roles such as care. This is usually advocated as a universal payment, or one that at least extends to the majority of income-earners.

At the heart of the contest between different Basic Income models are tensions between adequacy and universalism, and between the obligations and entitlements of citizens.

Either a living income or an income supplement could be conditional (for example, on labour market participation) or unconditional (for example, an entitlement of citizenship). This distinction was drawn by Tony Atkinson, who advocated a ‘Participation Income’.

Tensions between adequacy and universalism arise due to the high cost of a universal scheme providing sufficient income for people to live on. As Martinelli (2017) puts it: ‘an affordable UBI would be inadequate, and an adequate UBI would be unaffordable’.

Whiteford estimates that a universal, unconditional Basic Income set at the pension rate ($21,000 a year for a single adult), with allowances for partners and children, would cost $360 billion a year, compared with the $150 billion cost of existing social security payments. A large increase in tax rates (not only for high income-earners) would be needed if this were funded through the income tax system, even if the Univeral Basic Income replaced the tax-free threshold (Scutella 2004).

On the other hand, a Universal Basic Income costing the same as the current social security and welfare programs would yield a payment of around $6,000 a year, less than half the already inadequate Newstart Allowance ($13,500).

Basic Income options for Australia

Most debate in Australia has focused pragmatically on two options (the shaded segments of Table 1):

1. A ‘Basic Living Income’ that replaces existing income support and is means-tested. An example is the ‘common working-age payment’ advocated by a government welfare reviewin 2001.
2. A modest ‘Universal Basic Income’that supplements income support and minimum wages and is not means-tested. An example was the ‘Guaranteed Minimum Income’ advocated by the Henderson Poverty Report in 1976.

Table 1: Types of Basic Income

Impact of options on the labour market and welfare system

What is the likely impact of these basic income options on the labour market and welfare system?

Much of the debate over the labour market impact of a Basic Income scheme concentrates on ‘work incentives’ for paid work. As Martinelli (2017) and Bowman et al (2017) point out, this argument has been over-stated. Experimental unconditional Basic Income schemes in the United States and elsewhere have only marginally reduced labour force participation. The myth of the ‘dole bludger’ who would rather do nothing at home than work is just that. The main impacts on paid workforce participation were among people who gave priority to other activities, especially caring and studying.

The more interesting, and more important, labour market impact of a basic income is its effect on wages. This could go either way. If workers have an alternative to working for wages they may drive a harder bargain, in which case wages would rise. Alternately, if workers have access to a wage supplement, employers may drive a harder bargain to capture this subsidy, or the Fair Work Commission may discount minimum wages, in which case wages would fall.

According to Martinelli (2017) and Gray (2017), who can drive the harder bargain depends on which Basic Income option is chosen.

Option 1 (Basic Living Income) is likely to improve pay and conditions for low-skilled work. It might (modestly) reduce workforce participation among unemployed people, especially if unconditional. Low-skilled workers, who are less likely to have substantial family resources or personal savings to fall back on, would have a viable alternative to working in a job they don’t want.

If the Basic Living Income were income tested to moderate its cost, then it is of no immediate benefit to middle and higher income-earners, but would still play a vitalinsurance role for those households. We all face risks such as redundancy, ill health or marital separation.

Option 2 (modest Universal Basic Income) is likely to strengthen pay and conditions for higher-skilled work and may reduce their paid workforce participation slightly (mainly among parents and other carers). This is because even a modest Basic Income would enhance choices for those with significant family support or savings.

However, it would probably reduce wages for low-skilled workers who lack family support or savings. A modest Universal Basic Income would do little to improve their bargaining power. Unless it is built on a solid foundation of robust minimum wages and secure working hours, the subsidy is likely to captured by employers, especially if Fair Work Commission takes account of a major increase in public support when setting minimum wages.

Climbing or sinking?

(Source: Koi Bito Forum)

The end result could be an increase in wage inequality. By supplementing low-paid, insecure work, there is a risk that a Basic Income that is too low to live on could entrench it for people lacking bargaining power.

In Part 4, I will examine three possible responses to the dilemmas identified above: (1) a means-tested Basic Living Income; (2) a less strictly means-tested ‘life cycle’ Living Income and (3) A set of smaller Supplements to meet particular costs. These could be combined to form a two-tier Basic Income scheme with a base rate of payment to meet general living costs and a supplementary tier to meet additional costs.

This four part series is written based on the presentation, ‘From basic income to poor law and back again: can a UBI break the Gordian Knot between social security and waged labour?’, by Peter Davidson at the Australian Social Policy Conference at UNSW on 27 September 2017.

In the first part of this series, we followed the introduction and abolition of the first ‘Basic Income’ scheme, the Speenhamland system in the United Kingdom in the 19^th century. When Britain industrialised, cash benefits were replaced by the ‘New Poor Law’ and the Dickensian workhouse. The conclusion drawn by social reformers was that to end poverty and financial insecurity, they would have to work on a broad front: from industrial regulation to universal suffrage and the construction of a welfare state (social security, education and community services). This strategy was very successful, but now there are concerns that it no longer works and can’t be sustained.

Continue reading →

Dear readers,

I haven’t blogged for a while. My excuse is that I’m writing up my PhD thesis comparing the emergence of activation policies in four countries: Australia, United Kingdom, Denmark, and the Netherlands. As you can imagine, this is taking a while!

In case this is a topic that interests you, here’s a sample of my work: a paper I presented at the FISS conference in Sigtuna Sweden in 2014 comparing activation in the UK and Denmark:

https://www.researchgate.net/publication/272482524_Comparing_activation_policies_in_Denmark_and_the_United_Kingdom_testing_the_convergence_thesis

The conclusion? These two pioneers of activation policy took the same ideas – structural unemployment, activation, and New Public Management, and implemented  them differently. They put the activation policy jigsaw together in different ways. Path dependency was at work here: the two countries had very different sets of labour market and social security institutions, and still do.