With an unemployment rate of 4.1%, Norway must be getting a few things right. In 2007 they did what few countries do: seriously invest in an employment program to reduce entrenched, long term unemployment. The two-year ‘Qualification Program’ aims to overcome social barriers to work as well as low skills. Participants must undertake full time activities and caseloads are 1:18. In a new twist on work incentives, they receive higher income support than similar unemployed people. It’s not cheap, but 4 years after starting the program, long term unemployed people are 18% more likely to be employed.
The WordPress.com stats helper monkeys prepared a 2015 annual report for this blog.
Here’s an excerpt:
A New York City subway train holds 1,200 people. This blog was viewed about 7,200 times in 2015. If it were a NYC subway train, it would take about 6 trips to carry that many people.
The emerging narrative on tax reform in Australia goes like this:
- Yes, the GST is regressive (as clearly shown by a recent ACOSS analysis)
- But we rely more than most of our ‘competitors’ on income taxes
- And this is harmful to incentives to work, save and invest
- So, we should ‘change the tax mix’ by raising the GST in order to reduce personal income or company tax rates.
This blog answers the question: which are more economically efficient – personal income taxes or consumption taxes?
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:
- A labour market that minimises inequality and maximises mobility;
- A social security system that minimises poverty and maximises economic participation;
- 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:
- 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.
- 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.
- 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.
Peter Davidson, Final plenary panel, Australian Social Policy Conference
Sydney, 17 September 2015
The ‘golden triangle’ of a ‘good’ welfare state is:
- A labour market that minimises inequality and maximises mobility.
- A social security system that minimises poverty and maximises economic participation.
- Community services that strengthen solidarity and combat exclusion.
Today, as in the past, the task of labour market and welfare reform is to strengthen each of these three foundations and integrate them in response to individual and community needs.
These are huge issues: It helps to focus on an example: I’ve been researching employment participation or ‘activation’ policies for people of working age on income support in four countries, including Australia.
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 improving their capacity to do so.
Employment participation policies shine a light on three factors that have always influenced well-being for people in a vulnerable position in labour market: adequate income support, access to jobs, and the services required by people who are disadvantaged in the labour market. Income support has always been linked to paid work requirements, but in the past many were exempted because they are were deemed ‘unable to work’ and Governments were not prepared to invest in the intensive labour market supports they required.
Every country does ‘activation’ differently. It’s not all about ‘workfare’ or one-sided obligations. Activation is a site for the inevitable political contests over work and welfare. Every country has its policy strengths, weak links and blind spots.
In Australia, wage inequality is too high but labour mobility is relatively good. We have an unusual combination of higher minimum wages, greater reliance on part time employment (so that employers can use low skilled labour more productively) and in-work benefits for part time employment (because people receive income support and family payments when in those jobs). This set-up is far from perfect, but it works better than labour markets that underpay large numbers of people (like the United States) or exclude them completely (like Spain and Italy).
The weak links in the labour market for low skilled workers are high levels of casual and contingent (as distinct from part time) work, and the under-cutting of minimum wages due to the steady decline of union presence in workplaces, together with rapid growth in an alternative source of low paid labour in the form of people with temporary visas (backpackers and students) whose immigration status leaves them vulnerable to exploitation. This was brought to public attention by excellent journalism at the ABS’s 4 Corners and the Sydney Morning Herald, which revealed widespread underpayment of workers at 7-11 stores and in agriculture and food processing. This is the ‘dark side’ of the labour market in which low-skilled unemployed people must now compete.
The weakest link in the social security system is the low level of Newstart Allowance for those out of paid work. At around $300 per week, it is one of the lowest unemployment benefits in the OECD.
The weak link in employment services is the lack of investment in the 70% of Newstart recipients who have received income support for over 12 months. Most of the resources invested in this group are now devoted to ‘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 answer to these challenges is not simply more benefits and more investment – the system has to be restructured in a better way that draws together benefits, the labour market, and services. Nor is there a single solution, whether it be tighter labour market regulation or a ‘Basic Income’ scheme to reduce the stigma and marginalisation experienced by low paid workers and unemployed people.
At least three changes are needed:
- First, most ‘welfare reform’ policies aim to bring unemployed people to the labour market (as ‘job ready’ workers). Much less attention has been paid to bringing the labour market to unemployed people.
There is much policy talk of improving incentives for unemployed people (who would typically double their disposable income moving from Newstart Allowance to a full time job at the minimum wage) when it is largely employers who need to be ‘incentivised’. People unemployed long term, and others excluded from jobs such as people with disabilities, do not fare well unless the labour market is ‘tight’ (i.e. there are labour shortages, including in low skilled jobs). This is in prospect as the population ages: employers may need to adjust to a world where their labour supply comes from places they might not have looked before – older workers, women returning to paid work, and people receiving income support.
If we do not expect unemployed people to accept jobs that pay below minimum wages, then we also need to ensure that minimum wages ‘stick’. One possible solution to the problem of widespread underpayment of low-skilled workers (including people with temporary visas) is one that’s used in consumer campaigns against child labour internationally: bind those at the top of major ‘supply chains’ (such as 7-11 franchisors and the major retailers of agricultural produce) to ensure that employment rights and requirements are respected further down the chain.
Even if minimum wages are binding and the labour market is ‘tight’, many people unemployed long-term would need a ‘leg up’ to move from benefits to a secure job. Wage subsidies, training linked to work experience, and employment services that work in close partnership with employers as well as unemployed people, can all make a difference here.
If the labour market does not provide opportunities for people with limited skills and social barriers to work, then at some stage in future we face the prospect of unsustainable growth in reliance on income support. Australia is far from that position today. In fact the share of people of working age reliant on income support has fallen sharply over the last 20 years due to solid employment growth and employment participation policies. Yet if we allow employment growth and labour standards to lapse, and fail to invest in employment assistance for those left behind, we could go backwards.
2. We have an antiquated social security payment structure that attempts to divide people into ‘pensions’ for those supposedly ‘unable to work’ and the much lower ‘Newstart Allowance’ for those ‘able to work’ ($200 per week less 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 outdated notion. We no longer assume that people with caring responsibilities or people with disabilities are ‘unable to work’. We should move away from the old distinctions and base rates of payment on financial need rather than distance from employment.
A common base rate of payment well above Newstart Allowance would ease the worst poverty and make transitions to paid work, or combinations of benefits and paid work, smoother than they are under the ‘pension-allowance’ system.
This idea is similar in many ways to a ‘basic income’ (and in some ways Australia comes closer to that ‘ideal’ than most countries), but with two main differences. First, income support would not be ‘universal’ (one weakness of basic income schemes is that they are typically paid below subsistence level in order to extend them to all, free of income tests). Second, income support would still be connected as far as practicable with workforce participation. The idea of a common ‘base rate’ of payment set at a level that’s adequate to live decently comes closer to Tony Atkinson’s idea of a ‘Participation Income’ than its precursor of an unconditional ‘basic income’ for all.
We should strengthen connections between income support and the labour market so that people of working age are not left in the financially vulnerable and politically weak position of having to rely on Government indefinitely to meet their basic living costs. This is not what the vast majority of people receiving income support want. If we move away from outdated notion that some people are ‘able’ and others ‘unable’ to work then participation requirements can be better adjusted to people’s circumstances, including caring roles.
Care should be taken to ensure the State does not intrude into the management of care relationships any more than necessary (e.g. where children are demonstrably at risk). The risk of over-reach is well demonstrated by the steady expansion of ‘Income Management’ and other ‘behavioural welfare’ policies that regulate people’s lives well beyond the economic sphere, merely on the basis that they receive certain payments and live in ‘targeted’ communities. It is difficult enough to connect income support to the labour market, let alone using it as a lever to ‘solve’ complex social problems. The evidence so far (including much that was presented at this conference) suggests that these paternalistic policies do not work.
3. While governments still guarantee people basic income support when they are out of paid work, no such guarantee applies to the employment assistance they need.
These days in Australia, in the name of cost efficiency and flexibility, employment services are purchased from non-government providers based largely on employment outcomes. This sounds like a good idea, given the past performance of the former Commonwealth Employment Service and large scale labour market ‘programs’ in helping people overcome disadvantage in the labour market. But over time services have been reduced to the lowest common denominator: the minimum of job search assistance required to get those considered ‘easier to place’ over the line, while the rest languish for years on Newstart Allowance.
The present employment services system (whether called Job Network, Job Services Australia or Job Active) is more about process rather than content. And the process (tenders, contracts and payment-by-results) is not working to because governments (both here and overseas) have yet to find a way to send the right signals and incentives to providers on the ground. We’ve lost sight of what it is that employment services should provide: the work experience, training and other supports that people with major barriers to employment need, and no one is taking responsibility to provide them.
The latest idea is the ‘investment approach’ to reducing social disadvantage and long term reliance on income support, which we’re borrowing to some extent from New Zealand. We must take care to ensure that the mistakes of the Job Network (including a loss of transparency and accountability for basic services within the ever more complex machinery of contracts and performance incentives) are not repeated here.
These three challenges are inter-connected: we won’t have adequate income support without labour market participation, and participation won’t be effective without substantial, well designed investment in employment supports, and a change in the way the labour market interacts with low skilled workers.
The idea that psychology (rather than shortages of jobs or skills) plays a role in unemployment is controversial. Yet employment service providers report that motivation makes a difference. A decade ago, an Australian Government study argued that the attitudes of unemployed people influenced their job prospects. But it left many questions unanswered: what lay behind those attitudes? Where they permanent or a fleeting response to current circumstances? A new book by American economist and psychologist team Mullainathan and Shafir gives us new insights into how people respond to poverty. It reveals how ‘scarcity’ shapes people’s lives and behaviour. This has implications for the way governments treat unemployed people.