Steve O'Neill
Economics, Commerce and Industrial Relations Group
29 June 1999
Contents
Major Issues
Introduction
Trends in Unemployment
The Economic Roles of Labour
Market Programs
The Disadvantages of LMP
The Working Nation Programs:
Features and Cost
The Coalition Government's
Approach: Features and Cost
1997 Budget and Labour Market
Programs
The 1998 Budget
The 1999 Budget
Australian Labour Market
Programs: What have they Cost?
Assessing LMP
Effectiveness
Working Nation
Programs
An International Perspective on
'What Works'
Coalition Policies: Work for the
Dole
Job Network
A Renewed Interest in
LMP?
Conclusion
Endnotes
Glossary
AEMP Advanced English for
Migrants Program
ALP Australian
Labor Party
ATY Accredited
Training for Youth
ANU Australian
National University
CES Commonwealth
Employment Service (until May 1998)
DEETYA Department of Employment Education
Training and Youth Affairs (until November 1998)
DETYA Department of Education Training and
Youth Affairs (post November 1998)
DEWRSB Department of Employment Workplace
Relations and Small Business
DSS Department
of Social Security
EAA Employment
Assistance Australia
ESRA Employment Services
Regulatory Authority
JN Job
Network
JSCI Job Seeker
Screening Instrument
JSPS Jobseeker
Preparation and Support
LEAP Landcare and
Environment Action Plan
LMP Labour
Market Programs
LTU Long Term
Unemployed (> 12 months)
NAIRU Non-accelerating
Inflation Rate of Unemployment
NEIS
New Enterprise Incentive Scheme
NTW National
Training Wage (subsidy scheme for employers)
NWO New Work
Opportunities (public sector job creation)
OECD Organisation for
Economic Cooperation and Development
SES
Special Employer Support (replaced JOBSkills, NWO, LEAP)
SIP
Special Intervention Program
SUEP
Survey of Unemployment and Employment Patterns
TAP
Training for Aboriginals and Torres Strait Islander
Program
TEP
Training for Employment Program
VET
Vocational Education and Training
WFTD Work
for the Dole
WN
Working Nation
Major Issues
The reduction of labour market program
(LMP)expenditure has been a major
source of savings to the Federal Government's finances and has
assisted in its attainment of reaching monetary and fiscal targets.
LMP expenditures have declined from around $2.7 billion in 1995-96
to $1.5 billion for 1998-99. Nevertheless, there is noteworthy
support from a disparate group of interests for some
re-establishment of labour market programs. While these programs
are often seen in the forms of skills development measures, wage
subsidies or job search skill development, there is no precise
definition of LMP. Governments can spend finances on regional
infrastructure works as means of countering unemployment. Indeed
the Centenary of Federation funds can be used as a means of
alleviating unemployment. LMP have however been seen as those
schemes specifically targeted to assist the unemployed, and under
this approach a road building scheme let via tender to the
construction industry would not be judged as a labour market
program. This paper assesses the criteria which might be used to
judge the effectiveness of the more conventional measures.
The use of these programs might meet the
pressure for a response to the perceived job insecurity of
middle-aged males. Much publicised closures of a number of mines
and abattoirs over the past 18 months help highlight the perception
of job insecurity. There is also now evidence suggesting
disaffection with the two major political parties, especially from
blue collar males partly because of their declining fortunes in the
labour market.
Labour market policy has often been driven by a
'need to be seen to be doing something'. Professor John Freebairn
has recently observed that this reason is, in a sense, a legitimate
reason for these programs. Community pressures will determine that
governments respond by expanding labour market programs-reasonable
situation for a democracy to work around. Another source for
restoration of these programs has been parts of the academic
community who see them as a stepping stone for the unemployed to
gain skills relevant to a developed economy. Thus one component of
reform, advocated by the 'five economists' who in November 1998
advocated an award wage freeze to address unemployment, is the
upgrading of labour training schemes.
The Government has not seen the need to restore
the former system of LMP delivery. It has pursued its long term
program of replacing job assistance services delivered previously
through the Commonwealth Employment Service (CES, and subsidiary
bodies) with purchased assistance measures delivered through the
private and community sectors under the Job Network. The statistics
indicate that access to LMP has been reduced (but not eliminated).
It has retained a few of the previous specific schemes such as the
New Enterprise Incentive Scheme. It has also moved away from
defining a number of assistance programs as labour market programs.
For example the Green Corps scheme is open to the unemployed and
those not unemployed, and is therefore not classed as a labour
market program. The Work for the Dole scheme can be seen to be more
part of 'Mutual Obligations' and less a labour market program. The
Government's major instrument for delivering labour market
assistance, the Job Network (which replaced the CES) is
predominantly a job placement or labour exchange service.
Rather than expecting LMP to address
unemployment, the Government considers that employment security is
ultimately assured by a strong economy, one in which fiscal and
monetary policy allows business borrowing, investment and jobs
growth. Few would argue with this strategy. Indeed the Government
often aligns its range of policies with those prescribed by the
OECD (Organisation of Economic Cooperation and Development). The
OECD released its Jobs Strategy in 1994 and this strategy
was set around a ten point policy list including taxation reform,
macro economic framework, working hours reform, labour market
efficiency, social security reform to maximise work incentives and
other measures.
The Government has also been critical of the
perceived waste of expenditures associated with the Working
Nation policies (1994-996). It is shown that the current cost
of current programs is around 60 per cent of the 1995-6 schemes and
is likely to trend down to 50 per cent or less.
In this context, how might the effectiveness of
pre and post March 1996 labour market assistance be calculated? The
data shows that long term unemployment (those > 12 months) has
not significantly declined since 1996, indeed it trended upwards
over 1997-8. However, the overall unemployment rate is lower (7.4
per cent in May 1999 against 8.5 per cent in March 1996) and
overall employment numbers are now 8.7 million (May 1999, up from
8.29m. in March 1996). The employment outcomes are assisted by the
ongoing swing to part-time/casual work and some withdrawal from the
labour market (a reduced participation rate). There also seems
evidence that the higher productivity now being generated across
the economy is limiting the growth of employment opportunities (a
situation termed 'jobless growth').
These indicators, particularly, the costs of
employment assistance, the unemployment rate and the long-term
unemployment rate are likely to be the main ones to be used to
determine the success or failure of the new arrangements. It is
indisputable that there is less government assistance being
provided to the unemployed, but it is also noted that the reduction
has been intentional to allow the Government to achieve its fiscal
target of a Budget in surplus thereby, it argues, allowing a less
restrictive monetary framework under which the business sector is
supposed to invest and employ.
The paper reviews the evidence for these
arguments. It details the cost of programs and numbers assisted
over recent years. The main trends and measures of recent Budgets
on LMP are also reviewed. It notes that the case for LMP spending
fundamentally rests on a ability to alter equity outcomes within
the unemployed, i.e. between the long term unemployed and others,
often those who are less disadvantaged. In this respect, LMP
perform a role not easily duplicated in other employment-creating
initiatives such as a wage freeze/tax credit.
Finally, the paper returns to its theme of
reviewing the calls for the restoration of LMP. It suggests that
the sort of skills development which commentators rightly wished to
see developed to allow participation and contribution in a modern
economy, are more likely to be derived from vocational and
educational training (VET). The transformation involved in
restoring job readiness to actual workforce contribution and
participation at a semi-skilled, let alone a trades equivalent
level (or higher) is unlikely to be delivered through the
traditional LMP.
Therefore, the calls for the restoration of the
previous LMP appear genuine but may be misplaced. The signs of
skills mismatch and shortages in a number of industries are also
likely to be better addressed by access to and expansion of VET
programs thus delivering higher skill development than the
traditional LMP. The dimensions of the unemployment problem are not
as acute as in the early 1990s and the employed workforce larger,
and on this criteria, a return to the former schemes and their
previous levels of funding are not likely to be seen as warranted.
Should the unemployment rate resume its downward fall, then there
would be less likelihood of a restoration of the programs.
Introduction
Labour market programs (LMP) comprise a
sub-group of micro-economic strategies used by governments to
address unemployment through improvements to the operation of the
labour market. In economic terminology they are classified as
'supply side' policies, meaning that, with the exception of direct
job creation schemes, they primarily attempt to remedy deficiencies
in the supply of a factor of production in this case, labour.
While there has been a vigorous debate both for
and against LMP, they are a feature of the manpower policies of
most of the industrialised countries, and are systematically
reviewed by the Organisation for Economic Cooperation and
Development (OECD, in its Employment Outlook). However,
the scope, size and cost of the schemes differ across countries.
The key categories are: direct public sector job creation, wage
subsidies for private sector employers to employ the unemployed and
training and related facilities to improve their job-search skills
or assist with job-searching. The OECD also includes youth
assistance measures as employment assistance, however these
measures are not considered here as they are not targeted to the
unemployed.
Importantly such LMP have attracted some
re-appraisal. This renewed interest appears to have arisen as
sections of the community perceive that they have been
disadvantaged by the labour market's operations. The apparently
buoyant economic growth has not manifested in the growth in jobs on
offer; or these are not distributed to the areas where unemployment
is high; or that the jobs on offer demand sophisticated skills.
The perception of 'unfairness' might manifest in
the lesser skilled being exposed to a disproportionate share of
structural change (redundancies) as well as receiving low or
stagnant wages. In this vein, a recent book Australia at Work:
Just Managing? reviews the evidence of the loss of job
security of blue collar males from the 1980s onwards, as well as
increases in workplace stress for those able to remain in the
workforce. For the lesser skilled it is noted that the labour
market over the past decade, has become a 'minefield'.(1)
Dissatisfaction by individuals with what appears to be these new
'life chances' may translate into popular support for political
parties perceived as offering a return to previous securities of
permanent employment.
This is the context then for the major political
parties and others to re-examine the provision and even expansion
of reskilling and training schemes which can be provided as aid to
those who bear the brunt of restructuring.
The perception of the need for educational and
training assistance comes more earnestly from what might call the
'neo-liberal' view, evident in Fred Argy's contribution for
restoring equity in the Australian society: Australia at the
Crossroads.(2) But it is also a plank of the 'third way',
evident in Mark Latham's Civilising Global Capital.(3) The
Libertarian Right however remains sceptical over the usefulness of
these or other government spending programs for reducing
unemployment-apparent in the Institute of Public Affairs (IPA)
Backgrounder From Workfare State to Transfer State.(4)
Under almost any scenario for the future of work, there looms the
prospect of ongoing technological and workplace change resulting in
insecurity among less skilled, permanent employees. In the advent
of unemployment these programs represent some form of alternative,
but what sort of alternative?
This paper looks at how the effectiveness of LMP
might be assessed. If government finances are to be used to provide
these schemes, what is the criteria for success or failure? An
apparent lack of effectiveness of these programs re-occurs as
criticism of the programs.(5) The criticisms include that the
number of unemployed assisted into employment through these
programs is too low to justify the amount of money spent, or that
the reduction in unemployment has not been sufficient to justify
the outlays (or is no better or marginally better than what would
have been achieved without them). Indeed these criticisms have been
a rationale for the LMP spending reduction since 1996.
This paper outlines the rationale of LMP, and
describes the form of LMP delivery under the ALP Government's
Working Nation policy. It traces the changes to the
delivery of LMP since the change of government in 1996, and the
cost of programs and the numbers assisted. It reviews the
assessments of the Working Nation programs, and looks at
the scope of LMP offered through the Coalition Government's Job
Network. The paper also reviews the reasons being put, particularly
through editorials and press reports, for the restoration of LMP.
The paper concludes that the value of retaining LMP hinges on the
value attached to a skilled workforce and on the potential (and
limits) for LMP achieving these objectives. While the States and
Territories have some role in LMP delivery, the focus of the paper
is on Commonwealth programs.
Trends in
Unemployment
The graphs over-page show the trends in long term unemployment
and the share of long term unemployment as a proportion of overall
unemployment. They show that the peak in long-term unemployed
numbers of 356 000 was reached in 1993. The LTU number since then
has been reduced by about 150 000 and the numbers were 202 000
(June 1999), having fallen from 236 000 in January.
But the these numbers are still on par with
those recorded in 1996 suggesting that the bulk of the fall in long
term unemployment occurred over 1994-996. The numbers of total
unemployed also have fallen steadily. Over the 18 months to May
1999, from 772 800 to 697 400 (in trend terms).(6) Despite this
improvement the proportion of long term unemployed to the total
unemployed has not fallen much below 30 per cent.


The higher share of long term unemployed
indicates that there may be a sizeable block of the unemployed who
have developed or will develop the negative signals (to employers)
associated with prolonged separation from the workforce. (Note:
labour market economists prefer the concept of 'flows' into/out of
the labour force or into/out of long term unemployment).
The
Economic Roles of Labour Market Programs
The Macro Role
Labour market programs, as with public
expenditures generally, impose a call on taxation revenues. In the
absence of LMP expenditures, taxation can be reduced allowing the
economy to grow more rapidly than would be the case otherwise
(assisting with employment growth). Government expenditures on
these programs also tend to be counter-cyclical, that is they are
increased during recessions and wound down in periods of employment
growth.(7) Government faces decisions over the opportunity costs
concerning LMP expenditure. Without the costs of LMP, taxes can be
reduced, other government expenditures can be increased or public
debt can be reduced and, as the Government believes, assist in
relieving pressures to increase interest rates. LMP can also
perform a macro-economic function by boosting aggregate demand,
should this be perceived as needed. Decisions to expand these
programs are therefore difficult.
The Micro
Role
The rationale for labour market programs hinges
on their purpose to remedy the employment prospects of a targeted
group-the long term unemployed (those unemployed for 12 months or
more). The options available to government to improve employment
can be achieved by other methods such as tax cuts or income tax
credits.(8) but such measures while often good for the economy may
not be sufficient to make up for the special disadvantages of the
longer term unemployed. This was the observation made by the
Committee on Employment Opportunities in 1993 which drafted an
options paper forming the basis for Working Nation:
While the sustained net effects on employment
remain uncertain, active programs have the advantage that they can
be clearly targeted to long term unemployed people and reduce their
dependence on income support.
Other types of government action such as tax
cuts are likely to have lower direct employment effects,
and the jobs created are much less likely to be filled by long-term
unemployed or disadvantaged jobseekers.(9)
One other economic function of LMP is also often
noted in the literature. This is that they should assist in
reducing the NAIRU (Non Accelerating Inflation Rate of
Unemployment). The NAIRU is the unemployment rate below which
inflation will start to rise. The NAIRU concept came to be used
from the 1970s. It has been important as acting as a break on
governments using stimulatory measures to boost growth and reduce
unemployment, since measures to reduce the unemployment rate below
its NAIRU rate will result in inflation 'taking off'. The
traditional but often unfortunate method of countering inflation is
to tighten monetary policy (increase interest rates) adversely
impacting on business profitability and employment levels.(10)
To reduce the unemployment rate below its
'NAIRU' rate requires, it is argued, labour market reform including
labour market flexibilities such as increasing casualisation of the
workforce and winding down the award and arbitration system. In
Australia, the NAIRU is said to be about 7.5 per cent and the
Employment Minister, Mr Reith, has noted that the OECD has recently
revised Australia's NAIRU downward.(11) The Australian
Financial Review has also made the proposition that:
... the accumulated labour market reforms and
productivity gains suggest that the natural rate of unemployment
has been lowered through the 1990s.(12)
So Australia's NAIRU appears to be reducing. LMP
can also make a contribution to labour market efficiency
improvements and reduce the NAIRU. They can assist in reducing some
forms of skills shortages, and if they are successful in this, they
can have a role reducing labour demand pressures and thus reduced
wage pressures. In his recent book, Fred Argy has summarised the
benefits in the following points:
-
- ... by redistributing work from short-term to long-term
unemployed and from general taxpayers to LMP participants, such
programs can serve wider distributional goals (helping those most
disadvantaged and putting the cost burden where it can be best
borne)
-
- by improving the competitiveness of some low skill labour
relative to capital, they tend to increase the level of employment
at any given level of output
-
- by improving the efficiency of the labour market (better
matching of job vacancies to jobseekers) and by keeping the LTU in
closer touch with the labour market, LMP can lower the NAIRU (i.e.
make it possible to sustain a higher level of output at any given
rate of inflation-explained in this endnote).(13)
The
Disadvantages of LMP
The disadvantages of these programs are usually
regarded in the literature as being threefold, Argy for example
summarising the main disadvantages (see also OECD criteria on page
26 below):
-
- their cost
-
- the likelihood that a good many of those assisted would have
found employment without the scheme (deadweight costs-a key concept
and explained below in an illustration)
-
- the tendency of wage subsidies to encourage termination of
employment in order for the employer to gain a subsidy in hiring an
unemployed person (substitution effect).
Argy adds to these disadvantages the effects on
work attitudes (less incentive to find work due to LMP alternative)
and perhaps some added pressure on wage claims as the unemployed
regain work skills.(14)
In summary then, the long-term unemployed suffer
from work-skills atrophy and lack of appeal to employers. Other
disadvantages might include a lack of English language skills,
physical disabilities, mature age, remote area location,
non-English speaking backgrounds and others. The traditional range
of LMP can, in one sense, be seen to induce an element of equity
into the job-search chances of the unemployed by assisting the LTU.
The schemes attempt to raise their job prospects rather than
allowing the usual selection processes to favour the more
employable of the unemployed. In part, this emphasis on LTU
reflects an important feature of job searchers, which is that they
are not all from the ranks of the unemployed. Many (around 800 000)
are either part-time employees wanting more hours and others are
within the wings of the labour market but not actively seeking work
while maintaining connections to it. In other words, many in this
group are likely to gain preference for jobs over the LTU.
The Working
Nation Programs: Features and Cost
The ALP Government's Working Nation
(May 1994) policy (and earlier policies) embraced the active
employment strategy and introduced the new concept of
reciprocal obligation. This (the Job Compact)
promised long term unemployed (i..e. those unemployed 18 months or
more) either employment (usually for a maximum of six months)
through subsidies with private employers, or failing this, through
direct job creation, or an offer of training. If the offer was
refused, social security benefits could be withheld.
Enabling legislation in the form of the
Employment Services Act 1994 incorporated three new
organisations (apart from the CES) to bring diversity of choice
into the provision of employment assistance. These were
Employment Assistance Australia and the Employment
Services Regulatory Authority. These agencies both provided
case management services to long term or disadvantaged jobseekers.
EAA performed this within the CES. ESRA let contracts to private
sector case managers or organisations which provided the assistance
under contract. Clients were thus given a choice as to private or
public sector assistance. A third new body, the National Employment
Training Taskforce (NETTFORCE) was charged with promoting
apprenticeships and traineeships
The focus of Working Nation was on the
long-term unemployed, and resources were transferred from the
assistance of short-term unemployed. Case management attempted to
identify the most suitable path to augment a client's
employability. This may be, for example, suggesting a program of
English language training or other skills enhancement.
Participation in such recommended training would also satisfy the
Social Security Act's worksearch activity test.
There was also a significant delivery of
assistance through the brokered programs: JoBTrain, JoBSkills, the
Landcare Environment Action Plan (LEAP) and the New Work
Opportunities (NWO) program (for the key programs see Table 2 for
1995-6). Brokers contracted to DEETYA provided a job or training
experience in return for a fee. The range of programs under
Working Nation was recommended for streamlining in 1995 by
CESAC (CES Advisory Council). The first full year of the operation
of Working Nation policies in 1995-6 revealed the cost of
these labour market programs increased by $700 million from the
previous year to $2.1 billion-excluding administration costs.
The
Coalition Government's Approach: Features and Cost
From October 1996 the major Working
Nation programs were either terminated or grouped under new
program names with their expenditures limited as well as the
numbers assisted (see table above). In the August 1996 Budget, the
Minister for Employment Education and Youth Affairs, Senator
Vanstone, announced the plan to deliver the bulk of employment
assistance via a purchaser-provider system. This would include
contracting the staff, facilities and services provided through the
CES and corporatising the remainder of the organisation. Coinciding
with this development, steps were taken to streamline the programs
and reduce expenditures. The 1996 Budget reduced allocations under
Forward Estimates by $1.7 billion for the years to year 2000.
Also announced in the August Budget (1996) was
the major blueprint for employment assistance reform Reforming
Employment Assistance: Helping Australians into Real Jobs.
This proposed that the Government would become a purchaser
of employment services.(15) Despite the Coalition's
statement prior to the March 1996 federal election that labour
market programs would continue in much the same form and funding
levels(16), it is clear that planning to abolish the CES and
implement the employment services market commenced almost
immediately after the election. By May 1996, some 16 working
parties had been established within DEETYA each covering separate
aspects of the conversion process, for example DEETYA working
parties were set up to develop: Request for Tender, Fee for
Service, Payment Policy and so-on.(17) The services would be
provided by the private and community sectors through tender.
The Government expected that employment
placement enterprises (which now operate under the Job Network)
would place a jobseeker in a job. Reimbursement for this service
would be made in accordance with a schedule of fees paid by the
Employment Department and determined under a contract.
However, ultimately it is the department (since
November 1998, the Department of Employment, Workplace Relations
and Small Business) which determines the mix of services a Job
Network member can provide. It was envisaged that the provision of
public employment services might be required in regional areas
where there is little commercial incentive to undertake a contract,
as well as for certain hard to place clients. Indeed reforms
announced by Minister Abbott in April 1999 and cited below address
these shortcomings
1997 Budget
and Labour Market Programs
The 1997 Budget for the employment portfolio
contained some fifteen measures most of which reduced LMP outlays.
Statements accompanying the 1997 Budget contained proposals to
terminate the CES infrastructure for delivering labour market
programs and the proposal to cash-out (terminate) many labour
market programs. The Government's proposed framework for the
delivery of labour market assistance involved three key sets of
changes:
-
- Integration of key functions performed by the separate CES and
DSS networks (and others) into a single national network of offices
via a new agency (Centrelink).
- The development of a fully contestable market for publicly
funded employment placement services in which assistance will be
provided via private firms, community organisations and a
corporatised public provider (replacing the CES). Flex 1 (job
matching), Flex 2 (skills training) and Flex 3 (intensive
assistance) are the categories of assistance which providers tender
for, and if successful, provide. Payments for each level of service
vary, but range from @$200 for job matching $2000-$3000 for job
training and up to $9000 for intensive assistance.
- Arrangements for the delivery of assistance to jobseekers,
entailing testing applicants to see if they have a 'capacity to
benefit' from any assistance. This is formally referred to as the
Job Screening Classification Instrument. This assessment of a
client provides quick points ranking of the client according to
certain criteria, e.g. proximity to jobs, English language
proficiency, drug abuse etc. If jobseekers don't meet the JSCI
criteria and satisfy Centrelink officials that
they will meet the 'capacity to benefit' test, then they will
receive mainly counselling advice under alternative schemes such as
the Community Support Program.
The way the JSCI and Flex 3 (intensive
employment arrangements) interact can be seen from the following
table.
Intensive Employment Assistance scheme of
fees (Flex 3)
Assistance level
|
JSCI score band width
|
Share of intensive assistance places (%)
|
Maximum length of assistance (months)
|
Payment for primary outcomes, $
|
Up front
|
Interim
|
Final
|
3.1
|
27-34
|
67
|
12
|
1500
|
1500
|
1200
|
3.2
|
35-44
|
26
|
12
|
2250
|
2250
|
2200
|
3.3
|
45+
|
7
|
18
|
3000
|
3200
|
3000
|
Source: Dr. Elizabeth Webster, What is the Job
Network? Melbourne Institute of Applied Economic and Social
Research
Specific labour market programs, which were to
continue, were:
-
- Support for Indigenous People
-
- Entry Level Training
-
- Regional Assistance (Office of Labour Market Adjustment), and
other programs including the New Enterprise Incentive Scheme
-
- Workplace English Language and Literacy, Advanced English for
Migrants and Bridging Courses for the Overseas Trained.
The 1998
Budget
The 'cashing out' of funding for the former
Working Nation labour market programs allowed savings in
1998-99 of $472.58 million (compared to 1997-98). It was expected
that the new labour market system would cost $996.8 million
annually. Savings in the cost of providing employment services
contracts to Job Network providers have allowed a saving of
approximately $36 million (compared to initial estimates) in
1998-99. Note however, that these savings have been used to fund
additional assistance measures for the Job Network, as announced by
the Minister for Employment Services, Minister Abbott, in December
1998.(18)
To some extent, these announcements negate those
made in the May 1998 Budget. Then, changes were announced to the
Social Security Act's activity test allowing unemployment benefit
recipients to choose between a number of activities which would
satisfy the activity test (i.e. allow the payment of the benefit)
such as:
-
- Securing part-time work
-
- Engaging in part-time education or training including literacy
and numeracy training
-
- Being placed in Job Search Training or Intensive
Assistance
-
- Participating in Work for the Dole or other community work
including under the environmental Program Green Corps.
-
- Participation in the Job Placement, Employment and Training
Program which assists hard-to-place clients such as the
homeless.
The December 1998 announcements by Minister
Abbott concerning Job Network registration require all eligible job
seekers to register with one or more Job Network members.
The 1999
Budget
In the May Budget, an expansion for the Work for
the Dole scheme (WFTD) has been funded. This allows funding for
125 000 places over four years at an expected cost of $360
million.(19) However the scheme is currently restricted to 18-24
year olds and the Budget proposed extending the scheme to those
aged up to 34 years old.
A new proposal allows Year 12 school leavers
WFTD placement, provided they have received the full rate of the
Youth Allowance for three months. This extension of the scheme
would increase the number of places by 25 000 over the four years
and cost an additional $100 million. Minister Abbott, the Minister
for Employment Services suggested the proposal, on 19 April
1999.(20) Minister Reith also suggested a similar expansion of WFTD
in his letter (3 December 1998) to the Prime Minister, although he
also warned of potential backlashes to such a move.(21)
There has been a renewed emphasis on indigenous
employment assistance in the Budget with an allocation of $52
million, although in part funded from the Job Network funds. The
new arrangements should allow more Flex 1 places (350 000 to
400 000 places), and more Flex 2 places from 75 000 to 90 000.
In all, the 1999-2000 Budget finances employment assistance
measures at a cost of about $1.2 billion.
Australian Labour Market Programs: What have they
Cost?
The key characteristic of LMP is that they are a
form of government spending in the area of employment assistance
directed to the unemployed and as such are a cost to the Budget. In
recent years, LMP operations have often been used to counter
downward business cycle swings. More resources are provided for an
expansion of LMP during recession, as in the early 1980s and again
in the 1990s. During upswings, governments tend to curtail spending
on these programs. In doing so, public finances can move more
readily from deficit to balance and/or surplus. The Government may
then redirect public resources into other areas.
To ensure that LMP expenditures are best
utilised, the OECD recommended in the early 1990s that social
welfare benefits for the unemployed be balanced within an active
employment strategy.(22) Such a strategy would direct assistance
away from 'passive' income support spending to 'active' forms such
as the provision of job-search training, skills upgrading, literacy
and numeracy training, or geographical relocation. The active
employment strategy counters 'passive' welfare receipt, which, in
earlier times, provided minimal obligations (and opportunities) on
recipients to either find work or upgrade skills to make job
matching easier.
LMP spending (including provision of the
national employment service but excluding social welfare payments)
have absorbed about 0.7 per cent of Australia's GDP according to
statistics of the OECD, although the trend is trending down below
this. Commonwealth outlays on active measures (ie,
labour assistance measures such as wage subsidies, job-matching and
others as distinct from passive social welfare
payments to the unemployed) have ranged at or below $2 billion, and
have been less than one per cent of GDP, as shown in the table
below:
Table 1: Labour Market
Programs-Australia
|
1993-94
|
1994-95
|
1995-96
|
1996-97
|
1997-98
|
Active Measures % GDP
|
0.75
|
0.72
|
0.84
|
0.66
|
0.52
|
(Cost in $ Billion)
|
1.5
|
1.62
|
2.1
|
1.29
|
1.09
|
Passive Measures % GDP
|
1.88
|
1.62
|
1.29
|
1.3
|
1.17
|
Total: as % GDP
|
2.62
|
2.34
|
2.10
|
1.94
|
1.69
|
(Source: OECD Employment Outlook, June
1998, p. 211 and June 1999 p. 245, and annual reports of the
Department of Employment Education Training and Youth Affairs. The
dollar cost of LMP is confined to Commonwealth programs until
November 1998 administered under Program 4 of the Department. It
therefore excludes vocational education and youth support costs met
by the Government since not all beneficiaries are 'unemployed'.
Also excluded are administration costs. An explanation of what
costs the OECD uses in its LMP estimates for Australia can be found
in Restoring Full Employment by the Prime Minister's
Committee on Employment Opportunities, December 1993, p. 121)
The table below outlines the major (but
not all) individual Commonwealth programs operating over
the past few years, the cost of the program and the numbers
assisted. The operations of the Commonwealth Employment Service
(CES, and other administrative costs) are not included.
Table 2: Key Labor Market Programs-Numbers
assisted and cost
|
1995-96
|
1995-96
|
New
|
1996-97
|
1996-97
|
1997-98
|
1997-98
|
|
Costs $M
|
Nos
|
Programs
|
Cost $M
|
Nos
|
Cost $M
|
Nos
|
JobStart
|
236.0
|
101 000
|
|
280.3
|
92 414
|
165.3
|
61 866
|
NTW
|
63.0
|
33 000
|
|
67.7
|
11 400
|
|
|
|
|
|
JobSkills
|
|
|
|
|
JobSkills
|
273.0
|
27 000
|
|
-
|
2 443*
|
|
|
|
|
|
|
|
|
|
|
NWO
|
498.0
|
49 000
|
NOW ''
|
-
|
6 815*
|
|
|
LEAP
|
89.0
|
13 000
|
LEAP ''
|
-
|
1 416*
|
|
|
|
|
|
Total of NWO LEAP, JobSkills
|
272.2*
|
10 674*
|
|
|
|
|
|
SES from 10/96:
|
67.7
|
11 408
|
|
|
Total
|
860.0
|
89 000
|
Subtotal 1996/97
|
339.9
|
22 082
|
35.1
|
2 597
|
JobTrain
|
165.0
|
93 000
|
|
JobTrain*
|
4 831
|
|
|
ATY
|
9.2
|
1 700
|
|
|
|
|
|
|
|
|
TEP from 10/96
|
|
18 320
|
|
|
|
|
|
Subtotal 1996/97
|
63.3
|
23 151
|
50.2
|
19 388
|
AEMP
|
5.1
|
3 800
|
|
5.2
|
3 800
|
4.8
|
2 735
|
SIP
|
194.0
|
90 000
|
VET element of SIP moved to TEP to TEP;
|
|
|
|
|
|
|
|
Balance of SIP moved to JSPS
|
|
|
|
|
Job Clubs
|
30.0
|
45 000
|
|
|
|
|
|
MAS
|
20.0
|
49 000
|
|
|
|
|
|
Other
|
|
8 400
|
JSPS from 10/96
|
150
|
133 649
|
134.1
|
113 258
|
SkillShare
|
182.0
|
165 000
|
SkillShare
|
151.7 (-31)
|
123 133
|
62.2
|
83 249
|
TAP
|
37.0
|
11 900
|
Aboriginal Assistance
|
47.2
|
7 718
|
48.5
|
7 390
|
|
|
|
Work for the Dole
|
|
|
N/A
|
N/A
|
NEIS
|
104.0
|
12 000
|
NEIS
|
112
|
7 492
|
90.7
|
6 281
|
TOTAL
|
1905.3
|
702 800
|
|
1217.3
|
424 839
|
590.1
|
296 764
|
* indicates programs which were regrouped in
October 1996 under Special Employment Services, but for which
separate data on placements is available
The table confirms the reductions in outlays and
placements as the 1996 Budget cuts took sway. It is also important
to understand the interpretation of costs for individual programs.
Many were surprised to find in 1996, that the cost of finding a job
for a person placed under the (then) New Work Opportunities (NWO)
program was cited in the media at over $140 000(23). In fact, the
actual cost to the Government of placing an unemployed person
through the NWO program was $10 009 (according to Dr Wendy
Jarvie).(24)
The $143 000 figure is a good illustration of
the concept of deadweight costs, based on the notion that some of
those assisted would have found work without assistance and
therefore the 'cost' of successful employment as a result of the
assistance is accentuated. The exercise uses a comparison of
employment outcomes for 'similar' groups of unemployed persons. For
those assisted, 21 per cent had a chance of being in employment
three months after the New Work Opportunities placement finished.
However 17 per cent of a non-subsidised comparison group (with
similar personal and employment characteristics) were in a similar
employment situation. The 'net impact' of assistance was therefore
around four per cent. The cost per net impact is derived by
dividing the unit cost, $10 009, by the net impact percentage (21
per cent minus 17 per cent equals 4 per cent, but 7 per cent the
'upper statistical limit', was used).(25) Hence, the $143 000
figure. This is not an actual cost of placing a person under that
program, rather it is an estimate of the effectiveness of the LMP
expenditure, or 'bang per buck'.
Assessing LMP Effectiveness
Working Nation
Programs
It is generally accepted that Working
Nation (WN) programs incurred significant costs to the Budget,
(although these were later intended to fall(26)) and that the new
employment services market is likely to operate at about half that
cost in real terms. What can be said of the benefits of the former
programs?
Essentially the camps are divided between those
who argue that the previous group of LMP were ineffective because
either the costs of the scheme were not offset in low unemployment
or the job prospects of 'hard-to-place' clients were not adequately
considered in light of the cost of employment, resulting in a waste
of funds.
On the other hand, those who argue that the
programs were successful are relying on evidence showing that they
met the targets set for them, particularly in reducing long term
unemployment
In respect of the first negative critique
(unemployment hasn't fallen, or not fallen beyond the level which
it would have anyway), it remains valid only if the reduction in
unemployment overall, is the primary goal. However this paper has
pointed to the prime object of LMP expenditure being a
re-allocation of employment chances to the long-term
unemployed.
The second negative critique invokes notions
that the provision of employment opportunities for hard to place
clients via programs can mainly be justified if employment
continues (presumably elsewhere) after the assistance finishes. Dr
Wendy Jarvie of the (former) Department of Employment, Education,
Training and Youth Affairs (DEETYA) has noted the results of
departmental studies indicating an overall improvement to job
search success of the unemployed gained by program participation;
however she has cautioned against allowing indiscriminate access to
programs without estimation of the potential for the participant to
hold employment subsequently:
In general, evaluations show that LMPs improve
employment outcomes of the long-term unemployed and highly
disadvantaged groups. Their main measurable benefit is in the
'shuffling' of the unemployment queue particularly by getting the
LTU into jobs and keeping them engaged in the labour market ...
Labour market assistance is worthwhile. However, for implementation
to be successful, there has to be a paramount concern to match
assistance to the needs of the individual ... (DEETYA) pushed
people through NWOs and other short-term programs regardless of
their capacity to maintain their employment beyond the
program(27)
Such criticism questions the fundamental
principle of the 'Job Compact', which was to give the LTU (in this
case more than 18 months unemployed) either an employment or a
training position. In terms of bureaucratic efficiency, the
criticism makes considerable sense by preferring the allocation of
resources towards those who are more easily employed. Indeed the
approach has become fundamental to the current employment services
arrangements. However, without innovative employment schemes such
as for example the CDEP schemes for aboriginal employment, it is
likely that LTU numbers would be higher than they are now. This
initiative suggests that those whom the administration considers
hard to place can be found alternative employment arrangements or
solutions.
In respect of the positive side to WN programs,
there are now a number of econometric studies endorsing the former
policies. A study by ANU economists Junankar and Kapusckinski has
modelled unemployment outcomes over the period that WN programs
operated. In essence, it found that long term unemployment
(particularly for males) would have remained high and the rate of
decline of LTU less than it would have without the policies. To the
extent that that the WN policy was designed to reduce long term
unemployment, it can be looked on as a success.(28)
Another study by Stromback, Dockery and Ying has
evaluated the employment outcomes of certain individuals assisted
under WN programs in 1995.(29) They relied on data of assisted and
non-assisted individuals compiled by the ABS in its Survey of
Employment and Unemployment Patterns where the same groups are
monitored over time in respect of their employment successes (or
failure).
Their study, using the SEUP data, looked at the
likelihood of LMP participants and non-participants being in work
after the assistance finished. They found that participation in
programs coming under 'Employment Training' (including New Work
Opportunities) raised the predicted probability of working for a
person who had participated in this type of program to be 25
percentage points higher than for persons who did not
participate.
It is important to keep in mind the role of
different data sets. Dr Jarvie in her criticisms of NWO cited
DEETYA's post placement monitoring survey. These later results
using the SEUP evaluate employment outcomes over a slightly longer
period than those previously used by DEETYA, and these are publicly
accessible. The conclusion of Stromback, Dockery and Ying was:
... several DEETYA spokespersons have explicitly
or implicitly dismissed New Work Opportunities as either having no
effect and/or being very costly [DEETYA (1996), Jarvie pp. 190-1 in
Productivity Commission (1997)]. In contrast, according to the
estimates in this paper, Employment Training Programs (which
include New Work Opportunities) is associated with a larger
increase in the probability of being employed than any other
program type.(30)
An
International Perspective on 'What Works'
The Working Nation programs were
clearly of the traditional LMP form. A review of national
assessments of such programs collated and analysed on a cross
country basis by John Martin of the OECD and published last year in
an OECD Occasional Paper has attracted wide interest.(31) It is
based on the experiences of OECD member countries which have used
these programs. His survey of the international experiences on the
use of wage subsidy programs such as the JobStart program,
concludes:
These measures accounted for 11 per cent of
total spending on active measures in the typical OECD country in
1996. Subsidies to private-sector jobs may have a number of
objectives other than creating additional jobs. They may seek to
enhance effective labour supply by helping individuals to keep in
contact with the world of work, thereby maintaining their
motivation and skills. For equity reasons they may also be intended
to provide the long-term unemployed with jobs, even if this happens
at the expense of the short-term unemployed. These other goals of
wage-subsidy schemes may still be important even if the
net employment gains of these programs are very small or
zero. Indeed, most evaluations show that subsidies to
private-sector employment have both large dead-weight effects (i.e.
employers use the subsidy to hire workers they would have hired
anyway) and displacement effects (many subsidised hires displace
others who would have been hired in the absence of the subsidy).
(32)
For job search schemes such as the JobClubs
program and indeed the assistance provided currently under 'Flex 2'
(see below), Martin found the following evidence:
Unfortunately, it is not possible in the OECD
database at the moment to separate out spending on job-search
assistance from the administrative costs of running the public
employment service (PES): in 1996, the average OECD country devoted
21 per cent of active spending to PES administration, but much of
this comprises the fixed costs of running the service. Job-search
assistance comprises many different types of services, for example
initial interviews at the public employment service, in-depth
counselling at some stage in the unemployment spell, re-employment
bonuses, jobs clubs etc. Such services may also be
combined with increased monitoring and enforcement of the
job-search requirements for receipt of unemployment benefits.
Job-search assistance is usually the least costly active labour
market program and the good news is that evaluations from several
countries show consistently positive outcomes for this form of
active measure.
It seems that investment in active placement and
raising the motivation of the unemployed, as well as taking steps
to encourage and monitor their job-search behaviour, pay dividends
in terms of getting the unemployed back into work faster.(33)
For the training schemes such as JobSkills and
SkillShare, the evidence found:
They (the programs) usually account for the
largest share of spending on active measures: on average, OECD
countries devoted 27 per cent of their total public spending on
active measures to training programs in 1996, up from 23 per cent
in 1985 (see Table 5). But evaluations of public training programs
in OECD countries suggest a very mixed track record. Some programs
in Canada, Sweden and the United States have yielded low or even
negative rates of return for participants when the estimated
program effects on earnings or employment are compared with the
cost of achieving those effects.
However, all is not black on the front of public
training programs. A recent comprehensive review of public training
programs for disadvantaged groups in the United States by
Friedlander et al. (1997) highlights quite a number of
successful programs in terms of earnings gains and positive rates
of return for participants. It is noticeable that the most
consistently positive results were recorded for adult women. The
findings were less optimistic with regard to adult men: some
programs gave positive results, others not. The most dismal picture
emerged with respect to youth: almost no training program worked
for them. Even for those groups for whom participation in the
programs yielded a positive rate of return, Friedlander et
al. (1997) note that the estimated earnings gains are not
large enough to lift most families out of poverty.(34)
On direct job creation in the public sector,
such as the New Work Opportunities program, it was found:
Spending on this measure exceeds spending on
subsidies to private-sector jobs in many countries: on average, the
typical OECD country devoted 14 per cent of its spending on active
measures to public sector job creation measures in 1996. The
evaluation literature shows fairly conclusively that this measure
has been of little success in helping unemployed people get
permanent jobs in the open labour market. As a result there has
been a trend away from this type of intervention in recent years
but it appears to be making a comeback now in some OECD countries,
usually as part of a 'reciprocal obligation' on the unemployed in
return for continued receipt of benefits.(35)
And although programs to assist youth were not
addressed in this paper, the evidence reviewed by John Martin,
found that such measures, particularly disadvantaged youth either
into training or employment were not successful in any country's
experience:
On average, OECD countries devoted 12 per cent
of spending on active policies to these measures in 1996. One of
the most disappointing conclusions is that almost all evaluations
show that special measures are not effective for disadvantaged
youths. This holds not only for public training programs (see
above) but also for targeted wage subsidy measures too. Given the
depth of public concern about youth unemployment and the large
public spending devoted to special youth measures, a high priority
must be assigned to discovering the reasons for the dismal track
record of such measures and designing and implementing more
effective programs.(36)
Martin's conclusions on what works recommended
firstly the use of in-depth counselling, job-finding incentives
(e.g. re-employment bonuses) and job-search assistance programs.
These measures needed to be combined with increased monitoring and
enforcement of the work test. Public training programs needed to be
small in scale and well-targeted to the specific needs of both
job-seekers and local employers. Early interventions, reaching back
to pre-school, can pay dividends for disadvantaged youths.
For youth, measures are needed to reduce early
school-leaving and be targeted on at-risk students combined with
policies to ensure that they leave the schooling system equipped
with basic skills and competences that are recognised and valued by
employers. It is also important to improve poor attitudes to work
on the part of such young people and adult mentors can help in this
regard.
As the duration of unemployment spells
lengthens, various forms of employment subsidies may serve to
maintain workers' attachment to the labour force. However,
employment subsidies should be of short duration, targeted and
closely monitored. Subsidised business start-ups for the minority
among the unemployed who have entrepreneurial skills and the
motivation to survive in a competitive environment are useful.
Finally, John Martin's review recommended that more countries
should evaluate their labour market programs are to expand the
knowledge on 'what works' and 'why' among active labour market
policies.
Coalition
Policies: Work for the Dole
Although the Coalition Government has brought
about radical changes to the delivery of employment assistance
since 1996, its most visible scheme, Work for the Dole, has not
been in operation for much more than 18 months and the Job Network.
has been operating for 12 months. This makes assessment
difficult. As noted, a certain number of other LMP, such as NEIS
continue to be funded by DEWRSB, others such as WELL remain in
DETYA. However, the current spearhead of policy appears to be
expansion of WFTD. One assessment of whether the WFTD scheme can
work has been made by Fred Argy. The criteria he suggests for
assessment include that:
The work is of benefit to the community and such
that it would not otherwise be done (e.g. provision of community,
environment or charity services that are now being neglected
because of absence of volunteers or fiscal constraints) and does
not merely shift jobs from other low income workers;
If the working conditions are in line with
community standards;
If it does not make the unemployed worse off in
the short term (e.g. by expecting them to bear higher transport and
clothing costs within the same social security benefit
If it does not inhibit them in their job search;
and
If it allows the LTU to obtain work experience
and enhances their self-respect, morale and confidence and provides
on the job structured training or skills
But if they meet most of these conditions, WFTD
schemes are hard to distinguish from the previous governments' LMP.
(If) many of the conditions are not met (e.g. if participants are
compulsorily dragooned into projects and given neither productive
work experience nor training nor counselling), the exercise could
prove self defeating-and even counter productive-because the
implicit notion that they lack a work ethic or integrity can cast a
slur on the unemployed who participate in the schemes. (37)
An evaluation of the WFTD Pilot Program has been
released by Minister Abbott which essentially reviews the work
experiences of a number of participants after participation in the
scheme finished.(38) This evaluation correlates with an earlier
report to Parliament in which the Minister commented that WFTD
placements had reached 18 000 since the scheme was introduced at
the end of 1997. As well, 32 per cent of those assisted held on to
unsubsidised employment three months after the placement had
finished. However 10 per cent undertook further training after the
placement finished.(39) Other data does show that by January 1999
less than 7000 young people were in WFTD schemes suggesting that
the scheme has had limited coverage.(40)
Job
Network
Since its commencement on 1 May 1998, the Job
Network has borne the brunt of adverse criticism and unfortunate
circumstance as a few of the successful tenderers decided to quit
the system due to financial stress. Minister Kemp announced the
first significant wave of reforms to the Job Network system on 25
August 1998. The reforms provided an injection of $50 million by
way of grants of $10 000 to JN providers. Other reforms included
opening access to JN providers for some classes of ineligible
jobseekers (such as those with redundancy packages and the partners
of employed persons).
Minister Abbott announced enhancements to the
Job Network in December 1998 and in April 1999.
The first package of measures relaxed the
eligibility criteria for access to placement fees, such that
unemployed people not on benefits could have the cost of the
service provided by a JN member paid by the Government. Secondly
development grants worth up to $10 000 were to be given to JN
members. These measures were meant to ease the relationship between
the Job Network provider and DEWRSB by improving the income and
cash flow of Job Network members.(41)
The second wave of additional assistance
provided:
-
- Upfront retainers of 30 per cent of expected job matching
places for each contract monitoring period.
-
- Additional payments of $100 per successful job matching
placement to ensure the provision of a wider range of services to
unemployed people (such as the preparation of resumes).
-
- An additional $45 per successful job matching placement in
regional areas in recognition of the extra costs involved in
servicing these areas.
-
- Funding of $25 per successful job matching placement for those
Job Network members leasing touchscreen job search facilities.
-
- Funding of up to $1000 to each job matching site for local
marketing activities to increase Job Network members' reach to
employers and unemployed people.
-
- Administrative changes to promote referrals to Job Network
members plus speedy payment for successful outcomes.
-
- Extending job search training services to women returning to
the workforce irrespective of whether they are receiving an
unemployment allowance.
-
- Extending the current contract for Job Network members by three
months so that they will now expire in late February 2000. This is
to enable the lessons of the current tender round to be fully
assimilated.
-
- Job Network members who did not want to continue in the
employment services market will be offered an exit package of up to
$15 000 per site to help cover the costs of withdrawing from the
market.(42)
The most recent enhancements announced in April
1999 are intended to limit full price competition for Intensive
Assistance (Flex 3). Other measures include:
-
- a $250 bonus for network members when Job Search Training
Participants stay in jobs for 13 weeks
-
- The provision of specialist intensive assistance providers for
job seekers with a disability, indigenous job seekers and the young
unemployed and in particular circumstances replacement of outcome
based payments with fee for service (remote rural areas).(43)
In essence, the reforms have attempted to
address the following criticisms of the arrangements:
-
- The tendering process favoured the lowest bidders (a point
effectively acknowledged in a report of the Job Network tender by
the Australian National Audit Office(44)), overlooking more
reputable organisations with extensive contacts.
-
- Centrelink had trouble meeting the new workload due to cuts in
its staffing and other weaknesses in the relationship between
Centrelink, the Job Network provider/s, and the client and
prospective employer/s.
-
- Payments for Flex 1 job search services (initially signalled to
be around $250) in practice appear to have fallen to $190 meaning
that providers who do not win Flex 2 and 3 contracts face severe
financial difficulties.
-
- Employers can be faced with a charge for a service, which was
formerly provided free, especially where the person referred is not
an 'eligible' client, thus has been a reluctance by employers to
use the service.
-
- Ineligible clients can comprise a large percentage of a
provider's caseload for which no fee is necessarily payable,
however some formerly ineligible clients are now assisted.
-
- Initially, there was no obligation on unemployed job-seekers to
register with a Job Network provider. There have been a number of
cases where large employers have sought to develop internal
mechanisms for screening and searching for people to fill vacancies
having been disappointed with the Job Network service, and no doubt
the Internet will accentuate this possibility.
Many of the systemic problems, such as the initial absence of a
need to register with a Job Network member, have been addressed in
the three waves of reforms mentioned above. Minister Abbott
reported on the performance of the Job Network in its 'End of Year
One Report Card'.(45) The data reported there includes:
Job Network 1998-99: Key Indicators
Vacancies notified
|
500 000
|
Flex 1 placements (including Flex 2 and 3
placements)
|
240 000
|
Flex 2 (Job Search Training)
|
12 500
|
Flex 3 (Intensive Assistance)
|
70 000
|
Cost
|
Est $860.8m.
|
(Source: The Hon Tony Abbott, media release,
Job Network End of Year One Report Card, 30 April
1999 and DEWRSB Portfolio Budget Statements 1999-2000 p. 27)
In January 1999 the system placed 16 000 on
benefit into work which, it was alleged, was 50 per cent better
than the outcomes achieved by the CES a year earlier. Also in
January 43 000 vacancies were registered with the Job Network by
employers which was supposedly double the result achieved by the
result achieved by the CES a year earlier.(46) The Minister also
informs that comparative job placement data for the CES has been
discounted by 40 per cent to exclude temporary and casual jobs,
since these sort of jobs are not considered eligible under the Job
Network. On the other hand, Job Network eligibility allows work
arrangements of 15 hours duration spread over five days (which to
many would be considered as both casual and, in all likelihood,
temporary).
Are such comparisons fair? As noted, from May
1994 the operations of the CES were significantly altered through
the diversion of a section of its workload (and staffing) into case
management-through either Employment Assistance Australia, or the
Employment Services Regulatory Authority. For 1992-93, the CES had
the following performance indicators:
Commonwealth Employment Service 1992-93: Key
Indicators
Registrations of unemployed
|
2 025 912
|
Job Vacancies received
|
706 261
|
Placement into jobs
(LTU number)
|
538 835
(150 611)
|
Placement into LMP
(LTU number)
|
490 000
(313 855)
|
Staff Employed
|
8 700
|
Administration and Salaries
|
$400m.
|
(Source: Department of Employment, Education and Training,
Review 1992-93, p.127-128 and the Committee on Employment
Opportunities Restoring Full Employment: A Discussion
Paper, pp.137-138)
As noted, the greatest change introduced by the
Coalition Government is the abolition of specific programs. The
provision of a wage subsidy to a prospective employer under Flex 3
(intensive assistance) is one of a number of options available to
Job Network members. Centrelink will have made an assessment of the
client under the JSCI. However in his letter to the Prime Minister
(3 December 1998), Minister Reith observed that Job Network members
appeared not to be offering job subsidies to assist disadvantaged
long-term unemployed:
... the minimal use currently being made by Job
Network providers of their scope to offer wage subsidies, as part
of intensive assistance to the LTU may also need review.(47)
This suggests that the former mix of wage
subsidy and training assistance schemes have been considerably
blurred under the 1998 arrangements, since it is possible under
intensive assistance to provide wage subsidies for example.
These results seem to fly in the face of the
criticisms of the Job Network mentioned earlier; how are the
comparisons made? Criticisms of this comparison method raised by
the Sydney Morning Herald include that the CES operation
was run down from 1997 and particularly in early 1989 in
preparation for the start of the new system (as well as its partial
restructuring into Employment National). CES figures have been
discounted by excluding casual work, but the Job Network is
considered to have found someone a job if hours worked are greater
than fifteen. The placement of long term unemployed under the CES
was calculated by reference to the total numbers of job seekers
placed in work. The Job Network percentage was only by reference to
the percentage of 'eligible' job seekers placed in work, estimated
to be roughly half of those who used the Job Network.(48)
The positive side to the assessment is that the
Government's fiscal and monetary policies have assisted in
expanding employment (8.7 million employed in Mary 1999 compared to
8.3 million March 1996), and the unemployment rate has fallen to
7.4 per cent in trend terms for May 1999. The signals seem positive
for further reductions in unemployment, except that such an
assessment tends to overlook issues to do with the composition of
unemployment (noted at the beginning of this paper), and in recent
months both the fall in unemployment and the growth of employment
appears to have stalled. On the other hand there have been
spectacular gains in monthly employment statistics earlier in the
year.
A Renewed
Interest in LMP?
A re-evaluation of the role of labour market
programs can be found in references to employment strategies
appearing in the media. The calls appear to be made on the
(understandable) premise that a modern, information-based economy
needs a skilled productive workforce both to produce wealth and
enjoy the benefits this new richer society. Such views are often
buttressed by overwhelming evidence of social disadvantage being
linked to poor education and inadequate life skills, as evidenced
in Business Council's recent paper on rebuilding the safety
net.(49)
The debate is interesting because the move to
the Job Network has in part limited the Government's ability to put
back the programs. Any significant restoration of the schemes is
likely to 'distort the market' for employment assistance.
Information on local area labour markets collated (formerly) by
DEETYA has also been made available for providers to make offers
for Job Network contracts. It is true that there still a few
discreet programs operating separate from the Job Network (above).
However the emerging trend seems to be the delivery of employment
assistance through the Job Network/WFTD.
The 'Five Economists' (Ross Garnaut, Peter
Dawkins, John Freebairn, Michael Keating, Chris Richardson),
co-authored a letter to the Prime Minister late last year proposing
an award wage freeze to boost low-skilled employment. The letter
also acknowledged a need to improve education, training and labour
markets:
Recent research at the OECD shows that no single
policy can be expected to solve the unemployment problem. A range
of policies will be required, acting on both the demand and the
supply of labour. As well as tax reform and the award rates freeze,
this should include the upgrading of education and training systems
and a systematic approach to labour market programs.(50)
Peter Dawkins, one of the 'Five Economists' has
explained the rationale for the wage freeze, in terms of its
effects on the demand and supply of labour, and in doing so, has
also re-affirmed the role of training for the less-skilled:
In the long run, the best response to strong
growth in demand for high-skilled labour and weak demand for
low-skilled labour is to expand the amount of high-skilled labour
through education and training and to try to reduce the amount of
unskilled labour. In the short-run however, getting less-skilled
people into work is a priority.(51)
Some media reports suggest the need for the
restoration of some (not clearly specified) of the programs, as in
the following editorial:
(One) reform needed to ensure that the labour
market in Australia remains cutting edge and able to keep up with
the demands of global economy is to educate and train the labour
force to ensure that they can meet the requirements of employers.
An under-educated, under-skilled workforce means that the economy's
ability to lower the unemployment rate will be severely
constrained.
This where the Government erred in its attempts
to repair the Budget position, particularly in the 1996 Budget,
when increases to university fees and cuts to labour market
programs delivered almost half of the savings. These policy
changes, particularly the reduction of government sponsored
training for the LTU, will lead to a less skilled workforce which,
perhaps regardless of wage levels, will not be wanted by employers.
If too many of the LTU remain unskilled, they are less likely to be
able to find employment, whatever the pace of economic growth and
regardless of the wage level.(52)
The editorial appears to conform with the
consensus view that LMP should be designed to assist the LTU into
employment (and not be assessed directly according to success in
reducing unemployment rate).
Ross Gittins has argued the need for LMP along
the lines raised in the introduction to this paper, that industry
restructuring has generated what seems to be a class of losers from
change:
It (the Budget cuts to LMP) represented a
classic case of his (Mr Howard's) unwillingness to compensate the
losers from micro-economic reform ...
Many reform measures-including the cuts in
protection to manufacturing and the attack on over-manning in
myriad public utilities-involve 'displacing' workers from their
jobs
... Many of the middle-aged, male workers so
displaced experience considerable difficulty finding re-employment
(... (A) particular program (New Work Opportunities program) had
been put there especially to assist the long-term jobless in
country towns where 'real jobs' were thin on the ground. So, the
burden of the decision to slash Working Nation fell
disproportionately on regional Australia. The direct and indirect
victims are threatening to vote for One Nation.(53)
John Edwards former adviser to Prime Minister
Keating and now an economist with HSBC Markets also sees the need
for training. This call however is in the event that the growth of
the economy produces good jobs which our unemployed are not likely
to be able to fill due to their separation from the workforce and
their lack of relevant skills:
As a solution to general unemployment, durable
economic growth will prove much more powerful. So powerful that if
expansion continues, the most urgent policy issue will not be the
demand for labour, but its supply. Within a few years the problem
will be finding people for jobs, not jobs for people.
Training and retraining are more important than
wage cuts because the ability to take a job will soon be more
important than the ability to offer it.(54)
Conclusion
This paper has reviewed some of the statistics
concerning the provisions of (Commonwealth) labour market programs
and has used these in the context of seeking to assess the
effectiveness of the schemes. The econometric studies referred to
suggest that the previous set of policies under Working
Nation were effective, in the sense of assisting with the
reduction of long term unemployment, which was the particular focus
of the Job Compact. By contrast, employment assistance under the
Coalition has been targeted to get more outcomes for lower outlays,
i.e. it has a different focus and purpose.(55) By providing
services, possibly, at half the cost of the former scheme, the
current grouping of employment services is more likely to win
public support. It would not be difficult to guess that the
performance indicators which will be used to judge the new
employment services market will include: the unemployment rate, the
long term unemployment rate, the overall cost, including cost per
placement and numbers assisted. Professor John Freebairn
has suggested that a period of 5-10 years may be required to assess
the new employment services market.(56) Other indicators such as
client service quality differentials are likely to be harder to
quantify, or a 'best guess' may substitute for harder data.
Nevertheless and despite these changes, there
has been an informed call for some restoration of LMP, under the
rubric of restoring the workforce on a knowledge-based, high
productivity economy. The call reflects the increase in demand for
skill and training and useful previous work experience. A skilled
workforce can be developed through vocational, education and
training programs which can be of either the private or public
sector. LMP for the LTU may provide a basis for additional skills
development (from a low base). Vocational training of the sort to
lift national productivity and secure an individual's employability
is more likely to provide on-going skill development (compared to
LMP). In this scenario, the media/academic call for the restoration
of LMP schemes would seem to be misplaced, in the sense that
education and training programs are more likely to provide the
outcomes which are being sought (unless of course a strong link
between LMP and ongoing, higher education and training and be
shown). If this is case, then to borrow from Argy, there is
possibly not a lot of difference between the former schemes and the
current WFTD scheme. However, where LMP can redistribute chances to
unemployed who are likely to be continuously deprived of employment
and training opportunity, there will remain a need.
Endnotes
-
- ACCIRT Australia at Work: Just Managing? (Prentice
Hall, 1999).
- Fred Argy, Australia at the Crossroads: Radical Free Market
or a Progressive Liberalism (Allen and Unwin 1998).
- Mark Latham, Civilising Global Capitalism; New
Thinking for Australian Labor, (Allen and Unwin 1998).
- Michael Warby and Mike Nahan from Workfare State to
Transfer State, IPA Backgrounder, Vol.10/3, August 1998.
- See for example John Freeland's review of the pros and cons of
labour market programs in 'If labour market programs can't create
jobs, why have them?' Values, Winter 1996.
- Australian Bureau of Statistics, Labour Force Cat. No.
6203, March 1999.
- See for example Alan Stretton and Bruce Chapman, An
Analysis of Australian Labour Market Programs, centre for
Economic policy Research, ANU, Discussion Paper No 247, 1990,
p. 17. Note that in real terms LMP expenditures under the
Fraser Government in 1982 were on par with the level expended in
the early 1990s: $1.25 billion in $1989-90 and $1.23 billion in
1992-93. The growth of employment allowed a fall in LMP
expenditures in 1988 to $500 million ($1989-90). See also Committee
on Employment Opportunities, Restoring Full Employment,
Background Papers, p. 193.
- For a review of the wage freeze tax credit debate see
Department of the Parliamentary Library, Proposals for a Wage
Freeze and Tax Credits: Will Subsidising Low Wage Jobs Solve
Unemployment? Research Paper no. 29 1998-99 by Ian Watson.
- Committee for Employment Opportunities, Restoring Full
Employment: A Discussion Paper (AGPS 1993), p. 107.
- On the use of restrictive monetary policy to counter economic
booms, see J.K. Galbraith, Money, Whence it came, where it
went (Andre Deutsch 1975) pp. 279-282.
- The Hon. Peter Reith, 'Employment Initiatives Canvassed'
media release, 17 February 1999. In his letter (3/12/1998)
to the Prime Minister attached to this media release, Minister
Reith referenced the OECD's downward revision of Australia's
structural rate of unemployment from 8.2 per cent in 1990 to 7.5
per cent in 1997. The NAIRU or Non Accelerating Inflation Rate of
Unemployment has been understood as the level of unemployment which
an economy can sustain without kicking off inflation. In other
words the level of the NAIRU is (allegedly) the limit to which
unemployment can be reduced. And to reduce the NAIRU, economists
advocate micro economic reform measures such as labour market
deregulation.
- S. Koukoulas 'No reason to fear lower unemployment' The
Australian Financial Review 17 March 1999.
- Fred Argy, Australia at the Crossroads: Radical Free Market or
a Progressive Liberalism (Allen and Unwin 1998), p. 149.
- Ibid. p. 147.
- Reforming Employment Assistance: Helping Australians into
Real Jobs. (Ministerial Statement, DEETYA, Budget 1996).
- The Liberal Party of Australia, Meeting Our
Commitments (February 1996).
- Australian National Audit Office Management of the
Implementation of the New Employment Services Market (Audit Report
No.7 1998-99) p. 155.
- The Hon. Tony Abbott MP, 'Job Network-The Next Phase',
media release, 16 December 1998.
- 'Budget may expand work-for-dole scheme' The Australian
Financial Review, 13 April 1999.
- The Hon. Tony Abbott, 'Work for the Dole expanded to include Yr
12 school-leavers' media release, 19 April 1999.
- The Hon. Peter Reith MP, 'Employment Initiatives Canvassed',
op. cit.
- OECD Labour Market Policies for the 1990s, (OECD,
1990).
- 'Jobs outlay fails to get results', The Australian, 25
February 1996.
- Dr Wendy Jarvie 'Labour Market Programs', cited above,
pp.190-191.
- Ibid. p.191.
- See Budget Paper No.1 1994-95, p. 3. 185.
- Dr Wendy Jarvie 'Labour Market Programs' in Changing Labour
Markets: Prospects for Productivity Growth (Workshop
proceedings from Melbourne 20-21 February 1997), Industry
Commission, Melbourne 1997 p. 190.
- P. N. Junankar and C.A.Kapuscinski, 'Was Working
Nation working?' in Journal of Industrial Relations
(March 1998).
- T.Stromback, M.Dockery and W.Ying, Labour market programs
and labour market outcomes, Melbourne Institute Working Paper
No. 98/14, Melbourne Institute of Applied Economic and Social
Research, The University of Melbourne 1998.
- ibid. p. 48.
- John Martin, What works among active labour market
policies: evidence from OECD countries' experiences, OECD
Working Paper vol. 6, no. 82, Paris 1998.
- ibid. p. 20
- ibid. p. 18.
- ibid. p. 17.
- ibid. p. 21.
- ibid. p. 18.
- Fred Argy, Australia at the Crossroads: Radical Free Market
or a Progressive Liberalism (Allen and Unwin 1998) pp.
151-152.
- The Hon. Tony Abbott, 'Work for the Dole: It's working for
Australia', media release 26 May 1999, with
Executive Summary of the Work for the Dole Pilot Evaluation
attached.
- The Hon. Tony Abbott, House of Representatives,
Hansard, 10 March 1999 p. 126.
- 'Work for the dole not working for jobless', The
Australian, 10 February 1999.
- 'Jobs Network gets $55.5m breath of life', The Australian
Financial Review, 26 August 1998.
- The Hon. Tony Abbott, 'Job Network, the Next Phase', media
release, 16 December 1998.
- 'Job Network reforms aim to lift services, accountability',
The Australian Financial Review, 17-18 April 1999.
- Australian National Audit Office Management of the
Implementation of the New Employment Services Market (Audit Report
No.7 1998-99) p. 155.
- The Hon. Tony Abbott, 'Job Network End of Year One Report
Card', media release, 30 April 1999.
- The Hon. Tony Abbott, House of Representatives,
Hansard, 10 March 1999, p. 2509.
- The Hon. Peter Reith, media release: 'Employment Initiatives
Canvassed', 17 February 1999.
- 'Job Network success claims come under fire', The Sydney
Morning Herald, 25 August 1998.
- Business Council of Australia Business Council of Australia,
Rebuilding the Safety Net, New Directions Discussion Paper
1, March 1999, pp. 3-5.
- 'Dear John, how to create more jobs', The Australian,
26 October 1998.
- 'Wage restraint would pay off in jobs' The Australian
Financial Review, 15 December 1998.
- 'A Job Still to Complete', The Australian Financial
Review (editorial), 15 January 1999.
- 'Howard wrong on job programs', The Sydney Morning
Herald, 6 July 1998.
- 'Let Growth sole our unemployment', The Australian
Financial Review, 8 March 1999.
- As Dan Finn has observed: '...providers are under intense
pressure to prioritise those unemployed people most likely to
obtain jobs at least cost' in 'Job Guarantees for the Unemployed:
Lessons from Australian Welfare Reform', Journal of Social
Policy, Cambridge University Press, Vol.28, Pt.1 January 1999,
(www.journals.cup.org)
p. 65.
- Professor John Freebairn, address to 'Rebuilding the Safety
Net' Conference of the Business Council of Australia (BCA New
Directions Conference), 29 April 1999.