Although I’ve written for the Fin for nearly ten years, it’s always been in the role of a dissenting voice on the Op-Ed page. Even when, as at present, the regular opinion commentators are fairly evenly balanced between left and right, the editorial column has stuck closely to economic rationalist/neoliberal orthodoxy.
Today’s editorial on unemployment (subscription required) though is positively Quigginesque*, making the points that 6 per cent unemployment is too much and the Job Network is a mess (for my views on the same topic, go here. There’s even a warning against excessive reliance on market ideology, to balance the inevitable call for further liberalisation of labour markets.
Obviously it’s great to see the Fin taking a hard look at an issue like unemployment and coming up with an answer I can agree with in large measure. I also take a less worthy pleasure in thinking how much this will annoy my friends at the Institute of Public Affairs. They’ve always been bitter at the Fin for having me as a columnist, and they’ll be spitting chips if they think that my heresies could start to infect the editorial column.
While we’re on the opinion pages, check out this neat application of prospect theory by Ross Gittins.
*This delightful term was coined, I think, by Henry Ergas
John Quiggin 
sorry to be pedantic, but don’t you mean that 6% unemployment is too much, rather than not enough?
Fixed, thanks
John,
I have always thought that three things could be done to reduce Unemployment to very low levels.
1) Set up family income tax credits. This can be used to reduce minumum wages overtime without reducing household incomes and can also reduce the very high MRTs that welfare recipients face
2) intense retraining for long term unemployed. Imagine a more sophisticated form of working nation
3) put a limit on unemployment benefits say 18 months as in Sweden.
None of these proposals are original but they are expensive and no Government would gain electorally from this. hence I never expect any of this to ever be implemented.
I am yet to be convinced that the Australian electorate is particularly concerned with unemployment.
Reducing very high marginal rates of tax for people moving from welfare to work has not been treated seriously. Carelessness, I suppose.
Don’t we already have some kind of time limit on unemployment benefits? (Considering this policy saves money)
I’ve wondered just how long it would take to fix the poverty trap high effective marginal tax rates if there was a new top marginal tax rate – starting say at a Junior Minister salary that was the maximum of the current and the poverty trap rates. A treasurer serious about the poverty trap could promise to introduce same in say 1-2 years.
The AFR was somewhat heretical in Gerard Noonan’s day, no? Was that before your time?
Perhaps reducing the minimum wage would help?
Noonan was before my time. The editors since I’ve had a regular column have been Greg Hywood, Colleen Ryan and Glenn Burge. I never deal with such exalted souls, though, as all my stuff is handled by the opinion editors, who have included Peter Freeman, Tom Switzer, Greg Earl and Robert Bolton. I’ve always found the Fin a good paper to write for, even though I disagree with a lot of what’s in it.
Homer, if you want to put a limit on unemployment benefits, you should explain how it’s OK for the poorest and the most marginalised to sleep on the streets and eat out of rubbish bins.
Homer, I’m pretty sure the Swedish system can’t be compared to ours. My understanding is that you receive an unemployment benefit equal or close to your salary for eighteen months, and when this runs out you drop to a lower rate which is similar to ours. This is because the Swedes pay taxes to fund the lower rate, but also (compulsorily) contribute to a wage insurance fund to cover the higher rate for the first 18 months.
The only way to get unemployment down is to grow fast enough, provided labour productivity increases don’t completely erode the impact of output on employment.
Cutting the minimum wage won’t work, because the gap between welfare and after tax earnings for a minimum wage earner is already too narrow.
Cutting welfare is really not on. Does anyone really think that $200 per week is too generous?
The jury has been out for a long time on labour market programs. What evidence there has been suggests wage subsidies or else very tightly targeted programs have been the most effective. The main advantage of Job Network is that, despite having no noticeable adverse effect on the proportion of long-term unemployed, it is cheaper than its predecessor.
Good on you yobbo for your contribution of the most hackneyed and cliched observation. The news is that jobless figues are less in Oz than in your nirvana, the USA, despite our draconian socialist IR legislation.
What’s your fallback evidence that low wages increases the amount of jobs on offer?
Oz 5.8%
USA 6.1%
Sweden 5.4%
We know part of the workforce will be unemployed any time the survey is done, in transition from one job to another, recently moved town and looking for work, moving from education to work, and so on. The real unemployment problem is the long term unemployed, people who just can’t find work after numerous attempts. Mark Upcher and others are absolutely right, this is not a problem you can fix by lowering minimum wages (at least not without lowering welfare benefits which are already low).
I’m not sure growth alone is the answer – after some 14 years of continuous growth, one of the best growth rates anywhere in the world, Australia’s unemployment ought to be lower. I suspect that the key to the problem is a fundamental mismatch between the skills of long term unemployed people and the available jobs. Skills here includes not just training in a formal sense but also attitudes and approaches (a loss of attachment to the workforce also erodes normal working habits – and there is also a case to be made that welfare dependency is perpetuated within families, ie work habits or lack thereof by parents are passed on to children too).
How do we deal with this? Training is one option, with limited effectiveness; job redesign to cater for people with different work patterns is a possibility but won’t happen without some incentive for employers to do this; intensive interventions through labour market schemes was one of the things the Job Network was meant to encourage but it appears the subsidy is just not high enough to enable providers to deal with the intractable problems. In short, its a very difficult problem to tackle.
IMO, the only feasible approach is to give priority to all the options, any one of which has a small (but non zero) probability of success: as John and the AFR point out, this means political attention has to be directed at it. Even more important though is to direct resources to improving the circumstances of children from disadvantaged backgrounds, to avoid perpetuating the problem. Better basic numeracy, literacy, social skills, creativity: all essential.
I keep trying to raise interest in Professor Kim Swales’ approach to unemployment (here: http://www.faxfn.org/03_jobs.htm). So no, I don’t think that “The only way to get unemployment down is to grow fast enough…” either. Or to put it another way, I think that market imperfections do indeed work to make “labour productivity increases … completely erode the impact of output on employment” these days.
A while back I almost got a chance to put something about the Swales approach in the Australian Financial Review, networking off someone I knew who knew Tom Switzer. And lately I’ve got the Liberal Party to undertake to set up a working group to look into it (here: http://users.netlink.com.au/~peterl/publicns.html#LIBRESLN), only instead (so far) they believe that a Minister’s response (but only to the secretariat, not given to the branch) is an adequate substitute for an enquiry with a full report. That is a bit like not bothering to give someone a trial because there is a statement from the police saying that he is guilty.
Brian,
Points 1&2 are there to deal with the ‘down & outs’.
I wouldn’t have 3 without the previous 2 however these are very expensive as I have said thus I never expect any Government to do any thing about Unemp[loyment.
Every serious study I have read have come to the conclusion limits on unemployment benefits have proved useful.
I might add I am one of the few bloggers to experience unemploynment and I couldn’t get any benefit because of my wife’s income ( which I am not complaining about).
Homer, I got thrown out with the bathwater in 1991 when Goss’s boys were cleaning out in Qld. At age 51 I applied for a few jobs for which I was overqualified and couldn’t crack an interview.
I have two offspring who have been on the dole several times. Most of all, though, I have a rellie who is a social worker dealing with the seriously marginalised in the territory Pauline H first came to fame. We have generations of unemployment now.
I agree with your points 1 & 2, but we must always have a safety net. We can’t realistically expect to solve long term unemployment in the foreseeable future, but we also can’t give up on them, as I’m sure you’ll agree.
Stephen Bartos makes a lot of sense, as usual.
Brian,
I can completely empathise with your position.
I am not advocating no safety net by any means.
However as I said this is strictly a hypothetical argument. No government will ever get fair dinkum on getting to full employment no matter what hue.
Homer,
Youâre not ãone of the few bloggers to experience unemploymentä. Try these blogs: http://dolebludger.blogspot.com (meika), http://dolediary.blogspot.com and mine for starters. Even Yobbo has had a close brush with Work for the Dole:
http://yobboview.blogspot.com/2003_01_05_yobboview_archive.html – but perhaps not close enough, judging by his rah-rah support for cutting the minimum wage:
http://yobbo.drivelwarehouse.com/archives/003433.html
As to what the answer is, I donât know. I do know however, that Stephen Bartos is barking up the wrong tree with his (no doubt well-meaning) ãbetter basic numeracy, literacy, social skills, creativityä prescription. In my current Work for the Dole gang, most of the participants are graduates. It is very easy for a highly educated person to get ãoutä of WfD participation ö simply by going back to school, Yobbo-style ö but speaking personally, I refuse such a temporary, band-aid solution. I could easily get a PhD scholarship and so have a bludge, on double my current ãwageä, for a few years, but I know Iâm already way too qualified for a suitable role in Australiaâs dumbed-down, service niche in the new global economy.
I think we need higher labour demand and labour supply (from welfare to work) in order to improve our labour market.
In order to get down unemployment we need lower unit labour costs. This does not imply lower real wages, however, it just means that wage costs per unit of output need to be lower. If we grow at 3.5 – 4% a year wages can still go up by less than that. We need some way of reducing the ratio of nominal wages to output via statutury agreements or enterprise bargaining. This will make it possible to increase labour demand.
We should introduce an 5-10% tax credit to ensure that labour supply can also increase. It may have to be a gradual process, so before we get the funds to pay for this we could extend the low-income tax offset to the equivalent of $7-$10 a week. We could phase it out after median earnings. This should cost no more than $3 billion all up, but I’d like Prof Q to evaluate if possible.
We should not take any low-skilled immigrants in the non-humanitarian stream. As lefties (particularly social scientists) like to point out, the majority of jobs created since 1991 have paid less than $300 a week. Yet these same lefties are immigration wets who do not believe in substantial “quality control” even in the regular immigration stream. They do not believe there is a relationship between labour supply and unemployment.
We should take zero family reunion migration (which I think has been scaled back), and take only skilled + business migrants and their families, all of whom should have a very high standard of English. Immigration policy needs to be fine-tuned to allow only for economic considerations in the non-humanitarian stream (humanitarian policy is different).
We could reduce state payroll tax (in WA it has a flat marginal rate of 6% for a monthly wages bill over $62,500), which we should have done already.
Finally, we should reduce corporate welfare and put it into R&D.
Paul Watson misunderstands the comments in my post about basic skills – where the effort on these is needed is in early childhood. The aim here is to avoid problems 20 years on! For people currently unemployed the answers are more difficult, as identified, and a range of diverse interventions is desirable. Even so I am somewhat pessimistic about the effects in the short term: does not mean though that we should just give up.