The budget projects that, despite the effects of the stimulus package, unemployment in Australia will reach 8.5 per cent next year. It’s striking then, how little the budget contains in terms of measures specifically directed at improving the lot of the unemployed. Most obviously, unemployment benefits have not been increased, further widening the gap between these benefits and other pensions. In an environment where suggestions that unemployment is partially or wholly voluntary can no longer be sustained, it is hard to avoid a feeling of injustice here.
The direct response to unemployment in the budget amounts to $1.5 billion for the Jobs and Training Compact, much of which has already been announced or foreshadowed. The main focus is on training, which is good long term policy, but may not be all that helpful in a recession.
Most of the timing, training is the best way of making people more employable. A lengthy recession strengthens the case for participation in school, university or TAFE diploma courses.
If the labour market is weak, the option of staying in school, or of going back to university or TAFE to enhance your qualifications is more attractive. It’s safe to predict that demand for tertiary education places is going to be quite a bit higher for the next few years. Even with the expansion of places announced in the budget, it is likely that the number of qualified students unable to find a university place will increase in 20101.
On the other hand, short-term training programs directed at those who are already unemployed are of little use in recessions. When few employers are hiring, those who do so can pick and choose from a pool of experienced and qualified candidates. A training course of a few months is unlikely to move an unemployed person to the front of the queue.
In a sustained recession, there is a strong case for direct job creation, targeted at the unemployed. In addition to existing infrastructure projects the government is offering a $650 million Jobs Fund, designed to ‘support local jobs in areas hardest hit by the downturn’.
While welcome, the government’s measures represent a small fraction of the expenditure allocated to the Keating government’s Working Nation program. As with other responses to the 1989-90 recession, Working Nation was not introduced until high unemployment was firmly entrenched. The Rudd government’s limited steps in this respect contrast unfavorably with its rapid, indeed pre-emptive, adoption of fiscal stimulus policies.
John Quiggin 
A question to ask now is whether the ‘natural’ rate of unemployment is henceforth in double digits, as per countries like Spain. Moreover there seems little point in churning out BAs and BEcs if their traditional employers are not hiring. Certificates in potato growing perhaps? I half suspect that the military engages in low level biffo just to keep the recruitment intake going. Most personnel survive their foreign tours and come back with a trade and perhaps a small nest egg for self employment. If the 4.5% miracle growth doesn’t return in 2011 unemployment will be at boiling point.
The unemployment statistics are questionable
1. the definition of employed as 1 hour of work paid or unpaid
2. the small size of the survey re concerns of skew
3. under reporting of underemployment where respondents don’t earn enough to be free of Newstart payments
The failure to count properly means there is a failure to develop policy for the unemployed
Unemployed people can not access Newstart Allowance
– if their partner can support them
– until they are destitute ie have less than $500 left in savings
As the Australian workplace still discriminates against workers over 40 many older workers who are retrenched discover that they must run through their savings before they can access Newstart Allowance.
Newstart recipients have their bank accounts scrutinised by Centrelink who needs to be informed when cars are sold. Centrelink’s micromanagement is intrusive and destroys initiative.
Raising the age at which workers can access the aged pension is very cruel.
# Hermit says
“Moreover there seems little point in churning out BAs and BEcs if their traditional employers are not hiring.”
Hermit – it is happening already. I have heard of three in the last week. New grads (HR, Business)
7 months and no job gained. Its worse for Asian graduates. The HR grad just took a job answering telephones. Meanwhile back at my beauty salon, the beautician has a son 21 just out of glazing as an apprecticeship on 70 K and a 23 year old son on 100K as a cabinet maker installing shutters and blinds (subcontracting his own welf employed services).
I have a son in year 12. You can imagine what I am thinking…. The way I see it is – he has more portability (to a better less congested city) with a trade and less hassle and debt with hecs (never mind the opportunity cost of lost years work). Sydney – working for a firm with a degree as a new grad isnt likely to be that attractive at the moment in the business fields, and in the traffic every day….looks like poor wage slave conditions to me. (oversupply – we have been pumping out business grads for years now and all the foreign students want to do mostly that type of degree).
I’m over 50 and as, far as I can see, unemployable in this country using the qualifications I have. Cultural change is going to be a bit slow for me – lol
Nanks, me too. I was told 7 years ago I didnt have enough “recent” industry experience despite quals when I applied for a few private sector positions. LOL. In had been working in unis for 10 years…the private sector think we are dusty old artefacts! (never mind we are smarter, online, switched on and up to date and have just as many new processes as they do!).
Its the “image” out there…amongst 22 year old recruitment consultants!
Why is it that we are offshoring IT jobs, trimming the numbers of teachers and nurses and providing subsidies to build new houses and infrastructure? Why bother to go to uni?
I am also over 50 and only able to get casual work where I am rung up an hour before start time. Once I was sent home as soon as I arrived – didn’t even cover the petrol costs. That’s no way to treat an educated workforce. Quite frankly I work for the tax deductions and am relieved that I can access my super.
I shudder as I listen to less fortunate souls relay their frustrating dealings with Centrelink. They undertake volunteer work as part of their mutual obligation. After 3 months they approach the volunteer employers to ask about paid work – which they never get.
I am concerned that long term unemployed suffer from worse health outcomes due to stresses caused by lack of money for food, shelter, standard entertainment and the stress of complying with Centrelinks various intrusive and humiliating demands.
I lost my job in December 2008 and as a single adult with a mortgage I am rapidly going broke. The last time I went to Centrelink was in 1992 during the last recession, so I was shocked when I learned I would have to wait 3 1/2 months to get Newstart Allowance because I had committed the crime of saving $11,000 as a buffer for myself in case something went wrong in my life.
People who have saved small amounts of money need every cent of it to cover the substantial difference between Newstart and the cost of living. That the government is maintaining this policy during a recession is reprehensible. Especially when, under the same policy, if I’d had $110,000 in savings when I lost my job, the waiting period would have been the same.
There are other policy issues related to Newstart and other matters, like the Job Network.
People who have lost their jobs in the last 9 months are not going to stay silent for long.
And yes there needs to be more jobs creation. We could have provided full-time real jobs now for every unemployed person for much less money than the government has spent so far.
Yes, as Quiggin says they are again quite unnaccountably lax in dealing more fairly with the unemployed. Perhaps Mr Rudd and all the other righteous god-botherers will give a moment’s thought tomorow at church?
Like refugees, unmarried mothers, gays and aboriginals, to name a few, they have a certain “Je ne sais quoi” that leaves them detested by the rest of the herd, with politicians either caught up in the common prejudice, as occurs with Rednecks, or worse still so-called progressive politicians who should know better, happy to feed off media reinforced prejudices for their own benefit.
With the unemployed, we see a replay of the sleak, cynical politics of Howardism from the New Christians, as they contemplate the New Crucified.
At the moment we have hard price barriers (the minimum wage) that mean the low skilled either have a job with all the joys that this entails or else they live on benefits way below the minimum wage with both material and psychological difficulties. We need a softer form of transition between the two that recognises incremental gains for incremental effort on the part of both employers and workers (the incentives of both are important). At the moment those that employ low skilled workers are expected to pick up the entire cost imposed by the minimum wage when it is a regulatory cost that ought to be socialised across the entire economy.
If we used the same economic criteria currently used to set the minimum wage but applied it to regional economies rather than the national economy then many of these regions would have a much lower minimum wage,. This would reflect both the lower cost of living in many regional areas but also the different nature of regional labour markets. Both Canada and the EU set minimum wages regionally and at a minimum we ought to do the same.
However the reform we really ought to have is a safety net in the form of either a citizens wage or a negative income tax coupled with a complete elimination of the minimum wage. The citizens wage would replace unemployment benfits and wage regulation. We would then have full employment most of the time and still have supplementary income support for both the unemployed (when they existed) and those on low incomes. The burden of such supplementary support measures would fall on the entire economy rather than on just those employers who create jobs for the low skilled.
10# I am really over the idea that there are “hard price barriers” like “the minimum wage” at the lower end of the labour market. I absolutely refuse to accept there are now, in this country. There are barriers elsewhere in the labour market like executive and management salaries which become a close shop of negotiations (you pat my back and Ill pat yours).
How do you do this – when you get to be CEO – you create a pool of highly paid supporters who vote you back year after year. You pay them and they pay you. You direct high management salaries to those who will wield the axe on others. You reward tenure and pay to those who push others wages down. Rigidities at the top and middle – they are yet there is this relentless drive to push wages and conditions down at the bottom to the point of complete loss of employees dignity is nauseating. For example, being asked one hour before to turn up as a casual as discussed above, only to find they have no work. That firms can get away with this, says more about dysfunctional labour laws than anything else.
Rigidities at the bottomof the labour force have been relentlessly forced out to make way for generous rigidities at the top and middle.
As an example Terje – listen to the arguments
“to be “competitive” we must lower wages for workers, they must be flexible”
then in the next breath
‘we must pay SOL or David Moss zillions of dollars and their twelve sub lieutenants almost a zillion dollars each year because we need to be “competitive.”
“Competitive” is a meaningless word.
So for firms to whinge about “hard barriers at the bottom” stopping price adjustment, they need to have a good close look at their, in many cases, fattened waistlines.
This government of Rudd is a strange one. It seems to be in thrall to some power which the general citizenry cannot see directly. The power in question is that of the fossil fuel and mining corporates. Rudd’s policies make no sense unless viewed through this prism; then they do make sense, albeit very bad sense.
The wasted years of Rudd will be added to the wasted years of Howard and we will still have made no progress towards full employment, control of credit, development of renewables and so on.
Neither of the current major parties promise any hope for Australia. They and the corporates are the problem, not the solution.
Going Under #8 comments
“The last time I went to Centrelink was in 1992 during the last recession, so I was shocked when I learned I would have to wait 3 1/2 months to get Newstart Allowance because I had committed the crime of saving $11,000 as a buffer for myself in case something went wrong in my life.”
This alone highlights the fact that unemployment figures are grossly misleading. If you have to reduce all your savings first, that stops people who may eg get a three month casual job, twice a year from claiming unemployment benefits as they once were able for periods between when they are genuinely unemployed. So it stops casuals and the underemployed (the increasingly harsh and exploitative use of our labour force) from accessing unemployment payments. But in reality they are unemployed and thus underutilised.
Further it forces people to the point of desperation and possibly living on the street before they can get help. Finally when they reach that point, Centerlink will often extend their payment by another three weeks due to appointment delays.
The government needs to actively create jobs, not throw money at the private sector dreamers hoping they will do it. They have not, in sufficient numbers in this country or unemployment and underemployment and casualisation, wouldnt be rising.
Public sector employment should rise at the lower end to offset the fall in private sector employment (either that or stop letting wealthy and corporate tax get spirited away so it can actually be progressively redistributed properly). Train conductors, railway station guards (and get rid of the false economies of gadgetry like ticket machines) clerks, nurses, teachers, road builders, parks maintenance, cleaners etc
Real jobs, not quarter or a thin slice of a job and poverty and loss of dignity.
On the face of it I quite like your idea of a citizen wage/guaranteed income TerjeP however I am not so convinced by the idea that unemployment/underemployment and low wages are a problem of the low-skilled. My experience (as a very highly skilled person – PhD , University Medal UQ) is that my wages were sometimes lower but never much higher than those of (say) a cab driver or landscape gardener, given the long hours I had to work. Looking at Unis in general, there are many very highly qualified people earning in the range of 30k – 40k a year delivering what used to be a full-time teaching load (or greater).
The problems we have are not so much to do with wage barriers but with the social construction of value – where value is attributed rather too narrowly.
(note I am not claiming I should have earnt vastly more per hour than a manual labourer)
Nanks – perhaps low skilled is the wrong term. The point is that some people are in low demand.
Alice said:-
A useful point except unemployment is not measure with reference to claims for unemployment benefits. The unemployment figures come directly from surveys using randomised samples. We could ban everybody who has hair from claiming unemployment benefits and it would not effect the statistics.
TerjeP – yes, low demand is a more revealing term and consistent with my point about ‘value’
“How do you do this – when you get to be CEO – you create a pool of highly paid supporters who vote you back year after year. You pay them and they pay you. You direct high management salaries to those who will wield the axe on others. You reward tenure and pay to those who push others wages down. …”
I second Alice’s comment. The theoretical model underlying arguments akin to those advanced by Terje (‘competitive private ownership economies’) do not model ‘industrial organisation’. As a consequence, significant ‘agency problems’ are not captured by this theoretical framework. Incidentally, Debreu (1959) made this limitation quite explicit.
A further rigidity is due to debt.
None of this is to say that there aren’t any historical empirical examples where wage rigidity (legislated minimum wage or awards)affected employment. The point is that the current GFC and its flow-on affects are not an example.
PS: And, surely, we need to address the problem we have now and not offer a solution to a problem we don’t have.
17# Ernestine – can you explain to me how the debt rigidity you mention works?
Terje – I wasnt actually suggesting the unemployment rate is a measure of unemployment claims per yr comment at 15. The unemployment rate is an “indicator” only of likely unemployment claims. If a person is not working and is not on leave, and are willing to work and would like to be working and are seeking but are not getting any or insufficient work to sustain them, then they are by any “ordinary mans” thinking “unemployed” to an extent, if not by the strict and misleading criteria of the economic unemployment definition which understates the true level of unemployment (fairly well recognised in most textbooks).
Per the term courts like to use; lets ask a “reasonable (ordinary or lay) mans” view on what unemployment is? Governments get in and skew unemployment calculations across the world because they get their political performance judged by the measure, as they should. If they cant fix the problem – they fix the measure.
Re #19, Alice, in reply to your question on ‘debt regidity’:
Prices of equity shares, consumer goods, producer goods (‘capital goods’), various types of labour (‘wages’ unless legally fixed for a period)go up and down,either in unison (inflation or deflation) or relative to each other. By contrast, the value of debt (face value) is contractually (legally) fixed. Some debt is traded (eg bonds). The changing prices in the secondary debt market can go up and down but this does not affect the contractual obligations of the issuer of the bond (the debtor).
Further to your earlier point, Alice, the introduction of enterprise bargaining provides increased possibilities for agency problems of the type you had described.
I see what you are saying Ernestine. So that faced with falling share prices or revenues the firm approaches or breaches the debt covenants in existing debt contracts- and if they dont have the cash at hand, it means they are compelled to liquidate assets or increase the equity base to satisfy existing contractual debt covenants because terms are non negotiatble.
…or use the enterprise bargaining facility to lower ‘costs’ (other people’s incomes) or go bankrupt. …and the process is not limited to firms. Individuals with debt can be affected too… (loss of revenue – reduced consumption ..) and so a dynamic can evolve which is sometimes called ‘downward spiral’.
Thanks Ernestine…I think we are seeing this now. I think the enterprise bargaining model is a worry – if unis are anything to go by..
Ernestine
Here is an article on 1995 data on the number of Vice Chancellor and Pro Vice Chancellor positions in Australian unis (back to the agency issues with enterprise bargaining).
http://www.dest.gov.au/archive/highered/eippubs/eip9701/appendc.htm
Comparing to current there has been an increase of 17 positions (either DVC or PVC) while casualisation at the lower end increases with greater burdens placed on existing academic staff to manage it, and higher student staff ratios. Yet there has been an increase of 11 percent in the number of executive university positions. Pay increases for DVCs and PVCs would be good to know as well.
http://www.universitiesaustralia.edu.au/database/report.asp?a=alldpvc).
That would seem to lend some support to the idea of agency problems with enterprise bargaining.
I find it strangely comforting to read the remarks by Nanks and Alice here, as per their comments at #13 and #14.
Recently, after months of either total unemployment or else gross underemployment (tiny little jobs, usually home-based, on a contract basis), I acquired, at last, regular part-time work in an office. Whilst it’s not a huge amount of work, it’s a good deal better than nothing, especially since I have a chronic illness (thank goodness I’m eligible for disability support as a result) and this illness makes for a rather unfortunate medical history as far as numerous potential employers are concerned. (This, and this alone, is why I haven’t attached my full name to the present comment.)
It seems only a few days ago that the mass media, more especially the Rupert Murdoch proletkult, banged on about the terrible “labour shortage”. Tell that to almost any would-be employee who, like myself, is over 45 years old. Particularly if this employee has any sort of disability.
“A training course of a few months is unlikely to move an unemployed person to the front of the queue”.
Even more important, even in better times measures that move people up the queue only move other people down, with no employment gain but only churning. Arguably, the measures make the economy more productive, but I personally doubt it since so much of the relevant skills can only be gained as hands on experience in the workplace. That is, I suspect that the benefits of hands off stuff are already saturated, or at any rate well past the point of diminishing returns. Even if that were not so in reality, as some commenters have noted it certainly affects potential employers’ perceptions.
Anyhow, that’s why I advocated the Swales and Phelps approaches to unemployment in my second submission to the Henry Tax Review. Those would help make entry level and apprenticeship/on the job training kinds of work far more viable. The reasoning behind this submission also addresses the concerns TerjeP raised, working more rapidly and directly than “either a citizens wage or a negative income tax” (there are fewer costly lags and funding problems, and levels can be set optimally to price everyone into adequately paid work rather than at the higher levels that provide complete CW/NIT income adequacy on their own, i.e. without the top up that comes from the value adding of work). Of course, the regular benefit system would still be needed as a safety net, but much less burden would fall on it. The Swales and Phelps approaches also “get rid of the false economies of gadgetry like ticket machines)” that Alice mentioned, by instating correct marginal costs for labour.
Alice @24, the data is interesting but I don’t believe one can draw a conclusion regarding ‘agency problems’. One needs data on the wealth (income) redistribution within an organisation. Further, in relation to debt, one needs data on relative price changes that affect ‘profit’, in relation to debt and the internal distribution of ‘wages’ (income).
The data you referenced shows an uneven growth in positions in the central administration of Australian univerisites. The central admin of universities will, and to some extent rightly so, justify the growth in positions by pointing to the increased administrative demand made on universities by the government (revenue from international students, enterprise bureaucracy, accountability………).
Ernestine,
I know – the data is interesting but it was a very tenuous call (I suspected), and yes I thought after they would of course justify it by larger student numbers and their various requirements. I suspect there are much better examples in the private sector. However, the declining conditions at the teaching end really do exist in unis.
Im back to the indignity, exploitation and overuse of casual positions these days in a lot of places and in unis who are almost at the forefront of excess casualisation. Unis could be setting an example of a more humane, reasonable and decent employer style and they are not.
Alice @28, I don’t disagree with the gist of your lament about conditions at universities. My point is that a solution to the problems require first an understanding of the nature of the problem.
The original problem we talked about was debt rigidity and consequences in all physical (‘real’) markets, including labour. If you are interested in the university sector in particular than the recent history (last 10 years) of RMIT might contain relevant case material – as a special case.
Please replace “than” with then in line 2, para 2.
“A training course of a few months is unlikely to move an unemployed person to the front of the queue”.”
Good point. There may be instances where training courses are a relevant policy to reduce unemployment (eg major technological changes that call for a re-skilling of people), but the GFC is not one of such instance.
29# I agree Ernestine but I really only have my own direct experiences. Ive taught econ is a variety of forms to first years every semester since 1996. Have not missed one semester. Declined a fractional role after a mere 6 months in the late 1990s…primary school child in tow back then and way too hard to drop all for meetings and the pay was worse than being casual! However, those permanent teaching positions (combined with support for studies) have now gone completely and unis want ready made phds even for part time teaching roles now and the pay is ridiculously low – anyone with a phd who cant secure a research position is mad to take a lecturer or associate lecturer role – why would they?
They can earn more in almost all other public service sectors and thats where they go (or into pure research) leaving the teaching positions churning over with a constant stream of young “leavers”.
Ernestine – one day I will document how some casuals do far more work than anyone in upper admin knows about and therefore cant acknowledge within the uni system and casuals get paid in the most innovative of ways (extra hours buried in marking contracts or research grants or ad hoc additional contracts to help some struggling Lecturer cope all year round)! Many sessional teachers are really part (or even almost full) timers in unis and this the result of short staffing.
29# What happened at RMIT Ernestine? Its timeline of events on the website appears quite innovative historically, but I found this on a student “product review” site “Sessional teaching staff didn’t want to be there and the university administration axed its in-house note taking and sign interpreting support staff (for students with disabilities) this year. Then they made more and more student unfriendly changes- making special consideration harder to apply for, putting the womens room in a smaller, less private space- lots of small, mean-hearted actions, that along with the change to disability services, made study hard for me and many other students. Their university ranking has plummeted from being in the top 10 to around 200th.”
$650 million for a jobs fund? Woopee-do!? What fraction of a useless Collins class submarine does this equate to?
If you want to see where all the jobs have gone, look up in the sky and check out all the FA18’s and so on flying around. That is where our schools, hospitals and jobs went.
The word unemployed should entirely be dropped as a insignificant word,applied as a moral victory for those who want to use it in suggesting some others are not trying.The others are those who only get round to speaking about unemployment in the limited and shortest of meaning.It is really pathetic to mention Keatings’ expenditure on unemployment to those who were unemployed then as of now.Turnbull using the magic word is also pointless, and meaningless,so to Rudd and his defiance,probably hiding behind his wife,and finding ways to upset the Greens and Liberals.Unemployed remain footballs in multiple games.But it cannot be used as an excuse forever,when some not very intelligent statement appears in public ,and always quite short of real honesty and more to wear a medal that will never exist. Hermit’s statement of getting a qualification in growing potatoes, could be applied to any encounter with unemployment after getting a qualification.As a person who spent 35 hours last week in a potato shed grading & bagging for no wage at all the statement shows a lot of contempt for those who work in this industry.Both myself and the grower family find the money insulting,thus I get free electricity rent,and be left alone in a house falling to bits.And this still doesn’t meet the misers of Canberra requirements for what is an evaluation.If I work for others the ritual of Centrelink being informed and due paper work processing must proceed.As a disability pensioner for some years now,I have worked without pay right over the alotted hours of such that determine disability.I dont give a rat’s arse anymore about Commonwealth Law,it is a tool for tools for the sake of Tooldem.The Commonwealth is a tool of other powers.The ALP is a work in progress to hate even more than the last lot with the same party name.Thankfully they cannot stop our thoughts about them,as the pathetic choices of humanity they are.The Unemployed should stay aloof,and seek the oppurtunity to show how contemptuous Australia has become to them,and ride over all the superior morons with some well selected facts about unemployment and themselves,and then walk away…so the cowards have to fight themselves,in justification for their attitudes.
29 Ernestine – I have veered badly off topic now (so excuse me) but marking my way through yet another mountain is so boring….and JQs blog is much better for me than a walk to the fridge!
I have a great link for some higher ed archive stats…Ill post it in here one day soon for you. Archived data back to the 1950s.
Well said Phillip and Robert at 25. Yes, the government should be judged on its efforts not only to correct unemployment, but also rising underemployment and casualisation and in Australia. The onerous staightjacket of centrelink paperwork and dead end unproductive unpaid time wasting “training” attendance requirements (where people are exploited for free labour it would seem) is a hindrance to the unemployed, not assistance as far as I can see. Unemployment is now an unnacceptable problem and a waste of what could otherwise be a productive labour force..there is something very wrong in policy.
so what should they do then? go through six months worth of ridiculous interviews to get a casual office job in the private sector, with a whole two weeks of leave a year and timed toilet breaks? i’d keep the lecturing job.
Alice – my wife did a PHD (same uni as Ernestine) in the mistaken belief that it would lead to a family friendly job. When she finally started doing casual hours (tuition etc) the extra hours of unpaid work meant an effective hourly rate that was pretty pathetic. It took her all of two months to flee back to the private sector where she now encounters much better and more honest terms of pay, less politics, more flexibility and more challenging work. In my experience universities are a cesspit of deceit and double standards.
Exactly Terje. Of course phds will leave and keep leaving at current rates and conditions – that needs to be spelled out to the accrediting agencies!.
The casual sessional tutors/lecturers are a false economy. They keep leaving. Its false economy like using casual nurses to patch up chronically understaffed hospitals. Anyone who can survive the efficiency waves in this job where they go searching for savings from casuals (now you enter results, now you collect and deliver back your marking, now you get class numbers increased, now you come to meetings at your expense etc) has to have income from elsewhere…What I really dont like are the “fluffy noises” coming out of unis now eg “how can we be more supportive to our valuable casuals?” Its piffle patter and waffle.
Casuals dont need “fluffy noises” Terje (or telephones or desks or computers – they have them at home. Its the money!!, and the casual thing (doh)!.
Alice – when it comes to higher education at least we agree on something. However I doubt you agree that the way to cure a false economy is to introduce a real economy and privatise the higher education sector, remove the fee caps and end the grants scams. For example the formula based bounty paid for PHD graduates and the subsequent expenditure is a rude joke.
In terms of your earlier rebutal to my comment on minimum wages your reference to CEO salaries is a distraction and not relevant to a discussion about the efficacy of the minimum wage or the reforms I propose (regionalisation and socialisation of the regulatory burden). However on your CEO point I think what you outline is a failure of representative democracy in that boards are elected by shareholders to represent their interests. I suspect that part of the solution is a more proportional form of board election along the lines of the Australian senate with a reduced role for pluralistic voting. However I think democratic processes are always going to entail some problematic elements and I’m not entirely familiar with the existing rituals and rules associated with the election of board members.
Ernestine – in terms of debt rigidities I think part of the solution is to allow profitable companies to fund more of their expansion from retained earnings and in turn less from debt. You can achieve this by switching from a tax on company profits to a withholding tax on company dividends. Estonia has done this and whilst it is an obscure example I think it is one we ought to follow (it was in my submission to Ken Henry). In tax terms companies are merely accounting entities and shareholders can only realise a benefit from them through dividends or capital gains (or wages if they are also employees). It makes sense in my book to synchronise the taxation process with the shareholders realisation of tangible benefits.
41# Terje says “I doubt you agree that the way to cure a false economy is to introduce a real economy and privatise the higher education sector”
Terje you are right on that. The private sector want as much of the students price as they can get at the expense of staff, quality, innovation and research (what research?)
The old market failure public good argument Terje – knowledge and higher education. Needs a subsidy or you will only get “fake journals” that sell products a la Merck and Elsevier…
And the public sector is different how? Take a look at public primary and secondary education where wage rates are determined primarily by government monopsony. They are not exactly a glowing endorsement of how well workers do under public ownership.
“Most obviously, unemployment benefits have not been increased, further widening the gap between these benefits and other pensions.”
The obvious problem with increasing unemployment benefits is that it would reduce work incentives.
It is true that in Australia unemployment benefits as a percentage of average wages are generally lower than in most developed countries. But in most countries receipt of unemployment benefits is usually time limited and based on contributory schemes, which mitigates the disincentive effects somewhat because no-one can stay on unemployment forever (whereas in Australia there is no time limit).
Monkey’s Uncle, the problem with your approach is that it only looks at one “blade of the scissors” in the supply/demand thing in the labour market, in this case the supply of labour, ignoring the other blade. I have reason to believe that incentives on the unemployed to take work are already all that they need to be, and that no more squeezing at that end would deliver anything further; more needs to be done at the supply (employer) end.
What is more, terminating benefits on a time basis or otherwise reducing them damages the very thing they were set up to achieve: the reduction of “Vagrancy Costs”, i.e. the costs on everyone else of having the unemployed around. Countries that do that end up with higher policing costs, the costs of running prisons, and so on. It’s not simply a compassion thing, which is why such hard headed types as Bismarck or the Elizabethan reformers chose to do what they did in this area – provide a benefit system.
But this just comes back to the whole externality cost of unemployment thing that I addressed in my second submission to the Henry Tax Review. Changes of the sort you are after would not improve things, either in the level of unemployment or in the overall costs, but would only improve the costs of the unemployment system itself – at the price of no longer getting what that delivers.
44Terje
beg to differ. Pulled my son out of a private school and into a public senior campus. Much happier. The teachers are better. They are actually interested (asnd are not stopped by management from phoning parents if there is a problem – beleive me this happens in private schools – collective denial is encouraged) rang me in the first week to say he was late for class…and they rang again when he was late with an assignment two weeks later….I never had one call in 7 years from the private school. Everything was always “fabulous”… and he was always such a “lovely boy” in reports!! (He is a lovely boy but like many boys…he can be damn lazy!)
46# Agree PM on your comment
“What is more, terminating benefits on a time basis or otherwise reducing them damages the very thing they were set up to achieve: the reduction of “Vagrancy Costs”, i.e. the costs on everyone else of having the unemployed around. Countries that do that end up with higher policing costs, the costs of running prisons, and so on.”
I should have written “…more needs to be done at the demand (employer) end”, but at least the bracketed part made my meaning clear.
Re TerjeP @ 42:
“in terms of debt rigidities I think part of the solution is to allow profitable companies to fund more of their expansion from retained earnings and in turn less from debt. You can achieve this by switching from a tax on company profits to a withholding tax on company dividends. Estonia has done this ”
1. There is no law (ie government action) that disallows companies to use retained earnings to finance new investments.
2. Debt rigidity is a property of the financial contract; it is not a property of taxation.
3. Incidentally, Australia has a dividend imputation system which, relative to the US system, reduces the incentive to substitute debt for equity.