UNEMPLOYMENT - Our worst policy failure

Unemployment has ceased to have an impact on the electorate or politicians, says John Quiggin Sometimes the real news is that nothing has changed, nor is likely to. Australia’s unemployment rate has been stuck between 6 and 8 per cent for the best part of a decade, with almost no net movement over the past two years. The figures are not bad enough to provoke any sense of crisis, and people have gradually got used to them. On the other hand, no economy with such a poor performance on this crucial measure can be described as booming or even performing adequately. And the prospects for the coming year do not look good. The Australian Chamber of Commerce and Industry has already predicted a decline in new hiring. Australia’s macroeconomic performance has been good by world standards. We have managed a decade without a recession, or even a serious slowdown. Of course, the combination of good macroeconomic performance with poor outcomes on unemployment implies there must be even more serious failures somewhere else in the system. The first problem is the restructuring of the labour market, with the steady erosion of long-term full-time employment. Not only has the number of ‘full-time’ jobs declined, or at best stagnated, but job security has been eroded and the length and variability of the working week has risen. This restructuring has been the deliberate product of two decades of microeconomic reform. The entire program of microeconomic reform could be summed up simply by saying that the core objective is to ensure that no one should have a safe job, or, if you prefer, that everyone should be exposed to the full force of competition. In principle, this applies as much to bosses as to workers. In practice, however, those at the top have proved remarkably adept at protecting themselves from any downside, even in cases of gross incompetence or dishonesty. Continuous exposure to remorseless competition is, no doubt, good for productivity in the short run, but it has adverse long-term consequences. Many of those pushed out of the full-time workforce ‘to encourage the others’ never return. Moreover, many who remain are eager to retire as soon as it becomes financially possible. Not surprisingly, male participation in the full-time labour force (those who have a full-time job or want one) is at a record low. Even for women, the long-term historical trend towards full-time participation has halted and started to decline somewhat. By its very nature, a casualised labour market based on short-term contracts or employment at will is bound to be associated with more frequent spells of unemployment. And every episode of unemployment carries with it the risk of permanent withdrawal from the labour force and, sooner or later, reliance on the social security system. Labour market programs directed at the unemployed are supposed to help in resolving these problems. Under the present government, however, the two primary policy goals in this area have been saving money and scoring political points. The replacement of the Commonwealth Employment Service by the Job Network was supposed to introduce a brave new world of individually tailored services for the unemployed, leading to greatly improved outcomes. Even the governmentÃ…fs own reports, such as that issued by the Department of Employment and Industrial Relations in September, now admit that the Job Network has been almost totally ineffective in assisting the long-term unemployed. The only defence offered is that, based on statistical measures, the previous governmentÃ…fs programs were equally ineffective and cost more to run. The problem, which is finally receiving partial acknowledgement, is that an incentive-based system like the Job Network is perfectly designed to produce statistical outcomes at minimum cost. Service providers have strong incentives to focus resources on the easy cases in any given category and to adopt strategies that produce the measured outcomes required by government rather than those that meet the needs of their clients. More important than any of these specific failures is simple lack of interest. At no time since the election of the current government has unemployment been an issue of real concern. Second-order trivia like the GST and waterfront reform have had far more attention. And, sadly, the Australian public has become inured to chronic mass unemployment. In the absence of a severe economic downturn, the government will pay no real political price for its worst policy failure. Professor John Quiggin is an Australian Research Council Senior Fellow based at the Australian National University and Queensland University of Technology. His web site is at http://www.uq.edu.au/economics/johnquiggin and his weblog is at http://mentalspace.ranters.net/quiggin. This article originally appeared in the Australian Financial Revie