I’ve been thinking about the debate over welfare, which began with the Budget, and has continued with the claim that the IR reforms will create employment for those currently excluded from the labour market.
The argument about minimum wages and employment creation ignores the current disincentives to work embedded in the interface between welfare payments and taxation, or to the degree that this is recognised, it’s suggested that lowering the level of either welfare payments (as in reducing the disability pension and single mothers’ benefits to the lower level of Newstart) or wages will somehow fix this issue.
In fact, there are two barriers to work inherent in current policy settings - the incentives structure which governs the Job network and the lack of radical rethinking on how to restructure the tax/welfare interface and thus ameliorate the high nominal tax rates those moving from welfare to low incomes face.
There’s been some interesting debate on both issues on a Catallaxy thread, so I’m going to flesh out some of the arguments I’ve made over there.
The problem with long term unemployment is that we as a society have perpetuated educational and social inequalities - previously we produced poorly educated people who could get unskilled assembly line or labouring jobs, but those jobs no longer exist in the same numbers that they did. Most of the unskilled jobs now are in the service industries - call centres, retail - where the preferred employees tend to be women with kids or young people. But many who are long term unemployed are males in their late 30s, 40s and 50s, many with a low level of formal education, poor literacy and numeracy, and often physical and mental health issues, in many instances compounded by drug addiction or alcoholism. The problem with the current welfare to work thing does not lie in wage rates. It lies in the incentive structures which govern the Job network. Job network providers get a payment when people enter work and more if they stay there for at least twelve weeks. The way that they respond is to do nothing for people who have skills and are job ready - these people find jobs through their own efforts and the job network provider picks up 4 grand without having to lift a finger. The “assistance” that is provided to those who are not job ready is a joke. It’s things like basic computer courses for 50 year old blokes. Or putting people in a room for 8 hours and making them spend the entire time writing job application after job application. If there is no realistic chance of making a buck out of placing these people in work, then the job network provider will minimise its costs by providing generic and low cost “training”.
Most Job network providers are either Church-based charities or for profit businesses - often associated with training providers. Very rarely commented on is the degree to which the privatisation of employment assistance through a quasi-market has effectively subsidised these organisations. Most Church-based charities, for historical reasons, are associated with “mainline” Protestant churches where the tradition of philanthropy and voluntary assistance has been strong. The growing Pentecostal and evangelical churches place little emphasis on social justice and outreach. These organisations faced a funding crisis about ten years ago, as the majority of their dwindling congregations reached retirement age and could no longer afford to put $20 in the collection plate every Sunday. Such organisations turned to the government for funding - and with the Howard government’s election found a convenient source of income in providing employment assistance. Because this can be used to cross-subsidise other Church social and welfare services, they also have an incentive to maximise the income from employment assistance and minimise the outlay. Problems also arise from the fact that the quasi-market for employment assistance is very quasi indeed. The government is both the regulator and the customer, and purchases the services on behalf of clients through criteria it itself establishes. Under the Keating Government, there was an independent regulator for the employment assistance quasi-market (headed by Joan Kirner), but this was abolished by the Howard Government. So despite the rhetoric, welfare recipients are not clients of the Job network. Choice of a provider is made at the initial point of contact with Centrelink, and is constrained by the client load of providers and geographically restricted to organisations operating in the area served by the local Centrelink office. Once a Job network provider is chosen by a job seeker, it’s almost impossible to choose another one, no matter how ineffectual or inappopriate the service provided is. Centrelink approval is required, and the process is complex and bureaucratic - and discouraged by Centrelink. The ability of the Job network providers to breach clients (recommending administrative penalties which either stop or reduce payments) - soon to be beefed up - reinforces the degree to which the Job network is about surveillance and social control rather than assistance to job seekers.
Those Job network providers who operate for profit training businesses (often associated with secretarial or administrative training or colleges offering VET diplomas) will often steer clients into their own courses, even if inappropriate for their needs, or if a more appropriate course is available at a TAFE or a competitor institution, thus again preventing competition and responsiveness to clients, and artificially subsidising their own profit making businesses at the expense of others which are not aligned with Job network providers.
There is a place for contestability and tailored assistance in employment services, but the current model provides job seekers - and the broader community - with a poor return for the limited investment we make.
Realistically, intensive and tailored assistance for people who are difficult to sell to any employer is very expensive and no-one is prepared to spend the money. The problem exists as much as on the supply side as on the demand side.
Rather than the current social control model, I’d much prefer to see a guaranteed minimum income or a negative income tax model - once proposed by Richard Nixon and supported recently by conservative sociologist Peter Saunders and a number of economists including Ross Garnaut (though I note my disagreement with the specifics of Saunders’ proposal). This would have several beneficial effects: taking the stigma out of receiving “welfare”, saving an enormous sum by dismantling the Centrelink bureaucracy and allowing money to be freed up for both genuine labour market programmes and reducing income tax scales for all wage earners - particularly those earning below 50k. Another benefit would be the simplification of the taxation system - eliminating the many inequities and contradictions that come from the proliferation of one-off payments, baby bonuses, trifling payments to pensioners for specific purposes, income splitting, and the numerous other instances of middle class welfare that the Government is so fond of. This is a model that both libertarians and social democrats could support.
We’ll never get it from the Liberals though - they get too much political capital out of pushing the “tough on welfare” line, and from all sorts of monetary sops to special interests and voter demographics. It’s heartening that Wayne Swan on behalf of the Labor Party has indicated some openness to this model.
Elsewhere: Ross Gittins points out that the welfare reforms in the Budget actually increase the effective marginal tax barriers for those categories of recipients who will receive Newstart rather than pensions. In the blogosphere, Currency Lad agrees with me that there’s a gap between ideology and actuality in the welfare reforms, while Ken Parish at Troppo gives the unfair dismissal reforms qualified support. There’s more comment on the IR reforms at Cut Price Commentariat, and Immanuel Rant looks at the empirical evidence on unfair dismissal, while The Daily Flute does the same for income distribution.
Recent comments
crankynick, Kitty, nasking, FDB, Bingo Bango Boingo, nasking [...]
CAPSLOCK, STOCK AND BARREL, But You Can Leave Your CAPS LOCK ON, Lost her leg in a zombie attack!, CAPO Di Tutti CAPI, Warwick CAPSLOCK, #39, Full Forward, The One-Legged Presybterian Boiler Suited Sky Pilot [...]
Adrien, Robert Merkel, Peter Fisher, Geoff Robinson, murph the surf, murph the surf
allan, FDB, Polyquats, wpd, professor rat, wbb [...]
tigtog, Amanda, Alan, Nick, silkworm, alan [...]
Adrien, Patrick B, Patrick B, Katz, Helen, joe2 [...]
terangeree, Jovial Monk, FDB, Ambigulous, FDB, kayjayem [...]
Helen
AndyD, sandstone, Jack Strocchi, Adrien, john Ryan, Jack Strocchi [...]
Helen, Darryl Rosin, Darlene, Richard Green, skepticlawyer
murph the surf, Peter Fisher, Don Wigan, Andrew E, Shaun, Phil [...]
FDB, Robert Merkel, Julie, Klaus Knnoppke, Andos, Nick Caldwell [...]