The Jobs Plan – and then?

Direct job creation is in the air. Yesterday, the Federal government announced its Jobs Fund yesterday which will allocate (sorry: a measly) $650 million to “support and create jobs and improve skills, by funding projects that build community infrastructure and create social capital in local communities.” However, I estimate a maximum of 40,000 jobs will be supported by this initiative. Put together the $42 billion and the $650 million, and you have a maximum of 140,000 jobs being protected if all the modelling is correct. Not a good dividend from the scale of public outlays. But … at least direct job creation is now on the table … finally. Now to scale it up to an appropriate level!

Today the ANZ job advertisement data for March 2009 came out. To put your minds in the right space here is a graph I made of the total ANZ series (newspaper plus Internet), which I seasonally adjusted using the X12 method and then expressed as a percentage of the labour force. I estimated the March 2009 labour force level (given that the data doesn’t come out until Thursday) using a regression forecast. It will be pretty close to what emerges in the Labour Force data later this week.

The peak (seasonally adjusted) was in December 2007 where some 273492 vacancies were recorded. The March estimate is 146127 vacancies. This is a drop of 127,365 vacancies or a 46.6 per cent fall.

I conclude that the demand-side is dropping out of the labour market. The essential art of economic policy making is to cut one’s coat to suit one’s cloth, which in this context says that if the problem is predominantly one of supply then supply-side measures might be warranted. However, if it is a demand-side failure, then you have to introduce policies that impact directly on the demand-side. The neo-liberal era, which the current governments around the world are still wedded to, constructed most things as essentially supply-side problems. So unemployment was the fault of the unemployed!

Hence the Australian government is spending billions on a new Job Network by some euphemistic title (Job Services Australia) which is all about supply. It is also a very ineffective supply-side approach but that is another issue on which I will surely write countless blogs.

In the Jobs Fund initiative they are at last recognising that you have to have effective and direct demand-side policies.

According to the Jobs Fund FAQ, there will be three streams of funding: (a) $300 million to “support community infrastructure projects with a focus on the promotion of environment-friendly technology and heritage”; (b) $200 million “for self-sustaining projects which create jobs and provide activities and services to improve community amenity”; and (c) $150 million “for investment in infrastructure projects which generate jobs in regions affected by the economic downturn”.

They have also identified some priority areas most of which were Red Alert areas in the CofFEE-URP Employment Vulnerability Index which we released a fortnight ago.

In December, CofFEE released a major report which I have referred to in previous blogs. The Report Creating effective local labour markets: a new framework for regional employment policy was the result of a three year national research program, which in part, did the following:

• We conducted a national survey of local government social planners to examine the feasibility of introducing a Job Guarantee. We asked local governments to assess the level of unmet need in regions in relation to: (a) Transport amenity; (b) Public health and safety; (c) Recreation and culture; and (c) Community welfare services.
• We asked them to outline the types of public sector jobs that could be created under the Job Guarantee for low skilled workers to fulfil these unmet needs.
• We asked them to estimate the number of jobs that would be necessary to meet these needs.
• We conducted national focus groups with Job Network employees to assess the effectiveness of existing employment services and ALMP and to obtain feedback on the Job Guarantee proposal.
• We used this information to develop of a new framework for regional development capable of producing sustainable development by meeting economic, social and environmental objectives.
• We designed a model to estimate the investment needed to implement a national Job Guarantee in Australia. This involved detailed structured interviews with local government representatives to obtain estimates of costs involved in specific tasks that were identified as unmet needs by social planners. Information obtained included costs of labour, materials, equipment, supervision and overheads as well as the structure of work teams and employee to supervisor ratios.

The results were that there were huge areas of unmet need that could generate 100s of thousands of low skill jobs across urban, regional and remote Australia. The research produced a new framework for the design of regional employment policy. It emphasised increased public sector infrastructure spending, the implementation of a National Skills Development framework and the introduction of a national Job Guarantee. We proposed new integrated policy framework will provide more effective ways to assist disadvantaged individuals into employment and advance sustainable solutions to persistent unemployment across regional Australia.

It is quite clear that not enough jobs are being generated and the current policy regime which focuses on supply-side characteristics is largely a waste of resources.

We consider the Report presents a major challenge to the Federal government which has so far not demonstrated it is committed to restoring full employment and abandoning the ineffective supply-side emphasis of its predecessors. We consider the detailed analysis of how a Job Guarantee could be introduced in addition to its integration into a National Skills Development framework is innovative and compelling. We urge the relevant policy makers to abandon their failed ‘full employability’ approach and instead embrace the policy structures laid out in this Report.

I think that no other group (note even the Government departments) has researched this issue more than CofFEE – in terms of scope, breadth and comprehensiveness of the types of issues we sought information on. We now have a huge inventory of unmet needs and jobs that could be created to meet them. There is a lot of material in the Report which I urge you to read. Download it by clicking the Report’s title above. Of relevance here, the research

Now in terms of the Jobs Fund outlays of $650 million, is this a very effective solution to the massive job losses that are being suggested by the ANZ and other recent data)? The following table is taken from our Report (Table 14.5).

We estimated that at May 2008, around 560 thousand jobs would be to restore full employment (dropping the unemployment rate to 2 per cent and eliminating time-related underemployment).

First, the little triangle symbol before the entries is shorthand for change. To further understand the numbers, the $8.3 billion is a net figure. The employment of Job Guarantee workers gives rise to increased disposable income and increased consumption demand which leads to additional private sector output, employment and income, which in turn leads to further increases in consumption demand, as is depicted by the multiplier process. Thus the increase of employment of 559.2 thousand is made up of both Job Guarantee and private sector employment.

We compared this to a generalised expansion where the Government pump-primed the economy to get the private market to generate the extra work. That would require higher outlays and much higher growth rates which we consider to be less inviting than the Job Guarantee route which allows the Government to target public goods-type output. There are also savings on government outlays, because nearly 80 per cent of the additional jobs are paid at the minimum wage under the Job Guarantee.

The change in employment outlays represents the wage and non-wage costs of employing the Job Guarantee workers. In the low capital intensity scenario, the net additional expenditures by government total $8.3b (per annum). The shift to medium or high capital intensity Job Guarantee jobs merely increases Job Guarantee employment expenditure by government to $18.6b and $22.3b, respectively which leaves net additional expenditures of $11.9b and $15.7b, respectively. We estimated that all of the jobs could easily be offered at the low capital intensity option and there would still be unmet community and environmental needs across regional Australia.

While I haven’t run the model again, the $650 million might generate around 40,000 jobs at the minimum wage if introduced with the “efficient” framework that we developed to control unnecessary costs. That is about 1/13 that would have been required in May 2008 when we did the modelling. The number of jobs required now would be somewhat higher given the further deterioration in the labour market.

Some readers may interpret the $8.3 billion as the cost of running the program. This arises from a misunderstanding of budget outlays. I am always trying to caution against this interpretation. The nominal entries that are recorded in budget statements are not costs in any real sense. The real costs of the Job Guarantee would be the extra resources (for example, food, capital equipment etc) that are required to change the system from its present state to that with a Job Guarantee.

When we ask a question like – Can the government afford this? We are really asking whether there are sufficient real resources to underpin the programme. The nominal outlay shown in the budget statement is an accounting entry and does not necessarily reflect the real resource investment.

In terms of fiscal policy, there are only real resource restrictions on its capacity to increase spending and hence output and employment. If there are slack resources available to purchase then a fiscal stimulus has the capacity to ensure they are fully employed. Further, in a Job Guarantee scheme, the government spending to fund the Job Guarantee wage would not be at market prices because by definition there is no market bid for the workers in question. The real resource costs would be the extra food, clothing and transport resources that the Job Guarantee workers might consume, given that they now earn the minimum hourly wage, rather than receiving unemployment benefit, the disability support pension or no income at all.

Given that the minimum wage should be aligned with community expectations of what constitutes a reasonable standard of living, the extra resources that the Job Guarantee workers would consume could not be considered excessive. If there are overall real resource constraints imposed by the consumption of extra resources by Job Guarantee workers, then we advocate making these resources available by redistributing from other workers. However, it is unlikely that this latter situation would be the norm.

Conclusion:

So the Federal government has finally decided that these jobs are necessary and they are prepared to pay $650 million for them. That is, logically they are now conceding that localised job creation is a required response and it is their responsibilty to respond.

The next question I have is why not go the whole $8.3 billion? Why not really eliminate the unemployment problem and provide basic income security for all Australians, particularly the disadvantaged? If you can guarantee the banks why can’t you guarantee jobs?

Given the fiscal amounts that are being thrown around at present (at least $50 billion to date) why allocate only $650 million to direct job creation? This is the most targetted and effective way to minimise job loss and its attendent consequences? There is huge unmet community and environmental care needs out there? Why take such a conservative approach now? If they invested more significantly now the scale of the unemployment problem next year will be much lower indeed.

You start to get the idea that the Federal government is making it up as they go along and hasn’t any coherent economic plan as to how to most effectively target the problem of job loss.

An effective plan in this context is one that generates the most jobs per $m spent. An employment guarantee is the most effective way to do that.

It is time they took their ideological hats off and recognised this.

Digression: School Pride funding sham(e)

So our social democratic (not!) Government thinks that it is an effective use to public funds to give further assistance to our wealthiest private schools. The Deputy PM told us today that this would “help support jobs across the country.” What? These are the most exclusive schools in our country and hardly in need of any public support.

The Government is claiming that the funds were not a “targetted” school program but rather just a general way of boosting the economy. The Deputy PM said in an ABC radio interview today that:

Every school has needs, every school has things that can be done to improve the school … We want to support jobs in all communities around this country, so this was always going to be a broadly designed program in order to deliver that benefit of supporting jobs everywhere around the country.

It seems that only speed of implementation was the criteria. Well in terms of speed what could be quicker than announcing the following this afternoon?

The Federal government will offer a job at the federal minimum wage to anyone who wants to work and currently cannot find it. All you have to do is turn up tomorrow morning at your local depot to start work. If we haven’t any work ready for you to do immediately, we will have soon! In the meantime your pay starts tomorrow. Ring XXXXXXX for details or look in tomorrow’s newspapers.

That would target jobs, disadvantage and not waste public money on the children who are, largely, from the top end of town.

I am doing an interview for the national ABC radio current affairs programe PM this afternoon on this topic if you are interested.