Hollow rhetoric … the Government is not doing all they can!

Yesterday’s labour force data which showed how quickly the labour market is deteriorating, brought some extraordinary reactions from the Federal government. So far their response suggests to me that they have no coherent plan to meet the crisis and are trying to operate within the same labour market policy framework that the previous government installed. That framework failed to achieve full employment when the economy was growing and will do nothing at all for a labour market that is now in freefall. A major shift in policy is needed. More worrying is that the labour force data shows that the teenage segment is in terrible shape. That requires immediate policy action. But the responses I have heard overnight suggest very little will be done because the Employment Minister seems to want us to believe that “there is no quick fix”. That claim is of-course nonsense. The costs of the downturn could be considerably lessened if the Government abandoned neo-liberalism and demonstrated some leadership through direct job creation.

In her responses yesterday, the Employment Minister seemed to be trying to mix empathy with political instinct. But I am sorry to say, that this is an impossible challenge … her remarks just don’t cut it. Consider these quotes that she gave in various ABC radio interviews:

For the real life Australians that these numbers represent, these are dreadful days, we understand that … But this country would have been in a far worse position had we not acted and we have acted to stimulate the economy … Despite being advised by some to wait and see, the Rudd Government hasn’t waited to see these figures before taking decisive action to support jobs in our economy.

I agree that they have acted more quickly than governments in recent recessions. I disagree that they have done enough to save jobs. More later. But if the Government really understood how dreadful the rising unemployment is then they are being callous by not meeting it head on. Instead of directly creating jobs and making the lives of the unemployed more comfortable they are fiddling with new versions of the neo-liberal (supply-side) Job Network.

Further, her comments to the media, correctly note that unemployment is something beyond the control of those who suffer its burden … which is a fundamental rejection of the supply-side myth that the unemployed “choose” or “cause” their own wretched state. If the Government truly believed that then they wouldn’t be pumping billions more into the failed Job Network. But in the same response to the media, the Deputy PM shifts any responsibility for the unemployment away from the Federal government. She said:

“The Australians who become unemployed as a result of this global recession hitting this country are obviously not the people who caused the global recession. They are bearing the brunt of forces beyond their control …

The fact is that once the private sector has made its spending decisions (and saving plans), aggregate spending will then be determined by Government net outlays. If total spending is insufficient to purchase all the output of goods and services currently on offer then inventories rise. This, in turn, tells the firms that production is too high. Output and employment then fall and unemployment rises. Exactly what is happening at present. The unemployment rate then reflects the fact that overall spending is not sufficient to fully employ the available labour force.

That is incontestable. But the point that people who understand that argument often fail to appreciate is that this means that the sovereign government chooses the overall unemployment rate by its spending decisions. If it chooses not to spend up to the spending gap left by the private sector then clearly this will result in some unemployment. Simple national accounting tells us that. So the national government can never say they are doing all they can to eliminate unemployment if they haven’t increased net spending (the budget deficit) sufficiently to close the spending gap.

As I have pointed out over and again, the smallest spending injection that would be necessary to eliminate the unemployment would be for the sovereign (national) government to offer a job, unconditionally, to anyone who wanted one at the minimum wage. I would make the minimum wage a socially-plausible living wage and then just give a job to anyone who put their hand up for one. That is doing everything that you are able to!

In that way, the federal government would not be competing with the private market for resources (and risking inflation) because the unemployed, by definition, are not wanted by the private sector. They have no demand price so paying a minimum wage is not providing any price pressure to the overall labour market.

Anyway, lets hear more from our Employment Minister. There is also pressure now to make sure the unemployment benefit rises (from its pitifully low levels of $32 per day on average for a single person). After making the comments I have cited above, the Deputy PM then sunk into some morphed old-left rhetoric that she seems to still want to hang onto from her past. Of-course, there are no policies to match the rhetoric which makes it somewhat disappointing and hollow. While refusing to answer questions about the likely change in the unemployment benefit, the Deputty PM offered these comments (collated from various interviews):

We want to stand side-by-side and shoulder-to-shoulder with those Australians and help them through this difficult period …

… [ and from another interview about the unemployment benefits] …

We want to do everything we can to make periods of unemployment as short as possible to assist people to get back into work, whereas we know that there are many elderly Australians who live on the pension for a very long period of time – decades – and so of course those pensions and benefits have always been viewed differently by government.”

Clearly they are not standing anywhere near to the shoulders of the unemployed.

My solution to all of this would be to set the Government MP’s wages to some index of the official unemployment rate plus the underemployment rate. So they get full pay if they maintain full employment and sharp reductions as the rate of labour underutilisation rose. If that rate got beyond, say, 4 per cent (currently around 12 per cent) then the government, under the “billy blog plan”, would be forced to resign and go to election. I think you would see very quickly some creative direct job creation schemes introduced – virtually overnight. Then some of this rhetoric would start to sing sweetly. Then I think we would see a new policy approach which I might characterise as the Zero Waste of All Australians.

The teenage labour market

I have had some more time today to examine the data in more detail. One stark conclusion is the trends are very bad for our teenagers. Consider the following graph which shows the unemployment rate for 15-19 year old males (left-panel), females (middle-panel) and all persons (right-panel). In February 2008 when the overall unemployment rate was at its recent lowest, teenage male unemployment was 11.8 per cent, female 12.4 per cent and all teenagers 12.1 per cent. So even at the height of the boom, the Government still had not committed to achieving full employment for our youth and was leaving them in high states of joblessness. Many conservative economists claim that teenage unemployment is not a problem because the teenagers are just learning about the labour market and are “investing” in their future by being unemployed a lot. I won’t refer you to this extensive research literature … you can easily find it yourself if you want to read (boring) fiction … but, in general, it is a fudge and hides the extensive disadvantage that high rates of joblessness visit on our teenagers.

However, by March 2009, as the pace of the downturn becomes more rapid, you can see that the unemployment rates have sky rocketted. 17.7 per cent of teenage males are now enduring unemployment; 15.1 per cent of teenage females and 16.4 per cent of teenagers overall. As you can see from the graph, in previous recessions the unemployment rates went up towards 26 per cent. Expect this segment of the labour market to deteriorate further in the current months.

What possible justification can be given by the Government for this waste? The demise of the teenage labour market represents a total policy failure. We should have a Zero Waste of Youth policy at the federal level which would require the Government to immediately give these 15-19 year olds a job if they didn’t have one and didn’t want to return to schooling.

The following table summarises the deterioration in the youth (15-19 year olds) labour market. Over the period since the downturn begun (measured from February 2008 when the overall unemployment rate was at its recent lowest), teenagers have lost 42.6 thousand jobs. That is about 5 per cent of the available labour force has been made jobless by employment loss. But that hides the compositional shifts. Part-time employment has actually increased modestly while full-time employment has fallen by a staggering 50 thousand jobs. So once again, the economy is shedding the “better jobs” (full-time) and partially offsetting the losses with a rise in casualised and insecure part-time work.

Further, like the overall labour market figures I analysed yesterday, the teenage males are getting the worst of it. They lost 38.9 thousand full-time jobs and failed to offset those losses with any part-time gains. Teenage females did get some part-time expansion but still lost 10.7 thousand full-time jobs.


Overall, participation rates are negative which is driven by the sharp decline in male participation. And if you think these young males are going back to school you would be wrong. They are just getting “lost” to the system. Like all recessions that are left by the Government to get worse, these trends are the beginnings of long-lasting intergenerational disadvantage. The youth who were trashed by the economy in the 1991 recession are now showing up in the data as being the disadvantaged adults.

Getting these young workers back into employment should be the utmost priority of the Federal government. From current policy stances it is clear that it isn’t a top priority. When the conservatives rave on about mortgaging our future and hence disadvantaging our children they just misunderstand how a modern monetary economy works. What really is damaging to our children and our grandchildren (born or otherwise) is when we leave the 15-19 year olds wallowing in labour market disadvantage – in the way we now appear, once again, to be doing. This is a total policy failure.

Two other themes that I am currently researching and will write about soon concern the claims that we are running out of fiscal room to solve unemployment and will have to be patient … and the claims that by attacking the wealthy and the banks etc (with regulation – poor dears!; and other measures) we are actually undermining the hand that feeds us all. Trickle down nonsense is still out there trying to find an ear that will listen. More later on these arguments.

Saturday quiz – Coming tomorrow!

Come back to my blog tomorrow for some tough questioning on modern monetary economics and related questions.

This Post Has 3 Comments

  1. “In that way, the federal government would not be competing with the private market for resources (and risking inflation) because the unemployed, by definition, are not wanted by the private sector. They have no demand price so paying a minimum wage is not providing any price pressure to the overall labour market.” If the government minimum-wage jobs are more desired than the private-sector minimum-wage jobs, that would cause competition between the two. This could be the case if the government jobs had any advantage such as a more flexible schedule, and they would seem to have a more flexible schedule by definition as guaranteed jobs. I want to know what you recommend to prevent that incentive for people quitting their private-sector minimum wage jobs for the guaranteed jobs. I have some ideas

  2. Dear Dylan

    A great question. My view is that the Government has to decide what the minimum standard of living should be in the nation and set the minimum wage at that level irrespective of the current “market-based” minimum that is being paid. Then the private sector would have to adjust to that – a once-off adjustment. So some employers would go out of business if they were incapable of restructuring their workplaces by new investment in higher productivity capital which would support higher wages. Other “minimum wage” (prior to the adjustment) employers would be able to invest and restructure successfully. In this way, the policy change brings dynamic efficiencies to the economy because productivity is increased. Old inefficient capital is driven out and new best-practice technology is encouraged. A similar process to what happens during a recession.

    So the efficiency adjustments are driven by the decision to create a “living” minimum wage. That decision is not inflationary but reduces per unit costs.

    The second policy decision then is to introduce a Job Guarantee and offer a job to anyone who wants it at the minimum wage established. The JG jobs might be more interesting. They would certainly offer sensible training and career-development possibilities. The JG jobs would also allow a worker to select how many hours they want to work which would eliminate forced underemployment in the private market sector. The JG jobs would be 100 per cent secure unlike the majority of minimum wage jobs in the private sector.

    So there is every reason to believe that the JG jobs would be attractive to the unemployed and also to some workers who are currently in insecure “minimum wage” jobs in the private sector. The competition for labour would then arise from that second group. There is no competition for the labour of the unemployed. The private market has rejected them by definition. But in the case of those workers who are currently employed yet find the JG attractive the private employers have a choice: (a) lose workers to the JG pool and perhaps go out of business (once again because they cannot restructure their workplaces to make the jobs more interesting or through investment so they offer better pay); or (b) make improvements to the workplace – better organisation, better staff morale, introduce training, etc and invest in better technology to allow for higher pay.

    Those adjustments are not inflationary but involve higher investment which leads to higher productivity and better pay. The adjustments also give disadvantaged workers more choices and, in general, higher pay.

    I would be interested in your ideas.

    best wishes

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