Australia – stronger nominal wages growth but still below the inflation rate – no justification for deliberately increasing unemployment
Last week (November 15, 2023), the Australian Bureau of Statistics released the latest - Wage…
The ABC – Four Corners – program tonight will highlight the corruption and inefficiency within Australia’s privatised labour market services sector. The program – The Jobs Game – will screen at 20:30 Eastern Standard Time. I participate in the program although the extent of that participation is at the time of writing not known. I did about 2 hours of filming for it in December. Unfortunately, the ABC geo-blocks its iView service which allows Australians to watch past programs via the Internet. If the program is available via YouTube I will post a link. The flavour of the program is summarised in this promotion piece published by the ABC News service today (February 23, 2015) – Government recovers over $41 million worth of false claims after ‘rorting’ of Job Services Australia scheme. The Guardian newspaper will also publish an article based on this blog for tomorrow’s edition (sometime during the day). So the issue is getting out there finally after successive Governments have been trying to hide the issues. After all, its ideological baby is terminally ill and they don’t want to admit that.
The ABC used this graphic as one of several to promote the story today in social media.
The rest of the text is a more elaborated version of the 900 words I sent the Guardian earlier today.
In 1998, the Australian government created a new ‘industry’ – the ‘unemployment’ industry, when it privatised the Commonwealth Employment Service (CES) and handed over labour market program delivery to profit-seeking private providers.
Our 17 traditional industries are productively engaged in producing manufacturing goods, agricultural produce, public services, education, recreational services, and the like which provide employment and incomes and enhance our material standard of living.
The ‘unemployment’ industry produces nothing but heartache, wastes billions of public money, and the private service providers regularly defraud the system. See – Government recovers over $41 million worth of false claims after ‘rorting’ of Job Services Australia scheme.
With unemployment remaining high in the 1980s and skyrocketing during the 1991 recession because the Australian government was obsessed with pursuing fiscal surpluses, its response to the rising long-term unemployment that it had produced was to introduce this privatised management scheme.
This parasitic private sector fringe – the Job Network – was, in effect, a new industry, whose product was unemployment.
Many people think it was the conservative Howard government that started the trend to outsource and privatise government services. It is true that it was the Howard government which privatised the public employment service and created the so-called Job Network in 1998.
But these conservatives, who took office in 1996, were not the founders of the scheme. The neo-liberal ideology had been infused in the so-called workers’ party – the Labor Party.
The ridiculous claims by the current government about the need to cut deficits can be traced back to the last fiscal statement from the Whitlam Labor government for 1975-76. From that point on the Australian public has been duped about ‘budgetary’ matters and entrenched unemployment has been one of the destructive legacies.
The most salient and empirically robust fact about the performance of the Australian economy at the time the Job Network was introduced was that actual GDP growth was not been strong enough to achieve and sustain full employment. As a consequence, the low point unemployment rate had ratcheted upwards over successive economic cycles.
The problem has not gone away.
As a response to the 1991 recession the Labor government started planning for the creation of a competitive market for the provision of employment assistance. It began with the ‘Working Nation’ White Paper of 1994, which was a belated response to the massive unemployment that was caused by failed government policy response to the 1991 recession.
They refused to introduce an appropriate fiscal stimulus at the time and hoped that the ‘market’ would sort out the problem. It didn’t – and unemployment kept rising.
Under the Keating Labor Government at the time, one third of the public assistance effort for the long-term unemployed was given to contractors in both private and not-for-profit agencies. This quasi-market was subject to oversight by an independent government regulator and agencies were paid on a ‘fee-for-success’ basis.
This was the basis for the ‘new industry’ – profiting from managing unemployment.
The Government argued that a competitive model would improve the quality and flexibility of services provided to the most disadvantaged job seekers.
Agencies provided individual case management and were able to refer the long-term unemployed to a range of jobs and subsidised work and training programs provided under the government’s Jobs Compact.
The scheme was deeply flawed and the Labor government justifiably lost office in 1996.
The election of the conservative Coalition Government in March 1996 saw the abolition of the Jobs Compact programs and thoroughgoing reforms to labour market assistance.
The Working Nation strategy was derided as an expensive policy failure unduly concerned with process, and the continuing role of the central bureaucracy (the CES) was seen as antithetic to innovation and the tailoring of interventions to meet the needs of heterogeneous job seekers.
The Government identified cost cutting and the tighter targeting of support as explicit objectives of reform implying an ability to deliver both better and cheaper assistance.
Appropriations for Labour Market and Training Assistance were cut from $2.16 billion in 1995-96 to $1.2 billion in 1997-98. However, the principle goal of reform was defined as delivering better and more sustainable employment outcomes for job seekers underwritten by a more competitive, flexible and performance-based approach to the delivery of employment assistance.
In 1998, the focus on outcomes and the use of competition to allegedly drive greater efficiency and choice underlay the dismantling of the CES and its replacement by Centrelink (the government overseer of the privatised provider contracts) and the Job Network.
For further historical background – see the blog – Oh for a decent public employment service!.
The privatisation of the CES and the shambolic and corrupt system that emerged (the Job Network) was part of the trend towards mean-spirited government that led to the abandonment of a commitment to full employment and the retrenchment of a comprehensive welfare state.
The Job Network was epitomised by the government’s pursuit of the diminished goal of full employability, which constructed mass unemployment as a supply-side problem rather than a system-level failure of the economy to provide enough jobs for those who desired to work at the current wage rates on offer.
Under full employability, the government no longer ensured that employment growth matched labour force growth but focused, instead, on getting individuals ‘work ready’, should there be jobs available.
It was the exemplar of the OECD’s Jobs Study approach which focused on supply-side activation – a fancy word for blaming the victims of a demand failure and threatening them with starvation should they not agree to submit to the pernicious management regime (relentless dole diaries, meetings with case managers etc) which included working for free.
The stated goal of the Job Network and its more recent incarnation, Job Services Australia (JSA) is to assist the unemployed to gain skills and employment.
The reality is very different. Its purpose is in fact to In reality, it ‘manages’ the unemployed, frustrates their legitimate receipt of income support, and creams off profits for the providers.
The stress caused by pernicious system further impacts on the disadvantage that the unemployment already experience as a result of job (and income) loss.
A recent US study – Personality Change Following Unemployment – finds overwhelming evidence that spells of unemployment changes the core personality which makes the person “less conscientious, agreeable and open” and makes “it difficult for them to find new jobs”.
See also the related news release (February 18, 2015) – Basic Personality Changes Linked to Unemployment, Study Finds – for a summary of the research.
The Job Network was introduced at at time when it the macroeconomic constraints on its effectiveness were substantial.
First, the Australian economy had failed to generate sufficient employment since 1975 to match the preferences of the labour force. Since the early 1970s, employment growth has not kept pace with the underlying population growth, which is why the unemployment rate is now over 340 per cent higher than it was in 1971.
The following graph shows the available labour supply (labour force) has outstripped total jobs since 1974 with entrenched unemployment being the result.
Exacerbating the shortage of jobs was a policy of deliberate fiscal drag (pursuit of budget surpluses) which created the demand failure.
Please read my blog – Tracing the origins of the fetish against deficits in Australia – for more discussion on this point.
Since January 2013, employment has grown by a pathetic 2.1 per cent, while the working age population has grown by 3.7 per cent.
Yet the public narrative still focuses on the supply-side – the allegedly ‘lazy’ and ‘unskilled’ unemployed.
The unemployed cannot search for jobs that are not there!. It is a cruel hoax to claim otherwise and to punish the victims of the jobs shortage.
Please read my blog – The unemployed cannot find jobs that are not there! – for more discussion on this point.
The performance of this new ‘industry’ has been abysmal.
The system started failing from day one.
A 2002 report by the federal Productivity Commission Independent Review of the Job Network – described the Job Network as a ‘managed’ or ‘quasi’ market for the provision of subsidised employment services, which aims to mimic the activities of competitive markets by allowing scope for competition, flexibility in service delivery, rewards based on outcomes and some degree of choice for the unemployed.
First, the Job Network comprised multiple independent agencies, each having a share of a common system of public service provision. Second, the agencies were a mix of profit and not-for-profit organisations; and third, job seekers do not purchase services but have services purchased on their behalf by government.
Under the Job Network, the government was a purchaser and regulator of employment services, not a direct provider. The role of government was to award contracts through a competitive tender process, regulate providers, determine standards, and to collect and disseminate performance information.
However, this perverse “quasi market” soon revealed it was not immune from market failure.
There was policy schizophrenia in expecting an outcome-based funding model for employment services to deliver ‘better and more sustainable employment outcomes’ in the absence of concomitant policies to alleviate the macroeconomic constraint and create real employment opportunities.
In a highly demand-constrained labour market, characterised by persistent unemployment and marked regional disparities, it was always unclear how the supply-side focus of the Job Network could be effective.
It was also the case that a system centred on outcome payments in which providers had discretion with respect to the level and nature of assistance afforded to job seekers created incentives for ‘creaming’ and ‘parking’.
The Productivity Commission’s Independent Review of the Job Network in 2002 found that the payments structure to Job Network providers has led to a substantial proportion of Intensive Assistance recipients being ‘parked’ – that is, taken onto the private agency books to get the first incentive payment but then ignored because the prospects of getting any further payments (for successful job placement) were bleak.
Job seekers with the greater chance of achieving a payable outcome were targeted while those in greatest need of assistance (with low employment probabilities) were left unsupported.
The lack of correspondence between needs and services reflected the difficulties associated with specifying objective outcomes and performance indicators that will allocate resources according to an ordering of societal needs; and relate to both the quality of assistance provided and the quality and sustainability of jobs attained.
The prices attached to employment outcomes also did not adequately reflect all the costs of unemployment which include not only income and output loss, but the deleterious effects on self confidence, competence, social integration and harmony, and the appreciation and use of individual freedom and responsibility.
Subsequent evaluations of the effectiveness of the Job Network showed it failed to provide sustained employment prospects for the vast majority of the case load.
By 2005, employers were complaining of massive skill shortages despite the Job Network providers receiving billions of dollars in public money to develop such skills among the hundreds of thousands of unemployed persons under their ‘management’.
The Government of the day (in 2002-03) reacted to the early criticisms of its failed program by reinforcing what it called the Active Participation Model – aimed at reducing the outlays that were rising as unemployment continued to increase in the face of the on-going failure to stimulate aggregate demand.
The Government argued that the Active Participation Model would ensure the case loads carried by the Job Network agencies would decline.
Underlying the new approach to “mutual obligation” was the view that improving the effectiveness of the employment services system depended on changes to the system itself, and not on the expansion of employment opportunities.
The enhanced ‘effectiveness’ of the system was sought by a reconfiguration of the payment structure and greater integration between Job Network services and mutual obligation activities.
As a result, the ‘Job Search Training’ and ‘Intensive Assistance’ programs were recast as ‘Intensive Support’ and ‘Customised Assistance’. A job seeker who remained unemployed after 12 months would receive Customised Assistance (CA) for a further six-month period.
After that if the individual had not found work they would be required to undertake another Mutual Obligation activity, which included Work for the Dole programs.
The marquee Work for the Dole program, which forces people to work at below legal hourly pay rates is just a compliance measure designed to extract menial effort in return for miserly income support. It does not provide a pathway to permanent paid-work in the open market or develop productive skills.
The providers also have perverse incentives to keep the unemployed in the program rather than find them meaningful work.
A related feature of the system and one its the most repugnant was known as “breaching”. This is where the system openly violated basic human rights.
The Government introduced penalties that would be imposed on the long-term unemployed people found to be – in the Government’s assessment – not genuinely seeking work.
The Government gave the Job Network providers the power to identify and punish unemployed people that the Government believes are deliberately avoiding work.
Once identified, the Job Agencies were also able to force these workers to complete double the hours in work-for-the-dole programs and issue on-the-spot suspensions of payments for unemployed people who failed to attend interviews.
This penalty system was called breaching. The data that emerged was shocking. There was an escalation in the number of people subjected to the loss of benefits.
The evidence was that Job Network providers acted capriciously and had no specific procedural guidelines for making decisions about breach recommendations leading to inconsistent treatment of the unemployed within a single organisation.
We learned that unemployed workers who failed to attend a first interview were more consistently and readily breached than others. Rules of natural justice were not being correctly applied in all instances (some unemployed were subjected to unjust decision-making processes).
Job Network agencies used strategic breaching to remove potentially ‘non productive’ unemployed from the books – which meant – workers who they felt they were unable to secure any further placement funding for.
Moreover, those that were being breached include schizophrenics who were prone to episodic illness and unable to attend interviews on days when they were suffering the most; homeless people who were unable to access mail at old addresses informing them of an activity test interview and other disadvantaged citizens.
On taking office in 2007, the Rudd Labor government admitted that the Job Network had failed although they didn’t express it in that way.
However, their revised Job Services Australia system only made minor administrative and contractual changes, none of which addressed the basic problem of a lack of jobs.
The recent data on the performance of JSA is similarly poor.
The Department of Employment’s own data (most recent) – data – tells us that in the three months to September 2014, only 42.8 per cent of those who had received JSA assistance for the previous 12 months had gained jobs.
Further, 57 per cent of the jobs gained were “Casual, temporary or seasonal” and a further 11 per cent were “Self-employed”.
Of those who managed to gain work, around 50 per cent stated they were underemployed and wanted more hours of work.
The results are worse for more disadvantaged workers – only 33.4 per cent (Stream 3) and 23.7 per cent (Stream 4) gained jobs.
The other interesting aspect of the system is the impact the participation has had on the dominant service providers, which are major religious organisations (Mission Australia, The Salvation Army and Wesley Mission).
They have become schizoid organisations as they preach concern for poverty and compassion for the unemployed yet are coopted by government to inflict pain on the unemployed.
These organisations are on the front-line in reporting the unemployed to Centrelink for any perceived ‘non-compliance’ with the pernicious requirements for income support.
Centrelink, which then withdraws benefits (breaching as discussed above).
The other angle, which is revealed in tonights Four Corners program is that provider fraud has been rife.
In 2006, four employment agencies, including the largest (Salvation Army) were found to have falsified their reporting to get higher contractual payments (at least $12 million).
In 2011, Fairfax media reported that the “the Catholic Church’s employment arm had systematically defrauded the program”.
In 2013, an External Audit of JSA found that only 39 per cent of providers’ payment claims were legitimate.
The preliminary report noted that:
… the rate of invalid claiming exceeds that which might be expected in a typical risk managed program administrative environment.
The providers listed “data entry errors” among other dubious excuses to explain away their conduct.
No prosecutions have followed these cases of invalid claiming involving millions of public cash.
Many other cases of ‘fraud’ have been reported and probably many more have been swept under the carpet by the Government anxious to evade public scrutiny.
See the – ABC report, February 23, 2015 – for further documentation.
Research shows that best-practice training occurs within a paid-work environment. What training occcurs in the JSA just shuffles the unemployment queue given the jobs shortage.
Don’t ever forget – The parable of 100 dogs and 95 bones
The main reason that the supply-side approach is flawed is because it fails to recognise that unemployment arises when there are not enough jobs created to match the preferences of the willing labour supply. The research evidence is clear – churning people through training programs divorced from the context of the paid-work environment is a waste of time and resources and demoralises the victims of the process – the unemployed.
Imagine a small community comprising 100 dogs. Each morning they set off into the field to dig for bones. If there enough bones for all buried in the field then all the dogs would succeed in their search no matter how fast or dexterous they were.
Now imagine that one day the 100 dogs set off for the field as usual but this time they find there are only 95 bones buried.
Some dogs who were always very sharp dig up two bones as usual and others dig up the usual one bone. But, as a matter of accounting, at least 5 dogs will return homebone-less.
Now imagine that the government decides that this is unsustainable and decides that it is the skills and motivation of the bone-less dogs that is the problem. They are not “boneable” enough.
So a range of dog psychologists and dog-trainers are called into to work on the attitudes and skills of the bone-less dogs. The dogs undergo assessment and are assigned case managers. They are told that unless they train they will miss out on their nightly bowl of food that the government provides to them while bone-less. They feel despondent.
Anyway, after running and digging skills are imparted to the bone-less dogs things start to change. Each day as the 100 dogs go in search of 95 bones, we start to observe different dogs coming back bone-less. The bone-less queue seems to become shuffled by the training programs.
However, on any particular day, there are still 100 dogs running into the field and only 95 bones are buried there!
A commitment to full employment is required
This year marks the 70th Anniversary of the Australian government’s White Paper on Full Employment, which defined its commitment to maintaining full employment.
We understood that mass unemployment resulted from a systemic failure to create enough jobs and that the victims were largely powerless.
We trusted government to use its spending capacity when private spending was weak to ensure that there were enough jobs.
The successful strategy maintained very low unemployment for more than 3 decades. In the process, the government ran almost continuous fiscal deficits and was a major employer itself. It didn’t deliberately punish those who the system would leave behind unless help was extended.
The onset of neo-liberalism in the 1970s and the erroneous fetish for fiscal surpluses led to this commitment being abandoned. The rising unemployment that followed dampened wage pressures, which satisfied the employers, who had lobbied for years to have the commitment scrapped.
Neo-liberal economists, media commentators and politicians claimed that the unemployment rate consistent with full employment had risen so no policy alarm was warranted. The claims are spurious.
When the unemployment rate was 8 per cent – that was somehow full employment. When it dropped to 6 per cent – that was somehow full employment. Then it dropped to 4 per cent at one stage and these idiots tried to run the same line.
They claimed structural rigidities were the reason the full employment level unemployment rate had shifted even though they couldn’t point to any changes in structure of the economy or policy that would push the unemployment rate up from its true full employment value of around 2 per cent (to allow for people moving between jobs) and say 8 or 9 per cent.
Additionally, the government encouraged a new ‘divide-and-conquer’ nomenclature which vilified the victims in order to reconstruct the public narrative about unemployment.
To his eternal disgrace, the Federal Labor minister, Clyde Cameron coined the term “dole bludger” in 1974 to reinforce the message that the unemployed were lazy and indulgent. We heard of “work-shy lion tamers” exploiting our generosity to avoid work while receiving income support. Then there were cruisers, job snobs, leaners etc
By isolating the unemployed, the Government could cut their real benefits and make their lives hell. Both sides of politics have refused to increase the unemployment benefit above the poverty line.
Australia could easily achieve an unemployment rate of less than 2 per cent if the Government reinstated its commitment to full employment and introduced large-scale job creation programs. The extra jobs would not accelerate inflation and would deliver a huge boost to our most disadvantaged workers.
The first thing the government should do is close down JSA and, instead, introduce a – Job Guarantee. Unemployment would drop very quickly to below 2 per cent and everybody would be better off.
The reality is that this new compliance regime that the Australian Government introduced did not address the substantive cause of the mass unemployment – the failure of the economy to provide enough jobs.
It established a new industry – with private parasites pursuing a profit motive by meeting the perverse performance targets specified in their contracts. These agencies were meant to support the unemployed but quickly assumed a police-type role imposing fines and disciplining the unemployed.
To increase their revenue, the providers also cheated and fabricated their reporting. Some have been caught and forced to pay the money back, while others are getting away with it. None have been sent to prison for the frauds.
The system failed to achieve any of its stated purposes which were, of-course, not the real roles that the government was interested in pursuing anyway.
As the neo-liberal era has matured over the last three decades, Australians have plenty to be ashamed of. Our inhumane treatment of those seeking refugee status, our support for illegal invasions of Iraq and Afghanistan, our treatment of indigenous Australians, our neglect of those with severe disabilities, and many more violations of decency are obvious.
The punishment we mete out to the unemployed through JSA ranks up there.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.