Inequality and poverty not just an indigenous problem

On Saturday (July 25, 2020), The Australian published another Op Ed that I wrote in collaboration with Noel Pearson. I understand that many people (mostly abroad) were unable to access the article (as a result of paywall restrictions on certain devices). I am unable to post the final article due to copyright restrictions but I can provide the draft article which was not too different from the final version. It also seems that the faux-progressives have somehow decided that our partnership (Noel and I) symbolises how Modern Monetary Theory (MMT) and the Job Guarantee is actually some sort of far right plot to rid the world of welfare support for the disadvantaged and enslave them in onerous Gulag work camps. It is quite amusing really but worrying at the same time. Our partnership is confusing people who cannot cope with nuance and complexity. The so-called Left have characterised Noel as being somehow on the Right, which leads them to conclude that I am selling out on my progressive credentials by working with him. Conversely, the Right, who think Noel is one of them, are accusing him of being used by a Communist (me). Hilarious. If only they knew!

The Australian article – Inequality and poverty not just an indigenous problem

Here is the penultimate version of the text (before the Editors cut it a bit) for those who have been unable to access it.

TEXT BEGINS HERE

This week the country faced two gaps and responded badly.

One is the employment gap between mainstream Australians and that of Aboriginal and Torres Strait Islanders.

Before the pandemic, the employment rate for indigenous Australians was 49% while for other Australians it was 75%. The National Cabinet adopted an employment target of just 60% for Aboriginal and Torres Strait Islander people aged 25-64 years by 2028 as part of the revised Closing the Gap agenda announced recently.

The first agenda from 2008 to 2018 failed to meet most targets. The new agreement will, similarly, fail to close the gap on indigenous employment.

The other is the employment gap for all Australians. At this stage of the pandemic, the official unemployment rate is 7.4%. But 384 thousand workers have dropped out of the labour force and are the hidden unemployed. This means the true unemployment rate is around 10 per cent. Add in JobKeeper recipients who are not working, and the 11.7% underemployment, and Australia’s wastage of available labour resources rises to close to a staggering 24%.

It is this second gap that is the real gap. Indigenous unemployment is just part of the larger problem of Australian unemployment. While the levels of indigenous unemployment are obscenely high compared to the rest of the country, as long as it is treated as a separate category the problem will forever be misunderstood and its solution forever avoided.

The Prime Minister and Treasurer’s announcements to extend JobKeeper and Jobseeker and cut back on the Federal Government’s investment in the face of the pandemic is heading down the wrong path.

On Monday, the Centre of Full Employment and Equity at Newcastle University released a report exploring the impacts on public and private employment of a Job Guarantee program designed to reduce the unemployment rate from 10 per cent to 4 per cent.

The Job Guarantee wage would equal the current federal minimum wage.

Using very conservative productivity assumptions, the scale of annual GDP income loss resulting from the unemployment rate being 10 per cent rather than 4 per cent ranges from 5 per cent 2019 GDP to 10.6 per cent of 2019 GDP.

The lost income and output represent huge deadweight losses,. These losses accumulate every day that unemployment remains above 4 per cent.

A 6 per cent reduction in unemployment would thus deliver substantial net income benefits to the nation.

For a net investment of $51.7 billion over 12 months, the federal government could create 1.24 million jobs, 200,000 of them in the private sector and the rest in the Job Guarantee sector.

A Job Guarantee that reduced unemployment to 4 per cent would stimulate private investment confidence and the private sector would start adding jobs at a faster pace, reducing the size of the Job Guarantee pool fairly quickly.

Compare that to the Treasurer’s statement that the government will spend $70 billion to save 700,000 jobs but still leave around 10 per cent of the willing labour force jobless.

It doesn’t bear comparison.

The net investment required by the federal government is clearly within its fiscal capacity and compares well, in terms of dollar returns, to other stimulus measures already introduced.

Further, the program provides a pathway for the nation to end its dependence on welfare payments and the meaningless and unproductive churn of the unemployment management industry.

We presented a paper to the Prime Minister’s office late last week making the case for a Job Guarantee. It probably went into the bin.

Yesterday, the Government also announced it is cutting back on the fiscal stimulus it introduced in March.

What responsible government would cut spending when unemployment is at elevated levels and rising, underemployment has gone through the roof, and businesses are failing at an accelerating rate as this disaster continues?

The only thing this will achieve is worsening unemployment, more failed businesses, mortgage defaults, and a long period of lost income earning opportunities.

The heightened uncertainty about COVID19 is reaching dangerous levels in Australia as the Melbourne situation is now out of control. The last thing we need now is an increased sense of fear as government withdraws its life support from the economy.

Mitchell estimates the stimulus was already about $A100-120 billion short of what was required. Cutting back an inadequate first intervention just magnifies the initial error.

Unemployment is the one commonality between all disadvantaged Australians. Welfare dependency has become intergenerational as unemployment has become entrenched. Pearson, has spent his public life arguing that the social effects of welfare dependency are debilitating – and must be tackled if the Indigenous crisis is to ever be turned around.

All disadvantaged Australians face this same problem. The destructive consequences of passive welfare are not a racial or ethnic condition, they arise from what economists like Mitchell, term hysteresis: the effects of long-term unemployment.

We have combined our thinking to agree on a jobs agenda in the belief that the best welfare to work program is to provide a job opportunity for everyone who needs one.

But there is a fundamental intellectual problem concerning disadvantage that we need to face up to.

It is this: will we ever close the gap on Indigenous employment without committing to policies to close the gap on employment for all Australians?

We believe no.

This is not to deny the specific challenges and issues concerning Aboriginal and Torres Strait Islanders in education, but rather to point out that the problems faced by Indigenous communities are often shared with other disadvantaged and low-income Australians.

Indeed, separating Indigenous disadvantage from the disadvantage of white and migrant Australians, allows a pall of “exceptionalism” to be cast over the constantly depressing and outrageously out-of-step numbers that characterise Indigenous disadvantage. It’s as if the country — inured to the bad numbers — has come to accept that little can be done. We say we will give it another go. With utmost sincerity. But we don’t expect the gap to close.

That is how a bunch of bureaucrats can come up with a schedule to close the gap on the incarceration of Aboriginal and Torres Strait Islanders by 2093. A goal that was only rejected because it was leaked to the press and became an embarrassment. But even the new schedule will probably turn out to be too optimistic in their hands.

When the Closing the Gap reports were tabled over the past decade they were often delivered to an empty parliamentary chamber. Most of the MPs watched from their offices, if they watched at all. This is because the average MP is not thinking that his or her constituents include Australians of Indigenous, migrant and white heritage who are severely disadvantaged and whose social and economic futures need to be turned around. Indeed, Bob Katter is the only MP who in every speech and media appearance, never fails to highlight the issues that affect the Aboriginal and Torres Strait Islander people he considers to be his people too.

The problem with ignoring the non-Indigenous poor is that they add to the numbers of Indigenous poor, and the human and economic cost of their exclusion from the mainstream of the Australian society and economy, is growing. The country needs to address inequality and poverty as an Australian problem, not just an Indigenous problem.

Which brings us back to the question of jobs.

If we adopted a Job Guarantee in Australia, the Indigenous employment gap would be closed within 12 months. There would be immediate parity. It would be a starting point.

The next challenge would be to lift income levels to parity through the creation of higher paying jobs. This would take time. It would require skill development and better education. It would require a growing economy and a revitalised private sector wanting to take on workers.

A Job Guarantee would allow low-income families to stabilise and start to forge a future. Those ready to move to private sector jobs and better paying jobs will be ready to do so. Such families will be in a position to support their children to take better jobs in the future, and earn higher incomes. The income gap will take a couple of generations to close, but it will begin to close once everyone has an entry level job.

It is no exaggeration to say that the situation we face today with COVID19 and its aftermath is not unlike that facing the country in the last days of the Second World War. The country has the chance to reshape our national economic compact. In the same way that the Australian safety net was defined for the post-war period at a time when employment was full, and frictional unemployment only ran for 6 weeks – the time it took to find the next job – the Morrison government has the opportunity to define a new era of full employment, and to eradicate the scourge of inter-generational unemployment.

These benefits would more than offset the required government investment of $50 billion per annum to fund the scheme. After all, the nation has already spent $70 billion in the last 6 months and unemployment has doubled..

The economic and human wastage incurred by unemployment is a policy choice, and we could as a society, make the choice to ensure everyone who is able and willing has the chance to work. For too long Australians have tolerated a 5 per cent buffer of unemployment – this was not challenged when the people who bore the brunt of this brutal policy choice were out of sight and out of mind. Now we see our friends and family reeling from the threat of economic devastation.

The pathway to recovery will be arduous and will require government to lead the market for the foreseeable future – plainly the country cannot sustain 10 per cent unemployment.

Australia needs a national Job Guarantee for at least three reasons. Firstly, to keep our economy afloat and give us the ballast to get out of this recession. Secondly, to close the gap on unemployment for all Australians. Thirdly, to create a new Australia where we will no longer tolerate unemployment as part of our social compact.

END OF TEXT

Clarity for those who don’t seem to be able to read or understand simple concepts

The Twitterverse is alight with claims that Noel Pearson and I are finally confirming their worst held fears that a Job Guarantee is a pathway to neoliberal imprisonment for the poor and the fragile.

Some character, who clearly hasn’t taken the time to read the supporting academic work, called the Job Guarantee “a more overly twisted Frankenstein monster”.

Another, a UK Twitter-MMT hater tried to contrive that we were supporting a NAIRU of 4 per cent.

I think I have done as much academic research on the NAIRU as anyone and much more (infinitely more) than the characters on Twitter who make these sort of dumb-a$#ed assertions.

No-one could reasonably say that my long-record of research and writing on this topic would ever give reason to say I was supportive of a 4 per cent NAIRU or the concept itself and its implications for the Phillips curve.

In the paper – Investing in a Job Guarantee – which accompanies the press Op Eds, and, is where the academic content lies, Martin Watts and I wrote the following:

First, the choice of the target rate or benchmark level of unemployment is important. In the past we have used a figure of 2 per cent as our full employment unemployment rate benchmark (see Watts and Mitchell, 2001). That can be justified in a number of ways.

In this paper, we use 4 per cent, only because it is the low-point unemployment rate that the Australian economy reached in February 2008 before the Global Financial Crisis (GFC) emerged. We do not argue that this is a full employment state. In fact, we believe the irreducible minimum unemployment is below this level. Further, as you will understand, our estimates are linear and can be extrapolated relatively easily for lower unemployment benchmarks if the need arises.

So, our benchmark of 4 per cent unemployment is a first-stage policy aspiration rather than an end-goal.

If you understand anything, we were seeking to construct a drop in the unemployment rate that was slightly bigger than the estimates that Treasury made for the JobKeeper wage subsidy program – which they said would reduce the unemployment rate by 5 percentage points back to 10 per cent.

So we used a 6 percentage point drop (back to a 4 per cent unemployment rate) so that a comparison could be made of that investment relative to the spending that has been required to introduce the JobKeeper.

None of that has anything to do with supporting a NAIRU of 4 per cent.

As usual, the Twitterverse is about character assassination rather than intelligent commentary.

Job Guarantee Q&A

I was asked as part of a campaign to promote the Job Guarantee to answer some simple questions about the Job Guarantee. Each question was accompanied by a time limit which i had to provide the answer (very tight).

So this is what I came up with. Nothing was scripted – just off the top of my head – given that I had to get it done by a strict deadline.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.