Reducing Australian un and under employment 1

Yesterday in We need a management revolution I said in passing:

As I write, Julia Gillard has just, and I quote from the Australian,  flagged new incentives to encourage two million Australians, including disability pensioners and part-time employees, to work more hours, as part of a dramatic bid to ease workforce shortages and secure the nation's economic future. Here she said in part:

We look with particular care and concern on the large number of working-age Australians, plausibly as many as two million, who stand outside the full-time labour force above and beyond those registered as unemployed

The PM is correct that Australia has a large number of underemployed workers over and beyond the formally unemployed. I think that she is correct in wishing to address this issue. Will it work? I don't think so. She has stitched together a series of different issues (carbon price, mining tax, underemployment, aging population) expressed in generalities, national universals.

In this post, I want to look at some of the difficulties involved in getting Julia Gillard's two million either back into the workforce or giving them a chance to increase their working hours.

The first measure that the PM has flagged is action to reduce disincentives to work built into current benefits structures. These come about because those who might wish to work face greater costs (clothes, fares, child care arrangements) yet also have their benefits reduced; the first effect of a move to work can actually be a decline in income. The benefits structure is complex and interacts with things like social housing rental policy.

To this point, the Government has tended to adopt the stick approach, tightening eligibility requirements and obligations to try to force people to work. To go further, the Government needs to provide greater incentives to work; this actually means being more generous, reducing the present disincentive effects.

Can this be done? I think that the answer here is yes, although it's technically complex.

If we do this, just how many of the presently unemployed might shift into work? We just don't know.

Those unemployed vary greatly in terms of:

• age, with (I think) a particular concentration at the younger and older end
• household type, including singles, couples, parents with kids, single parents with kids
• location
• existing skills
• reasons for unemployment
• attitudes and motivation
• housing - private rental or social housing
• access to benefits.

These variables interact with each other. A few examples:

• a single parent looking after kids necessarily has less flexibility
• the young and old face quite different employment marketplaces
• jobs may not be available in the areas where people live; movement to jobs whether by travel or relocation may be difficult
• a considerable number of the unemployed or underemployed are not on benefits at all. This includes those with partners whose income is sufficiently high to deny the unemployed partner any form of access to official support.

The interactions can be very complex. Consider NSW's Aboriginal peoples:

• In average terms, they have fewer skills, lower incomes and greater unemployment than the population as a whole
• Around one third live in social housing, a far greater proportion than the general population. If tenants earn more than a certain income, they lose access to means tested social housing. If they are going to move in search of work then they have to find alternative social housing or, alternatively,  private rental 
• A significant proportion of Aboriginal people live in areas with lower and in some cases declining employment opportunities; Western Sydney (Blacktown LGA has the largest number of Aboriginal people of any Australian LGA) or regional NSW are examples.
• Aboriginal people have a stronger attachment to country than the broader community. Their patterns of migration are different. For example, there is out-migration from Sydney to regional areas as families move to avoid problems on social housing estates, to return to country to bring up kids. Often, the families are moving to areas with reduced job opportunities.

The bottom line in all this is that changes to benefit structures can help, but will have uncertain results.

Beyond benefits, the Government's primary focus is on skills acquisition, as was that of previous Governments. Here, and with a special focus on the young, the aim is to create a "world-class, market-driven TAFE and vocational training system." This sounds good, but there are a few problems.

To begin with, there are real problems with the concept of market driven training. Let's put this aside to another post. Assume, for the moment, that we have such a system. Will this reduce the number of those who are unemployed or under-employed? Probably not by much, because the nexus between the two is uncertain.

Reduction in the number of un or under-employed people depends upon the availability of jobs. The PM's logic goes this way: the combination of mining boom and aging population means that there are jobs; if we provide more training as well as match-making services to bring job seekers and employers together, then we can reduce the number of un or under employed to the benefit of all. There is some truth in this logic chain, but there are also some problems.

To begin with, the nature of work itself has changed. The type of unskilled or semi-skilled work that used to provide a base has gone. The PM seeks to address this through training to bridge the gap. But what do you do with people who are simply unsuited to office-based work?

Then, too, work has become casualised. Modern casual work is very different from, say, seasonal work of the past. There you had patterns that actually provided a degree of certainty. Today, there is far more uncertainty. If you take a casual or contract job, you simply cannot know how long it will last, how long it will take you to get a new job when the assignment finishes.

This introduces a degree of friction into the system, one that at any point means that that a higher proportion of the workforce will be un or under employed.

Next, there is a real mismatch between population distribution and jobs. In theory, such a mismatch leads to people shifting. In practice, the Australian population is less mobile than it was in the past because of the rise of the two income household. People won't move because such a move might disadvantage the partner. Of itself, this tends to increase the number of underemployed.

I am going to pause here because of time limitations. I will continue the discussion later with actual examples based on my own experience. For the moment, I am just pointing to some of the difficulties facing the PM's plans.