New welfare model, old welfare results

Justin Campbell argues, Christian Porter’s new welfare investment model won’t create jobs or growth.

Recently, Social Services minister Christian Porter announced that the government intends to introduce a New Zealand style welfare investment model. The model involves the government investing more initially in problem cases early on, with the view that it will reduce the government’s long-term liability. New Zealand much like Australia has had a problem with people moving from normal unemployment benefits to the higher paying disability payments. The investment model would provide more resources for these hard cases; helping them move into employment. However, is this just another big government solution to a micro level problem?

Presently, Australia’s welfare system already provides more resources to the long-term unemployed via Job Services Australia (JSA) or the Disability Employment program (DES). I have previously worked in the Disability Employment Program and the Work for the Dole Program. Nothing I saw working on either of those programs makes me think that another government program will make any significant difference to the level of unemployment.

Unemployment has five causes, frictional unemployment, voluntary unemployment, structural unemployment, real wage unemployment and cyclical unemployment.  Frictional unemployment occurs when people move between jobs; these people never have anything to do with Job Services Australia. Programs such as JSA and DES attempt to address structural unemployment by assisting with job searching and reskilling. The success of such programs are dubious at best. Such approaches fail to address the fact that the unemployed are kept out of employment because they are priced out the labour market (real wage unemployment) or there’s simply not enough jobs available due to cyclical declines in the economy.

Structural issues causing unemployment are best addressed at micro level within the communities jobseekers live. Family, friends and community groups are best able to help people overcome whatever disadvantages they face. Programs delivered or funded by the Commonwealth focus their energies on meeting KPIs set by the department and are too far removed from the individual or the local economy. When I worked in DES, we were paid by the department on 13  and 26 week outcomes. Many of those people were soon unemployed again after those periods. The people who were successful in finding long term employment usually found it via their own networks and through their own hard work. Sometimes, we were able to assist, but was this a good use of public funds? In my opinion, no. The Federal government would better focusing its energies on the two causes of unemployment that it can affect: real wage and cyclical unemployment.

Real wage unemployment is caused by the gap between the demand for labour and the artificial shortage of supply created by the minimum wage, the award system and effective marginal tax rates (created by the interaction between the welfare system and the tax system). The Federal government could do a lot to help the unemployed by abolishing the award system; too many jobseekers are priced out the labour market by the government setting the price of labour too high. This is especially true where structural issues also exist. Many unemployed people are unemployed because they have the wrong skills and would require significant re-training by an employer before the price set by the award system can be justified by the employer. Instead of doing this this the Department of Employment regularly raids shopping centre food courts to ensure workers aren’t being ‘exploited’.

In the DES program we were able to apply for a supported wage agreement which allowed the employer to pay the workers a percentage of the award rate based on review by an independent assessor. This made it possible for an employer to pay someone to clean tables or wash dishes and often create a job that didn’t previously exist. If in the first place the government didn’t set the wage rate artificially high, this process wouldn’t be necessary and more of these entry-level roles would be created. Because the wage rate was lower, the worker could also continue to receive part of their unemployment benefit while gaining valuable skills. If the government were to fix the relationship between welfare and the tax system by implementing a negative income tax as a replacement for the current welfare program this would happen naturally.

The government can also help reduce cyclical unemployment by assisting the Australian economy to grow at a high rate. Fortunately, recent economic news has been good with the Australian economy growing at 3.3% p.a. The government can help continue this success by focusing on abolishing unnecessary red-tape as recently outlined by the Institute of Public Affairs, ensure Australia has a competitive tax system and remove long term threats to the economy by balancing the budget.

While the proposed welfare reform maybe an improvement on existing practice, the Federal government needs to focus on the two causes of unemployment it can control if it hopes to return Australia to the low unemployment we experienced in the mid 2000s. And that requires a real focus on jobs and growth.

Justin Campbell is on the executive committee of LibertyWorks.


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52 Comments on "New welfare model, old welfare results"

  1. Designed only to help the JSP’s and their share holders, otherwise designed to Enslave our youth, lower wages and put older Aussies out of work. Privatization only helps the rich. I can see them taking a Libertarian approach to older job seekers in the near future and demanding our homes for welfare…

    • I don’t disagree with you the JSPs are a giant waste of public funds, but how do you claim they enslave the youth, lower wages and put older aussies out of work. You’re giving them too much credit, they’re just out sourced public servants.

    • By replacing paid workers with WfD Slaves…By Privatizing, we now have a Profit based system, it’s not in their interest to lower unemployment, quite the opposite. And with the help of the gov, selling off our jobs, bringing in foreign workers, cutting social services jobs, and Privatizing what ever they can, the unemployment problem will only get worse. Then by forcing our youth to WfD at Slave rates, they will push older workers out, But, many of these older workers own or near own their homes!, they won’t be able to pay their mortgage, and if they do own their home, they will be made to hand it over for welfare, Tory Scum want to rip what they can from the poor.

    • They are not ‘just out sourced public servants.’, Public servants are to Serve the Public, The JSP employee’s are to serve Big Business at the expense of Public service.

    • I’m Guessing Justin Campbell that you have little experience of the plight of the Unemployed, Here’s a link that may help to enlighten.

    • Well if you consider 12 months as a co-ordinator with WFD at Mission Australia and 2 years as a disability employment consultant plus a masters degree in economics than sure I’m unenlightened.

    • May I ask, was that under a Privatized Service, or a Government Service? Anyhow, as you are so experienced with the unemployed, what are your recommendations? I’ve been forward with mine…Just that I have read the Libertarian Welfare Policies, and I’m guessing this is a Libertarian Site? Truely Being on the other side of the Desk with a Silver spoon in your mouth, don’t quite cut it for me…

  2. Just a short one from me today guys 😛

    While Im not fully on board with every little point in the article where we agree is as follows.

    The Labor market really is the key arbiter of any societal unemployment issues, Unless Labor market issues are actually addressed properly any other public programs.

    From wage subsidies, Work for the dole to stringent job seeker compliance procedures is money spent tinkering around the edges. Because when it comes to Labor; Markets really are where the problems begin and end.

    • Thanks for your input. It’s interesting that a lot of what a wrote could have been in the Guardian. (Basic wage/negative income tax, there’s not enough jobs for the unemployed to fill) Obviously, they would support Keynesian stimulus where I’m recommend cutting red tape and addressing the tax system ect. They would also argue that the minimum wage/award system doesn’t create unemployment; it does.

    • And our politicians are selling off our jobs, not creating them, ‘Jobs and Growth’, Jobs for foreigners and Growth for Big Business, a Highway to Hell for the Poor…

    • The award wage is a sticky one, Il have to get back to on that but I only have time to say that the lack of award wage can create problems of its own, not insurmountable problems but its notable that current “non award or subsistence wage” countries have quite urgent and telling vulnerabilities.

      Your right in that the Guardian has supported Keynes and to be fair Australia has done very very well in comparison to countries who took the Regan/Thatcher option.

      But I think that with a little imagination and ingenuity we can actually surpass both of these common “go-to” options.

  3. Nothing has changed!! Economical irresponsibilities!!

  4. Why are our tax dollars not going to training people to replace 547 workers? instead of going to JSP’s to benefit only them and their Share holders?

  5. Does anyone here at ‘Liberty Works’ have a ‘better’ solution to the current JSP arrangement?Because we would love to hear about your ‘Ideal Welfare Policies’.

  6. NZ has many long term unemployed so its not working there either, many live in wet drafty old privatized public housing as paupers. The only “ïnvestment” is in finding ways to make life desperate for the unemployed and they then moved to Australia.

  7. ’employment’ for many people is a very seasonal thing .. especially if their employment has links with the land & even the sea .. some species .. prawns may be ‘in season’ & then not .. it’s not only people working the land are subject to seasons .. in country towns it’s the whole district .. it’s the seasons too .. sometimes there’s a bumper crops & not enough hands to harvest & then there are lean times .. problem is the pollies & ps sitting on a steady income just don’t get it ..

  8. It seems like an American solution. Get rid of the awards and no minimum wage and then you can pay people peanuts and call it skilling them. Of course you would also need to ensure people weren’t on welfare so they would work for peanuts or maybe they would resort to crime. The police have been interviewing young offenders in Ballarat and many of them are saying it is easier to resort to crime than it is to deal with Centrelink. More jobs for those with minimum education would help. Sending everything offshore might be making employers wealthy but it is reducing job opportunities for the unskilled. I don’t see the Americanisation of our workforce as the answer.

  9. Many accurate figures and scenarios here but it still boils down to workers getting paid less at a time when everything costs more. We also need to stop government taxing jobs (payroll tax) and penalising companies (if possible) who send jobs off-shore.

  10. This Guaranteed Income or Negative taxation just seems to me totally against Libertarian Policies that I have seen. I thought the Aim was to reduce Taxation? and reduce Governments Responsibilities? The ‘Chiefs’ will never allow it, it seems more like one of those ideas they would allow to ‘hang around’ to try and suck people in, but Never actually implement?

  11. I can’t even log into My Gov

  12. No jobs to get they have sent them all to asia ! and that is everthing along with the Mining Booms money !

  13. i do volunteer work at the local council

  14. The FACTS are that the Countries that pay the highest Unemployment Benefits, have the lowest unemployment !
    Listen up Australia ! Also a compassionate Country should not punish those who can’t find jobs, when there are less & less jobs to be had, they should be creating Employment opportunites.

    • That’s just plain wrong.

    • Therefore Gary Bestel if we raise the dole high enough all unemployment is eliminated? Interesting…

    • Justin Campbell ….what…the facts….or being compassionate ?

    • LibertyWorks ….when you have studied the numbers around the world…..come back & make a comment.

    • The first requirement for someone to look for a job is being secure enough to actually afford to look for a job. It costs money like transport. Letters. Internet. If the person cannot afford accomadation let alone food how on earth can they afford to travel to look for work? A real class A bunch of wankers who say people like living on the dole. Also reducing the minimum wage won’t give more jobs just reduce those who got one to extreme poverty or having to rely on tips which is very American.

    • Gary, it was a question, for you…

    • So if we tax wealth and subsidise poor people we get more wealth and less poor people?

  15. The current system in which unemployed people obtain ‘assistance’ from private organisations to find work is crap. It doesn’t work, and in my case actually hindered my finding a job. These people have too much control over a person’s private affairs, including travel to find work. In short the system is bullshit

  16. The Coalition want to bring back Work Houses for the unemployed

  17. let us see Christian Porter live on welfare

  18. The Coalition want to bring back Work Houses for the unemployed as they could not get work choices in

  19. Anything espoused by the IPA is pro corporate bullshit

  20. I recently had to go to Medicare . They had moved from where they were, are now in with Centrelink. Centrelink to the left, Medicare to the right.

  21. Wait, you mean applying for lots of jobs every month doesn’t create jobs?

  22. It’s not intended to create jobs or growth: It’s intended to distarct from the coalitions lack of actuall policies to create jobs and growth, and to demonise the weakest in society.

  23. Work houses for our kid is what Libs want

  24. Yep, Abbott & Turnbull, closing down the manufacturing industry in Australia was a really brain busting idea?

  25. If they get rid of the award wage working people will not be able to afford the cost of living. Further nobody should have to agree to work at a lower rate of pay to employ others this is communism & bordering on slavery. However I guess the big stick they have up their sleeve to make this happen is to cut people off payments for non-compliance. This will result in homelessness for those whose families do not own their own homes or have the income to support their adult children. The entire parliament is insane wanting no more than slaves lining up at soup kitchens for the unemployment they have created through a variety of means.

  26. YEP…..look back at world war 2 and how labor was forced on people to live…..look how the economics of the time moved and who to…’s all there…..I feel world war 3 coming on….through the rich (as always) you wait there will be another depression….

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