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Conservatives think I am nuts for suggesting the government might create jobs

Today is actually the much promised shorter Friday blog. I had to write an Op Ed piece today for the Fairfax press on my recent evidence before a House of Representatives Committee of Inquiry into regional skills shortages. So I thought I would expand on that Op Ed a little for this blog. In April, my research centre – CofFEE – made a formal submission to this Inquiry. In June I gave formal evidence (see below) and some interesting things came up. A conservative MP on the Committee thought I was insane for suggesting that the public sector might consider creating employment given the high degree of labour underutilisation we have in this country. Some regions have 50 per cent of their workforces idle! Anyway, today I summarise our submission and provide some text from the official government hansard (record) of my evidence.

Background

In February 2010, the Federal Minister for Employment and Workplace Relations formed a House of Representatives Committee “to inquire into and report on the applicability of government employment policies to address the skills shortages in regional Australia focusing on opportunities to support the relocation of unemployed workers from areas of high unemployment to areas experiencing skills shortages”.

Here is the Regional skills relocation inquiry home page. You can access our full submission if you are interested.

Here is an edited version of our submission (it was written by Beth Cook, Victor Quirk and me).

The abandonment of the state as a significant source of employment and on-the-job training has left a 30 year legacy of chronic labour under utilisation and inadequate skill formation capacity. The assumption that industry will provide sufficient skills training fails to acknowledge the chronic incapacity of the private sector to do so for much of the population.

The OECD’s response to rising and persistent unemployment was the 1994 Jobs Study that advocated extensive reforms, notably the reduction of budget deficits and public debt, labour market deregulation, redefinition of the responsibilities of government in terms of full employability, widespread reform of unemployment and related benefit systems and investment in formal education and training to improve the skill base of disadvantaged workers.

The most damning indictment of the OECD policy agenda is that in recent years employer groups have argued that Australia is suffering from a skill shortage, despite the continued high rate of labour underutilisation. The coexistence of skill shortages and high rates of labour underutilisation implies that the problem is one of insufficient skills formation.

The failure to implement a regional development policy in Australia has resulted in a concentration of labour underutilisation in particular regions and a myriad of long-term consequences that reinforce multiple disadvantages and cause social exclusion: poor school performance and poor human capital formation produces a low productivity workforce and low income.

A number of recent recommendations seek to develop labour market intelligence at the national level to address the issue of skill shortages through investments in education and training. Changes to employment services introduced in 2009 include a greater focus on disadvantaged job seekers, employer servicing and meeting the needs of the local labour market. There is a greater recognition of the need for skill formation through formal training, with the Productivity Places Program providing training places for the unemployed and for those in the workforce to upgrade skills.

In addition to other labour market programs, policies to address labour or skill shortages in Australia have included the Relocation Assistance Scheme (RAS), later the Mobility Assistance Scheme (MAS) and assistance through the Job Seeker Account and the Employment Pathway Fund. While playing a useful role in assisting job seekers to relocate to take up employment opportunities, these schemes operate at the periphery of the labour market and have marginal impacts, at best.

Our Submission emphasised the necessity to develop a new framework for regional development capable of producing sustainable development by meeting economic, social and environmental objectives.

Blind faith in markets

In the last 15 years, the Federal government has largely neglected regional policy because they have been influenced by the dominant neo-liberal ideology in economic policy making.

Mainstream economists possess a blind faith in “markets” and erroneously conclude that labour mobility will resolve regional imbalances as workers migrate to growing areas in response to higher wages on offer.

This blind faith has not only led to an impoverished view of what government can do to resolve skill imbalances and persistent regional inequalities but also explains why most economists failed to see the global financial crisis coming.

The problem is that we are once again considering policy options that are doomed to fail because market forces do not operate in the way conceived by these ideologues.

Economic theory predicts that, in situations where labour demand for particular skills outstrips supply, the adjustment process involves an increase in wages to attract the necessary labour from other areas. Thus over time, labour markets will adjust to produce equilibrium where demand equals supply. This process may involve considerable lead times due to the amount of time required for training.

However, the adjustment process may not achieve labour market equilibrium since there are other issues that impinge on the adjustment process. Potential workers consider the attractiveness of the work having regard to the type of work and working conditions as well as occupation health and safety concerns. In addition, other factors influence employment decisions such as the needs of other family members with regard to employment, education and social needs.

Workers may not be immediately aware of the higher wages on offer in occupations they may be interested in. they may need to undergo further training and will only be prepared to commit to this if they think wages will be relatively high for an extended period of time.

Orthodox economic theory posits that labour mobility resolves regional labour market imbalances as workers migrate from areas with higher rates of unemployment to low unemployment areas. Our earlier work points out that labour supply responses are incomplete and operate with considerable lags, leaving pockets of high unemployment. In particular, other factors such as differentials in house prices have impeded mobility because workers outside major growth areas are unable to enter the housing market, especially in buoyant metropolitan labour markets.

Australia has traditionally used skilled migration to source skills in demand. The success of skilled migration in alleviating skill shortages has been reduced to the extent that some skilled migrants have not been able to have their overseas qualifications recognised, lack local work experience or familiarity with the Australian work culture or have settled in areas where their skills are not in demand.

Labour market programs to encourage internal migration to address skill shortages in Australia have accommodated only small numbers of job seekers and have remained peripheral in terms of labour market intermediation and addressing skill shortages.

A spatial Keynesian approach to skill formation and regional development

In a major research report – Creating effective local labour markets: a new framework for regional employment policy – we outlined a strategic framework to address skill formation and equity by ensuring that there are opportunities for all to engage in productive work and have access to social services.

The spatial Keynesian approach to economic and social policy would involve:

  • An expansion of the public sector to provide critical infrastructure and services.
  • A National Skills Development framework;
  • A Job Guarantee that would provide public sector employment for all those willing and able to work.

The overriding objective of the new strategic framework for regional development proposed is sustainable development where economic, social and
environmental objectives are achieved and available labour resources are fully utilised. A spatial Keynesian approach would facilitate the development of regionally focused interventions to provide infrastructure and services according to the specific needs of the community.

A National Skills Development framework

Skills shortages are now well recognised by Australian industry as compromising their ability to innovate and compete in global markets.

Analyses of skills shortages by industry and governments invariably consider the issue from the perspective of business and profitability, which places the emphasis on containment of labour costs both in terms of wages and conditions, and hence, whenever possible, externalising the costs associated with developing the skills firms require in their workers.

Within this context, the notion of structural unemployment arising from “skills mismatch” can be understood as implying an unwillingness of firms to offer jobs (with attached training opportunities) to unemployed workers that they deem to have undesirable characteristics.

The Australian public sector of the 30 year post-war era (1945-1975) largely kept skill shortages at bay despite prolonged high labour utilisation because the public sector deliberately trained more people than it required to counter the under-training propensity of the private sector.

With the privatisation of public utilities, the downsizing of public sector workforces, and the widespread adoption of private sector practices in the public sector, the skill building role was abolished with little consideration as to the impact this would have on the maintenance of adequate levels of skill development.

The degree of skill shortage and the persistent unemployment and underemployment of the past 30 years represent two-sides of the same coin. They both reflect a lack of governance at the federal level.

The previous conservative government actually discouraged people from undertaking training. Access to training for the unemployed was conditional on their first participating in its compliance programme, known as “Work-for-the-Dole”.

Further over the span of their government Technical Education funding was cut by over $1 billion in real terms, reducing enrolments by more than 300,000.

We propose a role for the state in direct skill formation through a National Skills Development (NSD) framework which we consider will address the skills problem and support the global competitiveness of Australian industry.

The clear necessity is for the state to provide experiential opportunities that develop vocational skills designed to abstractly resemble the skilled tasks performed in local labour markets.

Several points need to be considered when developing a NSD framework.

  • Maintaining a buffer stock of public sector jobs provides work for all irrespective of their skill levels and also allows paid-work opportunities to be structured into training and career development.
  • The Federal and State Governments must renew their commitment to trade and vocational training and to adequately fund our public schools and universities. Public policy must also set in place safety-net structures to ensure that every person under 20 years of age is in education, training or a paid job.
  • Occupational planning capacities must be reintroduced to ensure that the apprenticeship and training programmes are targeted in areas of regional and industrial need.

The Job Guarantee

An integral component of skill formation and regional policy requires that employment opportunities are provided for all those willing to work.

The Job Guarantee (JG) is a policy proposal to restore the role of the public sector as a significant employer, and to do so in a way that also controls inflation.

The macroeconomic principles underpinning this proposal constitute an alternative economic paradigm to that which has dominated economic policy-making in Australia for 30 years, and which has entrenched under-employment, fuelled private debt and destroyed the nation’s skills formation capacity.

The JG is based on a buffer stock principle whereby the public sector offers a fixed wage job for up to 35 hours per week to anyone willing and able to work, thereby establishing and maintaining a buffer stock of employed workers which expands (declines) when private sector activity declines (expands), much like today’s unemployed buffer stocks.

The JG provides a platform for developing the national skills base, by comparing the observed skills and competencies of the JG workforce with the emerging skills requirements of each regional labour market. This would inform the provision of accredited training (both in-house and via external providers such as TAFE), the indenturing of apprentices, and the design of JG activities so that they include experiential development of skills expected to be in local demand, thereby restoring the role of the public sector as a net trainer of skilled workers and minimising the likelihood of inflationary bottle-necks in labour supply.

The flexibility of the JG would extend to designing jobs to accommodate individuals with special physical, intellectual and behavioural needs.

It could also be adapted to address the needs of rural and remote communities, and to reflect cultural norms within indigenous and other non-Anglo Australian communities.

The JG is intended as a platform to: provide economic security and social integration for those whose labour is currently being under-utilised; reduce social dislocation arising from unemployment and poverty; and contribute to the quality of life of all by its contributions to a better environment, public amenity and improved services.

As a minimum wage employer that accommodates the poaching of its skilled workers by other employers, and even facilitates this practice when extra workers are needed in the private sector, the JG is a superior price stabiliser than the present method that entails keeping over a million people precariously unemployed and under-employed, and in a condition of skill-atrophying idleness, social exclusion and poverty.

My evidence to the Inquiry

I gave evidence to the Parliamentary Inquiry on Friday, 25 June 2010. Victor Quirk, who also works at CofFEE was interviewed to. You can access the Hansard recording of the evidence taking process.

Here is an amusing snippet of the extended evidence that we gave. It shows you how dogmatic the conservatives are. The conservative MP on the Committee, one Rowan Ramsey, couldn’t wait to get his informed opinion onto the public record. He is the conservative (Liberal Party) member for Grey a rural seat on the Eyre Peninsula in South Australia/

Here is the part of our evidence – specifically the exchange with Ramsey:

Mr RAMSEY – One of the things this inquiry is looking at is how we can entice people to shift from areas of high unemployment to areas of low unemployment. In your submission you are proposing that governments should become the employer of last resort. I must say that I think that is just preposterous. But, keeping in mind that we have centres of high unemployment, if we are going to say to people, ‘If you can’t get anything else, I’ll give you a job here’, how on earth are we going to get people to where the areas of skills shortages are?

Mr Quirk – How did we do it during the 30 years in the postwar period? In the postwar period, we had two per cent unemployment brought about by the fact that the public sector acted as the employer of last resort, and yet we resolved these skills shortages.

Mr RAMSEY – There is a problem with your assumption that everything else was equal between the 1960s and the 2000s. The average age of the nation was totally different in those days, as well as the types of work done. There were many more people involved in the productive sector and far fewer in the service industries. There are far fewer people in Australia now who actually make and provide things that are of intrinsic value to our export markets, and increasingly more and more people who are involved in the service sectors which revolve the money round and round in an ever-diminishing circle.

Professor Mitchell – Hold on, that is not-

Mr RAMSEY – That is the way of the world. I am not saying that is necessarily a bad thing, but it is a completely different economy to the economy of the sixties. We have a different mindset, in that it was an incredible shame to be on an unemployment list in the 1950s and the 1960s. I am not saying people are comfortable about being on unemployment benefits now, but it is a totally different place and you just draw a line through it and say the difference is that the government employed everyone who could not get a job. I just think that is nuts.

Professor Mitchell – I am glad you think we are insane. Thank you very much.

Committee CHAIR – I do not think it was insane; I think the term was preposterous.

Professor Mitchell – To call a person nuts is a rude way of saying a person is insane. If that is what our government officials think of people they invite to give evidence, that is an appalling statement

Mr RAMSEY – I said that the proposal is preposterous. I can see that you obviously strongly disagree with me, but do you think I should just sit here and not let you know my view?

Professor Mitchell – I think the relevant part of your invective was where you said that we have a different mindset now. We do have a different mindset now. We have abandoned our responsibility to full employment. The fact that we now have a different composition of industry makes no difference.

We have done a national survey here, and the growing job opportunities in the next 20 years are going to be in personal care services and environmental care services. I am on a government task force – with the former Governor-General on his land rehabilitation task force – and there are hundreds of thousands of jobs in environmental care services, right throughout our regional structure, and in personal care services. If you ask people in most regions where there is a fundamental shortage of aged-care provision why they had to leave their homes, they will say: ‘We can no longer maintain that housing. We can no longer do our lawns. We can no longer do things for each other. We have to go into an aged-care unit.’ Yet we have a shortage of those units. There are hundreds of thousands of jobs in caring for people to ease their need to leave their homes prematurely. If you have a different mindset, you can think of things in very different ways.

Committee CHAIR – I do not disagree with you; I think you are absolutely correct …

Conclusion

The persistent coexistence of skill shortages and high levels of labour underutilisation in Australia signals the necessity for a new national approach to skill formation and regional employment.

There is an urgent need for a national approach to analysis of existing skill shortages, developing projections for future skill requirements and expansion of both the financial resources and quality of education and training.

However, these initiatives in isolation will not provide meaningful employment for the unemployed and underemployed and will fail to deliver a socially inclusive society.

In order to restore full employment it is necessary for the public sector to offer employment opportunities to those unable to secure employment through the Job Guarantee.

Reliance on the market or bullying the unemployed will not provide effective solutions

Saturday Quiz

The Saturday Quiz will be available some time tomorrow with Answers and Discussion coming Sunday.

That is enough for today!

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    This Post Has 13 Comments
    1. Hi Bill,

      An interesting post.

      I’d be interested to hear how your advocacy of training squares with this statement of yours: “How will training help anyone? That was the myth of the full employability agenda. They are unemployed because they lack skills! Train them and that will fix it. After years of churning unemployed workers through training programs divorced from the paid work context we still have 100 dogs chasing 94 bones. Training does not equal jobs.” (http://bilbo.economicoutlook.net/blog/?p=3653).

      I suspect the difference, as you see it, is between on-the-job training for which participants are paid a wage, and other forms of training. Is that right? This isn’t a facetious question.

    2. Bill –

      You were clearly wrong on that “insane” exchange with Ramsey. Don’t you think that his economic views are both preposterous and nuts? And if not him, certainly those of Barnaby Joyce are – yet the man himself is perfectly sane.

      And because of this, an important point may have been missed. Was the government really the employer of last resort at that time? I was under the impression demand was high but finite, and there was no significant difference between public and private sector jobs. But all this was before my time, so I don’t have any evidence one way or the other. Do you?

    3. G’day Billy.

      Agree with the concept that the public sector should be employing and skilling people but like their private sector counterparts, that’s best left to the individual and generally at their own expense. In the good old days, that’s what the public service did. The PS skilled people to provide a range of services. These days, the public service rarely runs trainee skilling programmes; all of these services are now contracted out because they are efficient. The reality is somewhat different, most of these efficiency gains are at best a smoke and mirrors gimic. So we’re left with now is a bucket load of administers doing what they do best; not much. As an Australian Public Servant, the thought of more people being employed for the sake of being employed sends a chill down my spine. Seriously, there’s more than enough dead wood in the APS and a return to the good old days would be welcome….so long as the APS and other public sector agencies become efficient and effective.

    4. Interesting reading Bill. Specifically what sort of jobs would the JG offer? For example if I turned up the JG office near my place in inner Sydney, what sort of job could I expect to see on offer?

    5. Bill: you quite rightly want the private sector be able to “poach” JG employees. At the same time you want JG employees to train. Unfortunately any worthwhile training course lasts a SPECIFIC AND LONGISH period and leads to a recognised qualification. During that time, the relevant employees are not “poachable” (else the training is messed up: a waste of money). That doesn’t destroy your argument, but it weakens it.

      Also, there are numerous studies from around Europe (I’ll supply a list if you want) which show that the sort of training normally associated with JG type schemes are a waste of time. That is, the training does NOT lead to an improved employment records for those involved.

      In contrast, the evidence is that straightforward subsidised employment DOES lead to improved employment records. So stuff the training: just subsidise people into any old work – totally unskilled if there is nothing else. Seems they “learn by doing”. There are plenty of millionaires who started off with string of dead end jobs. I can see why.

      In contrast to the training associated with JG type schemes, decent vocational qualifications DO pay for themselves, as I pointed out a few days ago.

    6. Ralph, your first point about training seems self-contradictory. That employees are “poached” ipso facto means they have been trained in a worthwhile way, their training not messed up and not a waste.

    7. For me the Job Guarantee should be nothing more than the provision of ‘Useful Work’ for those unable to obtain work via any other channel. It should be at a nil premium. That way there is no possibility of the public provision crowding out the private sector, which is my main problem with a JG scheme paying wages. If the private sector can provide the work and pay the worker 1 dollar of taxable value then financially it becomes worthwhile moving. (There may be friction that requires more than 1 dollar, but the point is that the private sector doesn’t have to find the entire minimum wage to do any ‘poaching’).

      In addition to this you then nationalise the minimum wage as a ‘Universal Pension’ – available to all citizens of a country engaged in ‘Useful Work’ pro-rata to the amount of ‘Useful Work’ they are doing. The retired, disabled, sick are treated as working full-time.

      What is defined as ‘Useful Work’ is a political decision, but should probably include caring for young children and sick relatives and charitable volunteer positions as well as ‘normal’ work.

      And that is it as far as state provision is concerned. There is no minimum wage, no sick pay, no housing benefit or anything else. Just a payment of enough to live on to every citizen in return for a honest day’s work.

      Taxes are then adjusted to recover the subsidy from profit and/or property values in response to aggregate demand requirements.

      Training then becomes the responsibility of the individual. If income taxes are on a profit basis then individuals can obtain career development loans to fund themselves on training courses and offset the interest against earnings. Straightforward cost benefit then determines if that is worthwhile or not.

    8. “I suspect the difference, as you see it, is between on-the-job training for which participants are paid a wage, and other forms of training. Is that right? This isn’t a facetious question.”

      As I see it the difference is the amount of jobs. It’s a Micawber question.

      If there are 105 jobs and 100 people chasing jobs, then if the jobs need training it is worthwhile the 100 individuals training to get those jobs. Demand/supply will then fix the price accordingly until the 5 extra jobs are extinguished.

      If there are 95 jobs and 100 people chasing jobs, then first you need more jobs. Otherwise demand/supply pushes in the opposite direction and it can never be worthwhile training. Alternatively you extinguish five people, which I suspect is not a viable option. :)

    9. Some Guy: you’re assuming, if I understand you, that those being poached have COMPLETED their training. If that is true of ALL those concerned, then they cannot by definition have been poachable while being trained.

      And that is more or less what I’m getting at. I.e. I’m happy with training where those concerned are not poachable. In contrast, I think Bill glossed over the question as to whether trainees are poachable. I.e. I think he was trying to point to the advantages of poachability (which I agree with) and the advantages of training (which I agree with). But I think he omitted to mention that these two advantages canot apply to a given set of people at the same time.

      In fact I’d go further. If training looks like paying for itself, it should be undertaken REGARDLESS of whether those concerned are employed or unemployed, and REGARDLESS of whether they are earning ten times national average wage or are on minimum wage, and REGARDLESS of everything else. I.e. training and JG are largely separate issues.

    10. Interesting coming from the member for the electorate with the highest unemployment in the country. Those 100,000 or so people living in his 900,000km^2 electorate should just up and move to WA where the jobs are. Or start looking for more opals. Lazy sods.

      Skills Australia had an analysis of future skills needs and called for an increase in university and TAFE funding of $660m each year in Australian Workforce Futures.

      Matt C: skills/qualifications are important, but without jobs they are useless. Governments have focused on getting people into short term training which results in either a short-term job or no job, and then back on the merry-go-round. I would personally link any job guarantee program with TAFE courses for those without a vocational qualification.

    11. “you’re assuming, if I understand you, that those being poached have COMPLETED their training. “ No, that is exactly what I am not assuming. The proof of the pudding is the eating. The proof of the training is the poaching. What is important is the skill, not the formal attestation that you have it. The two advantages can apply to the same people at the same time.

    12. Ralph Musgrave: ..”training and JG are largely separate issues.”

      Excuse me, mr. Musgrave, but I beg to differ. From my personal experience as a temp worker, I know that team managers can qualify for training (paid for by employer). At the same time, there’s a national initiative that should help employees formalize their skills. Where-ever you apply, whether it’s temp agency or real employer, they demand proof you actually have the necessary skills & relevant experience. ‘Training’ and ‘JG’ are anything but separate issues.

      Btw.: Shiller has now picked on the theme, that government should create jobs. Original article: http://www.nytimes.com/2010/08/01/business/01view.html?_r=1 . Featured on Mark Thoma’s blog

    13. Can the economic experts recommend anyone to vote for in the upcoming federal elections who’s going to help ALL unemployed, underemployed and those without secure jobs? I’ve shopped around to try and find some political group that even mentions a fair deal for those of us left out of the economy and so far I’ve only heard of one – the Communist Alliance but is there anything else out there to vote for that would unequivocally represent our interests or is that it? I don’t want to sound too picky or anything but it would be nice to have an electoral cornucopia for choice of candidates offering full employment.

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