The UK Chancellor George Osborne told the delegates at the 2013 Conservative National Conference in Manchester yesterday that he was ending the culture of getting “something for nothing”. In his – Speech – the Chancellor claimed that “no one will get something for nothing” from now on, in reference to the “Help to Work” program, dubbed a new approach, that would see “(f)or the first time, all long term unemployed people who are capable of work will be required to do something in return for their benefits, and to help them find work”. We should immediately challenge the claim that the unemployed are doing nothing. An appreciation of the function that unemployment buffers plays in the capitalist system would tell one that the people who are forced to be in that buffer are certainly very active and protect the rest of us from the damaging consequences of poorly crafted macroeconomic policy. But beyond that, the evidence is clear – workfare schemes are not effective ways to provide pathways to more permanent employment. They are poorly disguised compliance programs designed to let the most disadvantaged workers in our society know that we resent their existence and, like the usurer in the Merchant of Venice, we want our “pound of flesh” in return for the pittance we provide by means of income support. These programs shine a dirty light on how mean-spirited and ignorant we are – in believing that mass unemployment is anything other than a systemic failure of the economy, in the face of deficient aggregate spending, to produce enough jobs and working hours. They are the means by which we indulge in our neo-liberal delusions – until, of-course, the times comes for you or I to face the sack next!
My first observation when these sorts of rabid plans are announced is to point out what the unemployed actually do. The neo-liberals claim they are doing nothing and being supported to do nothing by the rest of us.
Think about it this way.
The major shifts in unemployment are dominated by shifts in aggregate demand. Now, yesterday, always. There is no convincing evidence that supply-shifts (workers becoming lazy etc) account for the dynamics of unemployment.
The major reason why unemployment has remained high for so long in many nations, including the UK is that these economies have failed to produce sufficient aggregate spending to create the output levels that, at current productivity levels, will generate sufficient hours of work to match the preferences of the workers for such hours.
The battery of supply-side measures (training, harsher work tests, and the like) has failed to break the inverse link between the economic cycle and long-term unemployment.
Private sectors in most countries do not provide enough employment to meet the growth in the labour force. A major explanation for the persistent unemployment over the last 35 years lies in the failure of the public sector to maintain their share of employment.
So what are the unemployed doing? They form an involuntary buffer which rises and falls in tandem with the economic cycle and insulates the rest of us from the vicissitudes of joblessness and poverty.
That is, the unemployed, who are disproportionately drawn from specific (disadvantaged) demographic cohorts perform a significant function – they take the fall for the rest of us when we allow governments to maintain macroeconomic policy that deliberately undermines aggregate demand in the economy.
Those of us who remain employed when the government is running such deficient macroeconomic policy should be thankful that we are not taking up the slack. We “pay” the unemployed pitiful amounts for saving us all “massive” amounts of lost income.
The unemployed also spent their days in ignominy, face serious social dislocation, become sick (physically and mentally), are exposed to the heightened risk of alcohol and substance abuse and family breakdown, and have to see their children inheriting the disadvantage that the system has imposed on the family because there are not enough jobs created.
That is what the unemployed do. From where I sit each day – behind a desk in a safe, well-paid job – that tells me the unemployed are very active and do a lot. The problem is that the systemic failure to create enough jobs forces them to spend their time in a destructive rather than constructive way.
In his Speech, George Osborne outlined the basics of the new labour market policy, which will ensnare several hundred thousand unemployed workers forced to live on income support as a result of the poorly crafted macroeconomic policy:
They will do useful work putting something back into their community.
Making meals for the elderly, clearing up litter, working for a local charity.
Others will be made to attend the job centre every working day.
And for those with underlying problems, like drug addiction and illiteracy, there will be an intensive regime of support.
No one will be ignored or left without help.
But no one will get something for nothing.
Help to work – and in return work for the dole.
Because a fair welfare system is fair to those who need it and fair to those who pay for it too.
The objections to such workfare and intensive assistance plans are many but the UK Government might have been guided by its own Department of Work and Pensions which commissioned an independent study on whether work-for-the-dole schemes actually increased the changes of the participants finding work. The study focused on the US, Canada and Australia.
The August 2008 Report – A comparative review of workfare programmes in the United States, Canada and Australia – does not provide a glowing testimony for the type of scheme the UK Government is now introducing.
It studied the effectiveness of workfare in “reducing welfare caseloads”; in “improving employment outcomes”; and in improving the lot of “clients with multiple barriers”.
In relation to the first objective, it found that:
1. The “dramatic reductions in welfare caseloads” (in the US and Canada) “cannot be attributed to workfare alone”. They found that harsher rules regarding time limits and claim eligibility as well as stronger economic growth which “enabled recipients to find work” were instrumental in the falling caseloads.
Which is what we expect. First, reduce the caseload by forcing people out of the eligible category in any way you can. Second, create employment growth which allows people to get jobs and reduces hiring standards because employers are forced to be less choosy in who they recruit.
2. People were forced off income support “before the workfare phase” became mandatory, which of-course reduces the caseload.
In relation to “improving employment outcomes” it found that:
– There is little evidence that workfare increases the likelihood of finding work. It can even reduce employment chances by limiting the time available for job search and by failing to provide the skills and experience valued by employers.
– Subsidised (‘transitional’) job schemes that pay a wage can be more effective in raising employment levels than ‘work for benefit’ programmes.
– Workfare is least effective in getting people into jobs in weak labour markets where unemployment is high.
– Levels of non-participation in mandatory activities are high in some workfare programmes.
In relation to the third area of concern – improving the lot of “clients with multiple barriers” it found that:
– Workfare is least effective for individuals with multiple barriers to work.
– Welfare recipients with multiple barriers often find it difficult to meet obligations to take part in unpaid work. This can lead to sanctions and, in the most extreme cases, the complete withdrawal of benefits that leaves some individuals with no work and no income.
– Some states in the US have scaled down large-scale, universal workfare programmes in preference for ‘softer’ and more flexible models that offer greater support to those with the most barriers to work. This includes a greater reliance on subsidised jobs that pay wages rather than benefits to participants.
The lessons are many but some key conclusions are found repeatedly in these types of studies.
Work-for-the-dole is an “ineffective” way to help “participants find sustainable employment”. I have written a number of evaluative papers on this topic in response to Australia’s history of these sort of schemes.
We have consistently found that the poor results for these type of labour market programs beg the question as to why should we expect anything better in the absence of policy measures designed to address the quantum of jobs and issues of job security?
Improving employability does not increase the level of aggregate labour demand.
We found that schemes based on “intensive assistance” of welfare caseloads (attitudinal counselling, training etc) produce poor outcomes. The churning of the unemployed through training programs (usually divorced from the paid-work environment) fail and point to the futility of training the unemployed for jobs that are not there.
Typically, training providers face contractual payments which distort their choices with respect to their caseloads. In Australia, it has been found that such payment structures have led to a substantial proportion of intensive assistance participant being ‘parked’ (held on books but with no assistance being given) while providers concentrate their efforts on job seekers who are easier to place in employment.
We have found that outcomes for the various Work for the Dole programs introduced in Australia are poor with only a small proportion of participants finding full-time work or, indeed, any form of employment.
In isolation, supply side measures merely shuffle the jobless queue. The clear danger of this kind of zero-sum redistribution is that policies achieve tentative reattachments to the labour force at the expense of deepening employment insecurity.
Labour-market instability, poverty and indeed welfare dependency are not solved by such measures; they are simply redistributed amongst the same at risk groups.
Upward mobility and absorption of the long-term unemployed into paid employment is most effective when overall employment growth is strong. Supply-side schemes fail when employment growth is weak or negative.
So-called structural reforms only really work when the fiscal environment is strongly supportive of economic growth. They just compound the costs associated with a weak economy, when the government macroeconomic policy is undermining growth.
The language of employment policy and active labour market programs under neo-liberalism, which is exemplified by the UK “Help to Work” approach and the rhetoric in the Chancellor’s Speech, is is that of a society that has abandoned the goal of full employment and now pursues the diminished goal of full employability.
The government no longer ensures that employment growth matches labour force growth but focuses, instead, on getting individuals ‘work ready’, should there be jobs available.
It is the demand-side that tells us how many jobs are available, yet these approaches focus on the supply-side while undermining the demand-side through fiscal austerity.
Nations that adopt this activist bent effectively jettison essential and sustaining conditions for a social democracy and, in doing so, systematically breach human rights.
So the Chancellor’s boast that punitive action will accompany the work-for-the-dole scheme to enforce compliance without a guarantee that there will be sufficient paid work created violates human rights.
Neo-liberal attempts to recast full employment as being consistent with high levels of ‘natural rate’ unemployment are erroneous and anathema to social democratic ideals.
A fully participative social democracy requires that full employment be achieved – meaning that there are enough jobs (and hours of work) to match the aspirations of the labour force.
This places requirements on federal government to use fiscal policy to maintain adequate levels of aggregate spending in the economy. This essential fact is the foundation of macroeconomic theory and requires that the federal government understands the power that derives from its currency-monopoly. It has been ignored by neo-liberalism.
Systemic (macro) failure cannot be speciously ascribed to structural change (in industry employment or labour force composition) or to increased global competition in trade and financial markets. The alleged competitive challenges posed by globalisation have not diminished the power of government to engineer full employment.
These claims are made by neo-liberals who are eager to pin the blame for the persistently high unemployment on the attitudes and motivations of the unemployed.
However, the blames lies squarely on the conduct of macroeconomic policy, and globalisation, by freeing exchange rates, has enhanced the Federal government’s capacity to run independent fiscal policy. While monetary policy is the other arm of macroeconomic policy there is no clear evidence that lower interest rates are significantly stimulative and vice versa.
In the midst of the on-going debates about labour market deregulation, minimum wages and taxation reform, worker attitudes, welfare eroding incentives etc, the most salient, empirically robust fact that has pervaded the last three and a half decades is that actual GDP growth has rarely reached the rate required to achieve and maintain full employment in most OECD nations.
Job Guarantee is not Workfare
Regular readers will know that a major component of Modern Monetary Theory (MMT) is the recognition that the use of employment buffer stocks rather than unemployment buffers (accompanied by workfare schemes) is a superior way to manage the flux and uncertainty of the economic cycle.
We characterise the employment buffer stock approach as the – Job Guarantee – and show how it directly addresses the cause of unemployment and income inequality by requiring the State to use its power as the issuer of currency to maintain full employment and inflation control.
The Job Guarantee requires the public sector to maintain a ‘buffer stock’ of minimum wage jobs that would be available to anyone willing and able to work.
Under the Job Guarantee model, full employment is attained by the guaranteed provision of a public sector job to all workers unable to find a job in the private sector.
It does not rely on engineering labour supply adjustments by paring back returns for those at the bottom of the earnings distribution.
By setting the Job Guarantee wage rate at the level of the national minimum wage, the private sector wage structure is not disturbed and workers cannot be played off against one another to the detriment of their bargaining position.
In recognising that unemployment is not a behavioural dysfunction, but a failure in the conduct of macroeconomic policy, the State can address the problem at its root cause by maintaining full employment and a decent wage floor.
As its name suggests, the Job Guarantee model delivers employment outcomes rather than relying on real wage cuts to generate an unknown quantum of jobs.
Unlike workfare schemes, the Job Guarantee is a policy approach that does not require us to jettison economic security, social justice and the traditional objectives of wage setting in order to build an efficient and productive economy.
The Job Guarantee is not a more elaborate form of Workfare.
Workfare does not provide secure employment with conditions consistent with norms established in the community with respect to non-wage benefits and the like.
Workfare does not ensure stable living incomes are provided to the workers.
Workfare is a program, where the State extracts a contribution from the unemployed for their welfare payments. The State, however, takes no responsibility for the failure of the economy to generate enough jobs.
In the Job Guarantee, the state assumes this responsibility and pays workers award conditions for their work.
As I write this blog, the US Congress impasse has continued and the New York Times is reporting that “that 800,000 federal workers were to be furloughed and more than a million others would be asked to work without pay”.
That is a lot of income and spending that will be immediately lost to the economy. The budget deficit will likely rise on the back of the lost tax revenue as the multiplier effects of this negative spending shock reverberate throughout the economy.
In the UK, they are undermining prosperity in more targetted ways – punishing the victims of austerity with these ineffective workfare schemes.
The motivation is clearly political and aims to develop a “them” (lazy bludgers) and “us” (hardworking taxpayers), divide-and-conquer strategy in order to win the next election which on the basis of their performance since 2010 they face a resounding loss.
But then the UK Opposition is largely spineless and voiceless in all of this. Its major contribution is to claim it will impose austerity in a fairer way.
The problem is that when economic growth is undermined it is always the most disadvantaged and defenceless that bear the brunt. Workfare, unemployment, poverty – there is nothing fair about any of that.
To any one having a birthday today – cheers! xxx
That is enough for today!
(c) Copyright 2013 Bill Mitchell. All Rights Reserved.