Sydney Morning Herald journalist Adele Horin article in the SMH today – Here’s a stimulating idea: create jobs – challenges the Federal Government to get it priorities right. She writes:
If employment is the primary concern, there are surer, more direct ways than cash payments to ensure bosses hire rather than fire. If not now, a debate on the hoary old topic of direct job creation may be just around the corner.
She also mentions that perhaps wage subsidies would work after the Australia Institute has, surprisingly, advocated the orthodox neo-classical solution to unemployment. Surprisingly, because the AI in the past has been largely progressive in its advocacy. The notion of wage subsidies are predicated on the assertion that the cause of unemployment is excessive wages (relative to productivity). It presumes that if the costs of labour fall to employers they will hire more. Well this was the substance of the famous Keynes and the Classics debate during the Great Depression and afterwards. The lessons we learned then is that firms will not hire labour no matter how cheap it is if the goods and services that the labour hired produces cannot be sold. Unsold inventory is not a desirable aim for firms.
Further, firms are encouraged by wage subsidies to restructure their existing employment (which is a reflection of the sales volumes they currently enjoy) and exploit the subsidies to cream off extra profit. As soon as the subsidy runs out they sack the staff and get more subsidised labour. Not a good option for a government aiming to increase employment.
It is far better to introduce an unconditional Job Guarantee where the Federal Government hires labour that no other employer wants at a fixed wage. This ensures that there is full employment; it provides income security for the most disadvantaged workers in our communities; it produces goods and services that meet community needs which will not be provided by profit-seeking private firms; and it provides a framework for training programmes within a paid-work context (the most efficient way to develop skill).
It can then be supplemented by whatever else the Government thinks is important by way of public expenditure. But with a Job Guarantee you at least create as many jobs as there are people wanting them. The private market can then decide how large the JG pool of workers will be. If the private sector thinks the pool is too large then they have a simple solution …. they can invest more and create the jobs themselves. In this way, the budget deficit is also a product of private sector decisions. If they think it is too large then they can reduce it themselves … by taking a greater responsibility to provide employment for all those who desire it.
It is not a good look when the conservatives scream blue murder about the size of the federal deficit but then advocate policies that will entrench high unemployment. Pretty basic really.