A new report from the OECD on Australia’s employment service system has prompted the Federal Government to claim that Australia is a “world leader in employment participation” and that Job Services Australia (JSA) has delivered exceptional results in moving unemployed people into jobs. But are the Government’s claims justified in terms of what the report actually says?
The role of Newstart in jobs growth
The report, “Activating Jobseekers: How Australia Does It”, describes Australia’s high levels of jobs growth and growing labour force participation over recent years. It notes its success through the GFC in maintaining low unemployment compared to other OECD countries. However, it also notes that there is a high level of involuntary part time work or underemployment, at 7.2% of the workforce in 2010 (and in 2012), the highest in the OECD.
It says that Australia has a “flexible labour market, with high levels of casual and part-time work, short average job tenures, and limited regulation of layoffs, but a fairly high minimum wage.”
According to the report the “effectiveness of quasi-market delivery of employment services and a slow decline in the net replacement rate for unemployment benefits may have contributed to the strong performance of the Australian labour market.”
By this account it wasn’t only the employment service system operated by a range of for- profit and non-profit organisations that may have been so beneficial for the labour market. The well documented declining rate of Newstart Allowance in relation to wages – the replacement rate - acted to force unemployed people off benefits presumably into casual and part-time jobs which account for such a large proportion of the Australian labour market.
While the hourly minimum pay rates in these jobs are not low by international standards, many do not provide sufficient hours of work which are also very important for net earnings and income. Where hours of work are insufficient, vulnerability to poverty is increased.
The OECD report goes on to say that the effect of the low Newstart payment was magnified by increased workforce participation requirements imposed on people receiving higher welfare payments such as disability and sole parent payments. This included for some groups such as sole parents, reallocation to the lower level Newstart payments after 2006.
The aggregate outcome of these policies was to reduce the proportion of the working-age population in receipt of benefits from 21.3% in 1996 to 15.2% in 2007.
Long term outcomes from employment services
According to a report commissioned by the OECD and undertaken by researchers at the University of New South Wales, job placement outcomes for clients of job services are measured over quite short time frames, usually between three and six months following commencement in a job.
The report’s authors, Dr Peter Davidson and Professor Peter Whiteford say “the extent of ‘churn’ in employment and income support after leaving employment assistance and the jobseeker and employment characteristics with which it is associated, is an under-researched area.” Churn refers to the cycling back and forward between employment and income support payments.
This gap in the research base is also acknowledged in the OECD report which supports longer term tracking of both employment outcomes and earnings as a way of promoting employment retention and advancement and placement into stable jobs.
What’s the problem?
There are deficits in information about the type and quality of jobs that unemployed people are finding through Job Services Australia agencies. We do know that the low level of Newstart payments and rigorous welfare-to-work policies mean that there are strong incentives, or little choice, for unemployed people to take whatever jobs are immediately available even if these are precarious and poor quality.
For the Federal Government, both the present and former, this has important outcomes. It reduces overall unemployment rates and claims on welfare payments. For unemployed people themselves, it may be true that being in a job is better than being on welfare especially as Newstart payments are too low to live on. A quick return to work also reduces the risk of long term unemployment and the further labour market disadvantages this brings.
However, a quick turn over from unemployment into casual, unsustainable jobs is not necessarily the best outcome for all unemployed people. A better path may be to improve the ‘human capital’ through education and training, of people who have a work history in low end jobs or who have been out of the workforce for a long period.
This is supported by another new report from the OECD which tells us that “a large body of theoretical and empirical analysis exists on the link between investment in human capital and economic growth.” Davidson and Whiteford in their report to the OECD also say that studies in the United States show that employment outcomes are better over the long term where programs focus on improving human capital.
Both economic growth and individual employment outcomes, it seems, benefit from investments in human capital.
In my research on women in insecure jobs, there were participants frustrated by the lack of support to improve their “human capital” and to find better quality jobs. Janine, aged 52, was keen to retrain for an alternative occupation in health services. She had been attached to an employment service provider to assist her with her job search efforts and retraining. She describes her experience:
“(The adviser) wanted me to do a course that lasts a few weeks and be in work straight away. And I thought, I’ve done all those menial jobs. I want to do something different, something I like.”
The rigid welfare-to-work requirements on Janine meant she worked part-time as a cleaner although she sustained a repetitive strain injury which made this work very painful. She had raised a large family and had worked in her former husband’s business. She won’t be eligible for an age pension until she is 67, which means at 52 she has another 15 years of potential workforce participation.
Janine’s story highlights the increasing significance of changing circumstances across the life course, the “care penalty” on mothers, and the need for sustainable employment for older age groups. Her story shows that the employment services system is singularly ill-equipped to help people like her to make a transition into decent work.
The Government and the employment service provider were able to claim a positive outcome when Janine started her cleaning job. The employment service may have obtained a payment for this.
It wasn’t much of an outcome for Janine though. And there was not much value added for Australia. In a better quality, sustainable job, Janine could work more hours,over a longer time frame, with all the benefits this would bring to herself and the economy through increased income, tax revenues and retirement savings.
The underemployment rate is currently 9.5% for females compared to 5.4% for males. Janine’s situation also reflects the systemic gender biases in the Australian labour market, raising questions about employment policies and services which reinforce these.
The Government is conducting a review of employment services with a view to changes in 2015 when current service contracts are due to expire. An issues paper “Employment Services: Building on Success” is the basis for the public consultative process. The terms of reference for the review are narrowly focussed on marginal improvements to the present “successful” system.
A broader review of the policy settings and scope of employment services in Australia, and the measurement of their success, is sorely needed.