Work for the Dole doesn’t work, so why is it Coalition policy?

Coalition welfare policy wrongly relies on the flawed Work of the Dole program. AAP

Tony Abbott’s recently unveiled welfare reform package advocating a range of tough policies to push people into work has been described by Prime Minister Julia Gillard as ‘reheated'.

You might expect that part of reheating would involve throwing out those parts of the menu that hadn’t worked.

In this case that doesn’t seem to have happened. The proposed Coalition approach for improving outcomes for the unemployed reinstates the Work for the Dole program to centre stage.

Yet the only independent research study undertaken of this program found that – far from improving outcomes for the unemployed – Work for the Dole caused participants to spend longer amounts of time on welfare payments.

In the early 2000s, in work with my University of Melbourne colleague Yi-Ping Tseng that was funded by the Commonwealth Department of Family and Community Services, I examined how participation in Work for the Dole affected the amount of time an unemployed person spent in receipt of welfare payments.

We focused on the experiences of 888 Newstart allowance recipients aged 18 to 24 years who participated in the pilot phase of the Work for the Dole program from late 1997 to mid 1998. We were able to compare the group of WfD participants with Newstart allowance recipients who had the same characteristics (such as gender and age) and same labour market background (for example, living in a region with the same rate of unemployment, and having a similar personal history of welfare receipt in the past 12 months) but who had not participated in Work for the Dole.

The main finding from our study was that there appeared to be quite large adverse effects of participation in WfD.

Participants were less likely to move off payments. Six months after commencing in the Work for the Dole program, 71.4% of participants were still in receipt of unemployment payments, compared to only 59.1% of non-participants.

After six months this gap began to slowly reverse so that by 12 months the difference in the percentages who had exited from unemployment payments had narrowed from 12.3% to 10.3%.

But this meant that Work for the Dole participants were still substantially more likely to remain unemployed. A consequence of Work for the Dole participants moving off payments more slowly was that they spent a longer average amount of time in receipt of payments. By 12 months after commencing participation they had been in receipt of payments on average for 2.2 fortnights longer than those who did not participate in Work for the Dole.

Why might Work for the Dole participants spend a longer time unemployed? We believe that the main potential explanation is that participation in Work for the Dole may cause or allow reduced job search effort.

There is growing international evidence of a ‘lock-in’ or ‘attachment’ effect during program participation. For example, an evaluation of the Community Work Program in New Zealand found that many participants viewed their work experience placements as ‘work’ and therefore did not engage in job search activity.

A lock-in effect would explain why the rate of exit from welfare payments was so much slower for Work for Dole participants during the time when they were doing Work for the Dole, but reversed thereafter so that their rate of exit was quicker than for non-participants.

Unemployed who have done Work for the Dole however never completely caught up to others in the likelihood of moving off welfare payments. One possibility to explain this absence of catch-up is that there is a permanent ‘scarring’ effect on Work for the Dole participants. This might be due to behavioural changes in payment recipients as a result of doing Work for Dole, or to employers stigmatising Work for the Dole participants. Evidence of employer stigma effects is the unwillingness of unemployed persons to reveal to employers offering jobs in which they are genuinely interested that they are involved in intensive activity test requirements.

Our study, it must be acknowledged, was of a relatively small number of Work for the Dole participants and of the Pilot phase of the program. Equally though, it has to be acknowledged there is no subsequent study of Work for Dole to show that our study is not representative of its effects in later years.

Moreover, our research is highly consistent with international evidence on the effects of work-based programs for young unemployed. In a review of the effects of labour market programs in the United States, the Nobel Prize winning economist James Heckman has written: “studies consistently report that these programs have no impact (or sometimes even a negative impact) on youth’s earnings.”

For Europe, Joachim Kluve and Christoph Schmidt summarise the evidence on these programs as being that “youth programmes have usually displayed negative effects.”

Having policies to improve labour market outcomes for the unemployed should be a major policy objective for any government. On both equity and efficiency grounds (for example, to ease the inflation-unemployment tradeoff that is likely to intensify as high rates of economic growth in Australia resumes) being able to has important consequences for national well-being.

On the evidence available, however, Work for the Dole cannot be part of achieving the objective. Suggesting that it might seems to be more about creating the impression that all the unemployed need to get back to work is a good kick in the bum.