Investing in a Job Guarantee for Australia

Editor

The following commentary is extracted from the introduction to a 2020 CofFEE Research Report by William Mitchell and Martin Watts [1]. Substantial references are provided within the report – including the introduction – for the key assertions and assessments that have been made, and the reader is directed to the report to access this material.

“ The coronavirus pandemic has thrown the Australian labour market into chaos and threatened to leave a generation of Australians without adequate work or no work. The Australian government stimulus programs have not been sufficient to curb the significant increase in official unemployment and hidden unemployment since the crisis started impacting in March 2020. In part, this is because the scale of the fiscal stimulus was grossly inadequate given the problems faced, especially the uniquness of the lockdowns and their impacts on the ability of workers to maintain their jobs. Further, the programs introduced were not designed to create jobs.

“ However, the Australian labour market was weakening before we entered the crisis. Since the first of the oil shocks in the early 1970s, the underutilisation of labour either through official unemployment, or, since the 1991 recession, through underemployment has remain- ed at elevated levels. The unemployment of the 1990s, gave way to the underemployment in the 2000s.

“ Since February 1978, Australia’s unemployment rate has averaged 6.2%. By contrast, the rate of unemployment in 1974 was less than 3%. And since the beginning of 1991, underemploy- ment has averaged 7.6%.

“ Both sides of politics now eschew the adoption of policies of direct job creat- ion to reduce the rate of unemployment. Monetary and fiscal policy has been geared to keeping inflation low and to achieving fiscal surpluses, respectively. There is a belief that if inflation is kept in check, then deregulated markets will deliver the necessary and sufficient conditions for the return to full employment.

“ The evidence doesn’t support this supposition.

“ In addition, unemployment is viewed now as an individual problem rather than a collective problem. Governments now talk of full employability rather than full employment. The ‘job services’ industry, the privatised offshoot of the

previous Commonwealth Employment Services, manages the unemployed with a rather pernicious system of work tests. Various compliance tests have evolved since the late 1990s with no evidence to support the claims that this system assists unemployed workers back into sustained, well-paid, productive work.

“ Evidence for the persistent shortage of work is provided by the fact that the unemployment to vacancies ratio has always been well above one. In May 2020, more than 7 were unemployed for every job vacancy, and the problem of a lack of jobs intensifies if we include the 600 thousand odd who have dropped out of the labour force due to the lack of work and the 1.8 million who are under- employed, and, desire, on average, an additional 15 hours of work per week.

“ Meanwhile, the economic and social costs of these persistent elevated levels of labour underutilisation are substantial. In this paper, we estimate income losses arising from elevated levels of unemployment in Australia and the investment required to introduce a Job Guarantee (JG) Program under the principles of a buffer stock mechanism to reduce Australian unemployment.

We adopt conservative assumptions. The annual value of increased output under a JG Program is calculated to be about $101.3 billion, owing to the conservative assumption of lower productivity in the public sector.

The net increase in government outlays of $51.7 billion takes into account the wage and on-costs of direct job creation, the impact of the multiplier on private sector job creation, income tax and profits tax and other savings (for example, the reduction of unemployment benefits). Our estimates ignore many other ways in which the government would reduce outlays, e.g. via the impact of unemployment on personal health, crime rates, mental health incidence, and more. In that sense, the exact net outlays required to introduce a Job Guarantee in the way described in the paper are a maximal estimate.

In Sect 2 we outline the methodology used to compute the economic costs of maintaining an unemployment rate at 10 per cent rather than 4 per cent. The income losses scale up and down in a linear fashion for different benchmarks. In Sect 3 the methods used in Sect 2 are developed to outline the estimation of the costs of implementing a Job Guarantee. Concluding remarks follow in the final Section. “

1. William F. Mitchell and Martin Watts Report 2020-02 (July 2020), Centre of Full Employment and Equity (CofFEE) http://www.fullemployment.net/publications/reports/2020/CofFEE_Research_Report_2000-02.pdf

The Federal Reserve has an official commitment to two different policies. One is to prevent inflation from getting too high. The second is to maintain high employment.

The European Central Bank has only the first. It has no commitment to keep employment up — Noam Chomsky