Paradigm shift needed to address joblessness beyond Covid-19

With joblessness rising fast, responsibility falls with the Commonwealth Government to adopt a paradigm shift in its approach to unemployment by becoming the primary job creator and ensuring an inclusive recovery.

• SVA Quarterly
• Advocacy

The Australian economy has experienced near continuous economic growth for nearly 30 years, until now. This year, in the June quarter alone, the Australian economy reduced in size by 7% – the largest decline since the Great Depression. Employment and incomes have been cushioned by unprecedented Government support through JobKeeper and income support supplements, but more job losses are on the way. Under current policy settings, the road back to pre-pandemic employment rates is expected to take years.

These systems are built around the idea that the unemployment problem lies with the unemployed.

Thirty years of relatively good employment figures have shaped our collective ideas and systems for dealing with unemployment. Unemployment benefits are unusually low; compared to other OECD countries, Australia spends comparatively little on assistance to the unemployed. What we do spend – for example on the Commonwealth’s jobactive program – is largely concerned with directing and monitoring job search activity while only offering most people ‘light touch’ assistance.

These systems are built around the idea that the unemployment problem lies with the unemployed. Problems in the labour market itself – lack of jobs, underemployment, declining employer investment in skills, lack of career progression – have not been the major focus of government action in the employment service system and instead are seen as something the market should be left to address.

The sheer scale of the current economic shock means that we need to think again about these ideas and systems. No matter how much we spend on job search assistance or work preparation support, it will do very little if there are not enough jobs, or if the available jobs don’t meet people’s needs.

Unemployment cannot be addressed without first addressing problems within the labour market itself. We need to spend time understanding and describing the things that are preventing many people finding work that suits them, and come up with new ways of thinking about how these might be solved. Rather than light touch assistance, or incremental change, we also need solutions that reflect the nature and depth of the challenges we face. The challenges include both making sure that there is enough good quality work to go around and that it is fairly distributed.

Like others, SVA has been thinking about what a post-Covid inclusive recovery might look like. We have talked with labour market experts about the issues and looked at evidence of what had occurred in previous recessions. We convened a series of public webinars, and held discussions with academics and practitioners about the challenges and what could be done. We also joined the Australia Together alliance to pursue a ‘build back better’ agenda so that all Australians could benefit in the recovery. Here we share some of our thoughts and insights.

What is going on in the labour market?

The immediate effects of the pandemic on jobs were obvious – flights stopped, cafes closed, city streets deserted. The Commonwealth Government did something extraordinary – the JobKeeper scheme paid employers to keep workers on, even when they had no work to do. It was described as putting the economy into hibernation.

What’s less obvious is that these changes are also profoundly affecting the distribution of employment and incomes between people.

But as we emerge and JobKeeper is wound down, it is clear that the world has changed. The pandemic has triggered a global recession (and perhaps a depression) that means continued job losses. The private sector’s ability and appetite to create new, stable jobs in this economic climate will be limited. The crisis is also bringing about structural changes in the economy. These changes include acceleration of existing trends – like the closure of retail stores, and automation – as well as new ones, like rapid increases in working from home.

The signs of these labour market changes can be seen in the overall unemployment rate and the average number of hours each person is working. What’s less obvious is that these changes are also profoundly affecting the distribution of employment and incomes between people. Without intervention, these changes will exacerbate existing inequalities and have negative effects that are passed on to future generations.

Young people

In the first of our inclusive recovery webinars, Professor Jeff Borland, Truby Williams Professor of Economics at the University of Melbourne, highlighted the immediate effects of the pandemic on young workers. Health and travel restrictions have affected sectors which employ large numbers of young people like retail and hospitality. Some jobs in these sectors are already reappearing as restrictions lift. But there is compelling evidence from past recessions that young people who enter the labour market at a time when jobs are scarce face long-term harm to their job prospects, their ability to use their skills and to their incomes – what economists refer to as ‘scarring’.

Two recent papers by the Productivity Commission reveal the cost of waiting for the market to recover enough to create jobs for young people. Ten years after the Global Financial Crisis, those who entered the labour market at the time are less likely to be employed, less likely to be in jobs that use their skills, and have lower incomes than others.

Professor Borland’s analysis shows that the labour market for young people was already weak prior to the pandemic, and was worst for those without Bachelor degrees. Health experts have warned of a mental health crisis, including increased suicides, if youth unemployment persists.

The urgent need for intervention has given rise to proposals for a youth guarantee – an assurance of an offer of a quality job, education or training to young people. Alex Mclean, co-Executive Director of the National Youth Commission, participated in SVA’s webinar that explored these ideas. She argued that too often, the onus is put on young people to ‘solve’ their challenges in finding work – for example by getting more qualifications or pursuing different careers – but in reality, the problems are structural. Failure to address these broader issues ignores young peoples’ experience of the labour market and their aspirations for the future.

First Australians

In our webinar on the economic effects on First Nations communities, the lack of data on their employment experiences was a key theme. Dr Francis Markham of the Centre for Aboriginal Economic Policy Research (CAEPR) at ANU provided early evidence that, from February to May 2020, Indigenous people moved into employment assistance at twice the rate of non-Indigenous people. He showed the prevalence of First Australians in lower level and casual positions – those most affected by the economic crisis. The relative youthfulness of the First Australian population also elevates their long-term employment risk. Pre-Covid, Indigenous men in their early 20s were 3 to 5 times more likely than their non-Indigenous counterparts to be ‘not in employment, education or training’ (NEET), while young Indigenous women were 4.5 to 6 times as likely as their counterparts to be NEET.

Dr Josie Douglas of Central Land Council emphasised the jobs crisis that had existed in remote communities before the pandemic. The Covid income support supplement has temporarily halted worsening poverty in these communities. But Dr Douglas was clear in her message that First Nations communities in the Northern Territory need immediate, public investment to ensure that jobs are available in these communities and to prevent the next generation experiencing even worse job outcomes. The prospect of a generation of young people having no opportunity to experience paid work is one of the most critical concerns for members of the Central Land Council, and requires a major shift from the current employment program approaches.

Low income earners, those with lower education levels

The pandemic appears to be worsening labour market inequalities. Sixty per cent of the decline in hours worked across the economy has occurred in the bottom 30% of weekly wage earners. Young people, women and those with lower levels of education are all overrepresented in this group.

Historically, apprenticeships and traineeships have been an important vehicle for social mobility – particularly for young men. The economic crisis has already seen thousands of apprentices and trainees lose their jobs and the number of new trainees has dropped to its lowest in 20 years.

The disproportionate burden of these losses fall on those with already lower incomes. There are also risks to the wider economy affecting the rate of business recovery and future productivity, and perpetuating the conditions for further intergenerational disadvantage.

What needs to be done?

Some projections suggest that nearly one in 10 Australians will be unemployed by the end of this year. Current evidence is that the burden of un- and under-employment, and on loss of future prospects, will fall disproportionately on those who were already experiencing labour market disadvantage pre-Covid.

If we are to avoid the worst effects of this crisis we need to shift our thinking and change our systems.

One sign that a shift in thinking is already occurring is the overwhelming agreement among leading economists about the need for public intervention in the economy, even if it means a substantial increase in public debt. The Grattan Institute has estimated that stimulus of $100-120 billion would be needed to return us to 5% unemployment by the end of 2022.

Fortunately for Australia we’re in a position where our net debt as a proportion of GDP is actually quite low in comparison to other OECD countries. Substantial fiscal stimulus is not only a prudent step, it’s one that many including the Reserve Bank of Australia have agreed is affordable. Interest rates are also at historic lows and so the cost of servicing the debt is low.

If the need for this spending is accepted by our governments, then the question is ‘how should it best be spent?’ What types of spending would not only create jobs, but increase social mobility? What spending would help close the income and employment gap between First Nations people and other Australians? What could allow all people and communities to thrive?

We also need more direct action to address labour market challenges that have been inhibiting equity and mobility.

One immediate answer is to maintain the JobSeeker payments at the higher rate. It is widely recognised that pre-Covid, unemployment benefit payments were far too low. The Covid supplement has boosted household incomes and remote economies.

One of the significant benefits of having higher JobSeeker payments is that people on low incomes are much more likely to spend this money (because they need it to buy essentials) thus stimulating the economy, rather than those on high incomes who are more likely to save. The impact this has on job creation will be much more substantial than a tax cut for people on higher incomes. Deloitte Access Economics has estimated that the withdrawal of the Covid supplement would reduce overall employment by around 1.2% – the equivalent of 145,000 full time jobs.

Another answer as demonstrated by SVA’s research on the charities sector is the need for additional support to that sector to prevent job losses, to address increased demand for services, and to equip the sector for structural change. Employing one in 10 workers across the economy, the sector is labour intensive, so dollars spent on support tend to directly impact jobs. Additionally, unlike other areas of the economy identified as targets for stimulus spending like infrastructure and housing, it employs a large number of women.

We also need more direct action to address labour market challenges that have been inhibiting equity and mobility.

In July, SVA helped form an alliance of organisations committed to leading the debate over ways of ‘building back better’ from Covid-19. Through this alliance, SVA has been working with others to develop priorities and strategies in the critical areas of jobs, providing a good start for all children, and ensuring that all Australians have a home.

We identified three labour market challenges and potential responses. These could reduce unemployment in the short term, as well as lay the foundations for a more inclusive labour market over time.

1. Lack of employment and skills progression for youth

First, we need to do something quickly to address youth unemployment to prevent labour market ‘scarring’. The UK Government has announced that it will fully subsidise temporary employment for young people with employers that offer training. This would be a great start. We can establish conservation and land management programs building on past Coalition Government programs like Green Corps and Green Army, enabling young people to work on projects like restoration of bushfire and drought-affected environments.

Over the longer term we need employers – especially the larger ones – to rethink some of their employment and training practices. We need more opportunities for young people to learn at work (through traineeships and apprenticeships) and for those with qualifications to apply them.

Governments can lead the way. The Commonwealth, for example, is one of Australia’s largest employers (at around 150,000 staff), yet employs only 2,000 trainees (including graduates). Young people are under-represented across its workforce. Some State Governments are doing better, but local government also has an aging workforce. The private sector is likely to remain cautious in recruiting new entrants. But across the public sector there is enormous opportunity to recruit and train young people to revitalise public services and to build skills and experience that, over time, can contribute across the whole economy.

2. Persistent joblessness in specific communities

Economic opportunity is unevenly distributed across Australian communities. Specific action is needed to make sure that pre-Covid inequalities are not further entrenched and to limit the intergenerational effects of the recession. To do this governments need to work with job-poor communities to support job creation, both directly and indirectly.

There is broad recognition that some of the most effective strategies for maximising local job opportunities are driven from the ground up. The Commonwealth has recently announced new local jobs taskforces to lead this work. In addition to establishing and resourcing local employment bodies, we should look at establishing job targets that reflect the needs and aspirations of each community, and mobilising resources to support their achievement. This could include making funds available to provide jobs on local projects, government commitments to increasing local employment in these areas, and use of social procurement to drive suppliers to give local people opportunities in these areas.

In addition, a specific remote jobs fund should be established to create jobs across remote communities, as proposed by the Fair Work Strong Communities Alliance, led by the Aboriginal Peak Organisations of the Northern Territory.¹

3. Disconnect between labour market opportunities and skills

Finally, we need to address the disconnect between the labour market and investment in vocational education and training. Employer spending on workforce training has declined over many years, at the same time as skill shortages have persisted. Across the economy, thousands of people are in jobs that don’t use their skills. New Commonwealth investment in vocational education and training is welcome, but will only be effective if combined with increased opportunities to apply skills on the job. The Commonwealth could support development of new apprenticeship-style models across growth sectors to help bridge this gap and create stronger pathways into work. There are several ways the Government could help:

• Acting as an ‘anchor employer’ for critical initiatives which will encourage other employers to follow suit – for example in the information technology sector – by increasing intake of trainees and apprentices in these areas and through these initiatives;
• Supporting sectors that rely on Commonwealth funding (particularly in areas of the labour market that have long-term growth trajectories like disability services and aged care) to partner with TAFEs to increase provision of traineeships and apprenticeships and improve quality and sector resilience;
• Using its procurement processes to increase establishment of traineeship and apprenticeship pathways, including in areas where such measures are common, like infrastructure, and those where they are less so, like professional and technology services;
• Funding new structures, modelled on group training arrangements, that can provide continuity of training and support where this is difficult – for example in small businesses.

See Table 1 for a summary of these three labour problem areas and potential responses.

Conclusion

There are encouraging signs that the Commonwealth Government is willing to maintain public spending until unemployment falls. Headline unemployment rates, however, are only part of the story.

Work needs to be done to build a labour market that delivers better and fairer outcomes, including stronger pathways for young people, more jobs for people in poorer communities, and more opportunities for people to learn and apply their skills.

Existing labour market programs, with their reliance on ‘hassling and helping’ the unemployed, won’t do the job. Nor will reliance on indirect measures, like tax cuts. This article puts forward some specific ideas about how this could be done and how the Commonwealth might lead the way to a more inclusive economy.

Author: Lisa Fowkes

Acknowledgments: This article reflects the work and ideas of many others – thanks, especially to Prof John Buchanan (University of Sydney), Gary Workman (AEN/Global Apprenticeship Network) and Shirley Jackson (Per Capita). We also acknowledge the Macquarie Group Foundation for its support of SVA’s work on the development of pathways to skilled employment for young people in Australia