All evidence shows Eric Abetz’s hardline welfare reforms will not get people into work. His motives lie elsewhere. By Mike Seccombe.

Aiding and Abetzing

The Minister for Employment, Eric Abetz.

John Hewson, the former Liberal Party leader and noted economist, was reflecting on the definition of insanity.

You know the one, often credited to Albert Einstein: that insanity is doing the same thing over and over again, and expecting a different result.

The question was: does the Abbott government’s newly announced work for the dole employment policy – which would see the jobless dragooned into low-skilled work such as painting community halls and packing boxes for charities in return for their benefits – meet the definition of insanity?

Hewson’s answer is that it might, if it were a sincere attempt to reduce unemployment. But he does not believe it is sincere. 

The fact is, schemes such as work for the dole have been tried over and over again and consistently show the same result. They do not work.

Research in 2004 by Melbourne University professor of economics Jeff Borland and colleague Yi-Ping Tseng, into the previous Australian incarnation of work for the dole under the Howard government, found it was actually counterproductive.

“We used the Family and Community Services payment centre database, and we were able to identify people who had done work for the dole and to match them with another group, also on unemployment benefits, who had not,” says Borland.

They concluded that those not in the work for the dole scheme actually had more success in gaining “active employment”. That is, proper jobs.

As the findings said, “there appear to be quite large adverse effects of participation” because people working for the dole were apt to reduce their search for other employment.

But Borland’s critique of schemes of this type is not based solely on his own work. 

“In 1999 Jim Heckman, a Nobel prize-winning economist, wrote a review of such public sector job creation programs [in the United States] and found them ineffective,” he says.

“In 2010, David Card – a past winner of the [John] Bates Clark medal as best US economist under 40 – did a review [of 97 labour market programs in the US and Europe] and found they were the least effective type of job creation program.”

Not to mention findings by the former OECD head of employment, labour and social affairs, John Martin, for the Reserve Bank, back in 1998, and a recent official review of Britain’s equivalent scheme.

As Borland summarises: “There is now a large amount of international literature on these sorts of programs that uniformly shows they are the least effective kind of programs for improving people’s employability.”

So why would a government return to such a scheme?

John Hewson suggests a number of motivations, none of which relate to sincere efforts to improve the lot of Australia’s unemployed.

“First, this is more about prejudice than it is about policy,” he says.

“The underlying attitude to this is the prejudiced view that a lot of the unemployed, particularly the young unemployed, are basically bludgers who … are not interested in getting a job. And while there may be a percentage of people to whom that applies, I don’t think it’s a very significant percentage.”

Beyond that, Hewson sees a smokescreen intended to obscure budget cuts – “to save money wherever they think they can get away with it” – to jobseekers’ benefits and to other, more effective, training programs.

And beyond that, he suspects, some of the conservative ideologues who are driving the policy are “probably aiming to get out of training altogether and push it back to the states”.

That they “don’t feel it’s a national responsibility” is a problem: “We don’t want eight separate training schemes, for Christ’s sake, with the states competing. We’re trying to build a nation, not eight nations.”

Whatever the motivation, the presentation of the new policy has not gone well, notwithstanding the fact that the government has devoted not one but two three-word slogans to the sales effort.

The one about encouraging people to be “lifters not leaners” encourages the perception that those not in the workforce are not trying. And the decision to cut unemployed people under the age of 30 off all benefits for the first six months was cloaked under the tough-love mantra that they should be “earning or learning”.

This was despite the fact that other budget decisions cut training opportunities and made learning more expensive, and the flat job market made earning harder, too.

But the government reckons cutting 100,000 young jobless people a year off the dole will save the budget an estimated $1.2 billion over four years.

It’s fair to say that the decision to cut benefits from the younger unemployed rated alongside the Medicare co-payment and radical changes to tertiary education as among the main reasons the budget was popularly seen as unfair.

But that announcement at budget time was just a part of the plan.

We got more of it on Monday, when Employment Minister Eric Abetz and his junior minister Luke Hartsuyker released an exposure draft of the new unemployment measures, planned for implementation from July 1 next year.

 The media release that flagged the changes buried the lead in the 10th paragraph, which said: “Most job seekers will be required to look for up to 40 jobs per month, and most job seekers under 50 years of age will be required to participate in Work for the Dole for either 15 or 25 hours per week for six months each year, depending on their age.”

Forty job applications a month was not an unreasonable requirement, insisted Abetz in his various subsequent interviews, breaking it down to “one in the morning and one in the afternoon” five days a week.

But he did not go to the big picture, which is this: There are currently some 795,000 people unemployed in Australia and on benefits, either Newstart or Youth Allowance. If each of them put in the requisite 40 job applications a month, it would total about 382 million a year.

Others, though, including many and varied business organisations, did see the big picture, and promptly complained that dealing with such a flood of job applications amounted to the imposition of a huge new layer of red tape.

Peter Strong, of the Council of Small Business of Australia, noted it would make it harder for employers to find suitable applicants for positions because “you’ll have an awful lot of people apply for [an advertised job] because they have to, not because they think they’d be any good at it.”

Within the day, Abetz was backpedalling on the 40 applications requirement.

It was put to him by Lateline’s Emma Alberici that there was a risk that “this just becomes a box-ticking exercise”.

Replied the minister: “I think that is a … potentially, a fair criticism. We as a government do not want box-ticking to take place. We don’t want red tape and inconvenience to employers.”

So we may expect the 40 jobs requirement will be wound back out of concern for employers, rather than the jobless.

But the substantive changes – cutting people off welfare and making them work for the dole – remain.

And they misidentify the real problem, says Professor John Buchanan, director of the workplace research centre at the University of Sydney Business School.

“It’s now generally agreed that the fundamental determinants of the labour market are on the demand side,” he says. “It doesn’t matter how hard you harass the unemployed, it won’t work if the vacancies aren’t there.”

Australian Bureau of Statistics data show there are now about 146,000 job vacancies, and unemployment is about 700,000.

“So even if you filled all those vacancies, you’d still have 550,000 people out of work,” says Buchanan.

“Yet if you look at the ABS data on total hours worked and divide that by the standard working week of 38 hours, we have full employment. So there’s a whole lot of people working big hours, who don’t necessarily want to work those hours. And there’s a whole lot of people … who don’t have enough work.”

Buchanan acknowledges it would be “naive to think we can have everyone working a flat 38-hour week.”

But you can use skills policy to get a somewhat more even spread of the available work.

Unfortunately, notes Buchanan, “government has cut back a lot in vocational education. That’s not all bad: quality control has been poor for a long time. But that doesn’t mean you rip the heart out of it.”

A senior executive working in the training area fears that is happening. “The budget abolished 10 different training programs,” he says. “All in all there was about $2 billion taken out of the training budget. It seems they are vacating the area of skills development. It’s a blind, ideological view that the best way to deal with the unemployed is to force them to work for the dole or to take any job on offer. Training doesn’t really seem to come into play.” 

Peter Davidson, senior adviser at the Australian Council of Social Service, makes the point: “The new requirements appear to be designed to make unemployment unattractive rather than assist people obtaining employment.”

And it is expensive. “At least $1500 per person is being invested in this program,” he says.

The far better option would be more “flexible investment in what works, such as wage subsidies and vocational training relevant to the labour market”.

Subsidy schemes, under which the government defrays, for a period of time, the cost to an employer of hiring have a relatively high success rate, Davidson notes. 

“About 50 per cent of those who go through those subsidised jobs are still working 12 months after the subsidy ends,” he says.

Davidson says that the new scheme does include some provision for wage subsidies, although it is directed at unemployed people in the 50- to 60-year-old age range.

The problem with wage subsidy schemes is employers will only take on people who are termed “job ready”.

“If you look at the profile of people on Newstart, over half have been unemployed for two years or more, and two-thirds unemployed for over a year. A large proportion have year 12 or less qualification.”

Those people need to have their skills improved. But that, he fears, is not what they will get.

Instead, they will be churned through programs that amount to “activity for activity’s sake”.

And they will do so, says Davidson, despite the fact that there is “no convincing evidence it has any impact at all on their future job prospects.”

So why would a government persevere with a policy that all evidence shows doesn’t work? Because sometimes in politics ideology trumps reason and experience, and out-of-work voters are mere collateral damage.

This article was first published in the print edition of The Saturday Paper on Aug 2, 2014 as "‘More prejudice than policy’".

A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.

Mike Seccombe is The Saturday Paper’s national correspondent.