Monthly Archives: November 2019

Does the “job guarantee” have a modest cousin?

I’ve long been a sceptic of a jobs guarantee (JG). A world in which a government department can effectively evaluate the needs and capabilities of every unemployed person and assign them to a suitable individualised job is beyond the scope of plausible reality, in my view. It’s just not my experience of the way bureaucracies work.

Such a program would also bring macro-economic risks, potentially suppress wages in JG worker sectors, and do an injustice to the unemployed by making promises it can’t keep. Unemployed people suffer enough stigma. It would only get worse if the government effectively told the community the unemployed were all there entirely by choice, as would be the implication of claiming jobs were “guaranteed”. A full blown JG would also have a massive fiscal cost – likely tens of billions each year – which just cannot be hand waived away in budget obsessed Australia.

Nevertheless the motivating spirit behind the JG has its attraction. Long-term unemployment is a waste and a tragedy. Human beings, willing to work, sit idle for years when they could be contributing to society through some form of productive labour. And although I think claims about the “dignity of work” can be overstated, it is true that long-term unemployment is profoundly damaging for happiness, health and human capital. Many of us would prefer almost any safe and dignified job to this. Some – not all – of us have a deep need for a reason to get out of bed, duties to perform, a need to feel needed.

What if we could design something like a JG, but on a relatively modest scale, capturing its merits while dropping the risks and grandiosity of a universal JG? Let’s call this a “job of last resort” (JLR) program.

Theory

The starting point is that JLR would only target the segment of the unemployed who are relatively unlikely to gain employment in the private sector any time soon. It would not cover someone briefly between jobs. Rather, it would be limited to those who have been substantially underutilised for a very long period. This is to ensure the program does not interfere with transitional unemployment, which is present even in the healthy labour markets described as “full employment”.

A problem with a full blown JG, available to all unemployed, is that it would divert a significant number of people into the program who otherwise would have quickly obtained a regular job. This may harm the individual, whose career progression would probably be better served in regular employment. By crowding out private sector employment, it may also cause inflation. However, to the extent JLR only targets the unemployed who are not on the margin of employment – call them inframarginal unemployed – these concerns should not be overwhelming.

Eligibility

The program would be available to anyone who has received an unemployment (or related) benefit for:

  • at least two thirds of the past year and
  • at least two of the past three years.

Also eligible would be a person who has:

  • received an unemployment benefit for at least two thirds of the past year,
  • received an unemployment benefit for at least one of the past three years, and
  • had total labour earnings of less than $80,000 over the past three years.

The latter eligibility method attempts to capture long-term underutilised workers. An earnings threshold is chosen due to administrative difficulties in evaluating hours worked. Modified criteria would exist for people who had spent time as students or carers.

Conditions

JLR participants would be paid at the minimum wage. They could choose between programs of different levels of commitment, for example 35, 25 or 15 hours per week.

Eligible participants would be offered a job in city or regional beautification, for example, gardening, litter collection and landscaping. Those who do not have the required fitness would be eligible for placement on low skill tasks in government agencies. The important point is that they are undertaking work that adds value but which would be unlikely to be performed otherwise, such as in basic staff catering – what used to be called “tea ladies”. They could be hired as door greeters at government agencies.

JLR participants would be held to usual workplace standards and may be dismissed if they fail to complete assigned duties or abide by the code of conduct. In this case, the participant would return to regular unemployment benefits and be eligible to reapply for a JLR position after six months.

Self-directed work plans

After participants successfully complete the first six months of a JLR program, they would have the opportunity to submit a business case to request allocating up to 10% of their working hours to self-directed work. Work options would include arts, culture and sports. The business case would have to satisfy that the activity made a measurable contribution to the community. The threshold would be modest – for example, exhibiting work, publishing articles or even getting hits on a blog post. An approved participant in this arm of the program would be accountable for the delivery of the benchmarks set out in their participation agreement.

Non-completion would result in the loss of the self-directed time and its reallocation to regular JLR activities.

JLR participants who successfully deliver on their self-directed benchmarks over a six-month period may apply to increase the self-directed time to 20% of their working hours.

Job search requirements

The JLR is not intended to be a permanent job. It is a last resort. Participants would be expected to undertake some (reduced) job search activities. The discount on job search requirements, relative to unemployment benefits, would be substantial for 35-hour work week participations. The idea is just that they continue to apply for appropriate jobs, rather than spend their time churning out pointless low-chance applications.

Cost

There are currently around 100,000 people who have been unemployed for at least two years. Program eligibility is considerably broader than this, but only some of those eligible will elect to sign up. So as a rough guess – potentially an underestimate – let’s assume 100,000 people will participate in the JLR.

Let’s assume all participants chose to work the maximum 35 hours per week, an obvious overestimate.

The minimum wage in Australia is currently about $19.50 per hour. On-costs for public servants – including superannuation, office space, training, etc – are typically assumed in government costings to be around 20%-30%. But the figure is likely to be much higher for JLR participants for two reasons. The first is mechanical – the JLR’s wages are lower than those of regular public servants, so a given amount of spending (on accommodation for example) will be greater as a percentage of their income. The second is that management costs of JLR participants will be high due to the participants’ diverse and complex needs and capabilities, which will be affected by their spell of unemployment. Managers will have a challenging task to create effective and integrated teams out of workers who are given to them ad hoc, rather than selected to fill specific roles based on their personal capabilities. I’m going to assume on-costs of 50%.

Based on these assumptions, the gross annual cost of the JLR will be:

100,000 * $19.50 * 150% * 35 * 52 ≈ $5.3 billion.

The cost will be offset by Newstart savings. The rate of Newstart for a single with no children is $279.50 per week. Let’s assume, conservatively, the average JLR participant would have received half of this due to occasional work and various means testing arrangements:

100,000 * 279.50 * 50% * 52 ≈ $0.7 billion

In addition, the tax office would claw back some money through personal income tax, but this would not be material for this level of analysis. People on minimum wage just don’t pay much tax, and their spell of unemployment would drag down their year’s tax bill to zero in many cases.

Based on the assumptions above, the net cost of the JLR would be approximately $4.6 billion annually. The estimate is crude – a professional costing would require administrative data and sophisticated modelling – but it gives the order of magnitude.

At around 0.2% of Australia’s GDP, the JLR is eminently affordable in theory. It wouldn’t crack the government’s top 20 most expensive programs. It costs roughly one tenth of the age pension, a quarter of family tax benefit and of disability pensions, a third of funding to private schools and half of unemployment benefits. It is trivial compared to tax concessions on superannuation.

But the issue is political will. In Australia we live in a political culture that is fixated on the budget. The immediate question is whether, given political economic constraints, this is the best use of around $5 billion a year. There are probably other ways we could spend this money to get better bang for our buck in terms of human welfare. On the other hand, perhaps this is more politically feasible than other programs. Voters do love “jobs”.

Should we do it?

I remain concerned about the interlinking of social security with work. I would prefer a clear demarcation between safety net programs and labour requirements. Blurring this distinction is a slippery slope to exploitation. Sure this ship sailed with Work for the Dole, but should social democrats be promoting it as part of our grand vision?

I have no absolute answer to this question. What I can say is that if we do go down this path, we should do so modestly, and with concrete policy proposals, rather dealing in grand rhetoric and sweeping claims that cannot realistically be implemented.

The JLR is my offering, for discussion, to this end.

Poll: Australians support a universal basic income

A recent YouGov poll commissioned by Unions NSW has found 49% of Australians support a universal basic income (UBI), with the remainder split between opposing or saying they do not know. The finding is a remarkable result for a policy radically outside the political mainstream.

Consider this: in a country with deep traditional antipathy to “dole bludgers”, half of Australians are prepared to support a policy of free government money for everyone, for nothing.

In addition, the poll found that UBI support correlated with education, with 57% of university graduates in favour of a UBI. Society’s education levels increase over time, so UBI sentiment is likely grow even more favourable.

These UBI findings are some of the most fascinating poll results I’ve seen. It would be interesting to have more details about what exactly responders saw leading up to the question. The UBI results are not played up in the Unions NSW report – understandably, as the UBI is not one of its preferred policies. In activist circles, the UBI is often juxtaposed against a jobs guarantee (JG), which is what Unions NSW prefer. Personally, I don’t understand why UBI and JG are treated as dichotomous, as one could support both policies, or neither.

The report emphasised the poll’s finding that 67% support a JG, an unsurprising result given Australians tend to answer positively to the concept of “jobs”. It’s a nice word. “Guarantee” is a nice word too. However, it is highly questionable whether the positive sentiment towards these words converts into support for any real-world policy.

The problem is that a “jobs guarantee” can mean very different things to different people, especially randoms who have never heard anything about the policy before.

There is a fundamental contradiction at the heart of JG. For some, the JG is about helping the unemployed to self-actualise, but for others the attraction is setting the idle poor to task. By collapsing welfare and workfare impulses, the JG sucks in support from people imagining completely different programs. Obviously, this alliance can only be sustained as long as the JG stays at a linguistic level. Once the policy-maker supplies policy parameters, they will be declaring for one side and alienating the other.

Should the JG be entirely voluntary? Should it involve only things like picking up trash and digging ditches or should it involve arts, culture and personal expression? Will it involve dangerous work? Will it compete with existing employees, driving down wages? Can people be fired? Would they be endlessly employed without showing up? What if they have a mental health condition, for example, that seriously compromises their ability to show up and do the job? Having generous conditions is appealing to lefties, but at some point it will lose any resemblance to what normal people think of as a “job”.

Unfortunately the survey question did not help much here, as it did not ask for a response to a specific JG policy. According to Unions NSW on Twitter, a preamble to the JG question said that the policy “could” include the government providing jobs paid at least at minimum wage to people who cannot find one in the private sector, and making unpaid overtime illegal for jobs paying less than $100,000 a year. It would have been preferable for the survey to specify that the JG “would”, not “could”, provide government minimum wage jobs. Instead it effectively invites responders to imagine whatever policy details they like, within a broad umbrella that spans as far as reforms to unpaid overtime!

On the other hand, a UBI is intuitively understandable (cash for everyone!) and wears its most unpopular aspect – free money for doing nothing – on its sleeve.

Despite loading the dice in favour of the JG, the poll finds that 32% still prefer a UBI (56% say they prefer a JG).

Think over how radical this is: in an Australian political culture with a long history of intense animosity towards “dole blunders”, 32% of Australians would prefer the government pay an income to everyone for no work whatsoever than to implement a smaller scale program that tied income to work.

Again, there is nothing natural about this dichotomous framing. It is like asking people to declare whether they’d prefer investments in maternity services or cancer, and then using the result to justify pursuing only one of the two.

For what it’s worth, I do not support a JG and nor do I advocate for a conventional UBI. The more pressing priority is a generous system of unemployment benefits and other social security payments, without excessive activation requirements. Newstart must be increased and Work for the Dole abolished. From there, social security conditionality, including means testing, should be steadily reduced so the system promotes the freedom and self-actualisation of recipients and protects people across all socio-economic groups. As we head down this path towards social democratic utopia, the growing system of payments will evolve into a de facto guaranteed minimum income. Then we might consider joining up some of the programs and consolidating into a UBI. But this is a utopian goal.

However, there is one type of universal income that has merit in the more immediate term – a social dividend, an old idea but now most associated with Matt Bruenig’s Social Wealth Fund for America. This would involve the government managing a social wealth fund on behalf of its citizens, paying dividends to each citizen equally. The social dividend is universal but not “basic”, as it goes to all citizens but its purpose is not to provide a living allowance. What this kind of social dividend does is simply redistribute society’s capital income. The design is conceptually elegant and politically expedient: by targeting only capital rather than labour income, it evades the objection that universal income programs take from workers and give to non-workers. Under the social dividend, the income subject to redistribution was never being paid for work anyway. If passive, unearned income already goes to top 1%, why can’t we share it around? Moreover, the payments are not funded by a giant tax but from a massive investment in the market economy.

When it comes to universal income, I’ve always been a “pessimism of the intellect, optimism of the will” kind of guy. But if the Unions NSW YouGov poll results are to be believed, I should be much, much more optimistic: Australians already support universal income.