Confronting joblessness
Australians are recognising that the unemployment crisis
may require some radical new policy solutions
At last, a real debate is gathering momentum on the most
critical economic and social issue confronting Australia - high unemployment.
Since the election campaign, in which there was a surfeit of rhetoric.
and a shortage of policy substance on the issue, significant contributions
have come from the "Group of Five" economists led by Professor
Peter Dawkins of the Melbourne Institute, and, more recently, from the
director of the Institute for Private Enterprise, Mr Des Moore, who is
soon to release a study conducted on behalf of the Council of Federal and
State Labour Ministers.
Both propose different approaches to achieve the same basic end - restraining
or lowering wages at the bottom end of the earnings spectrum to encourage
higher employment. The Group of Five calls for the Australian Industrial
Relations Commission to freeze Living Wage safety-net award adjustments,
trading them off for tax credits for low-income earners. Essentially, this
proposal takes advantage of the remaining centralised element of the wage-fixing
system to reduce real wages and utilises the tax/transfer system to ensure
that incomes for those workers are maintained at a socially acceptable
level.
Mr Moore's proposal is more radical. He argues for a thoroughgoing deregulation
of the labor market, total stripping back of awards, dismantling of unfair
dismissal rules, the removal of the AIRC from wage fixing, and setting
of minimum wages on a State-by-State basis. He also argues for an end to
the principle that workers transferring from awards to collective or individual
workplace agreements be no worse off as a result, allowing them to decide
on the terms and conditions they are prepared to accept Like the group
of economists, Mr Moore also proposes that if necessary, an earned income
tax credit could be used to top up the incomes of low-wage earners.
As the symposium in these pages today shows, there is no shortage of critics
or these sorts of proposals, with objections and alternative solutions
coming, from both the pro-regulation Left and the deregulationist Right.
Some critics question the central assumption underpinning both the Group
of Five and Moore propositions: that there is a connection between wages
and employment, and that some real wages need to fall to allow the unemployed
to price themselves into jobs. However, despite the much-quoted work by
Card and Krueger in the US disputing the link between minimum wages and
unemployment, it is difficult to take seriously the critics' implicit proposition
that the laws of supply and demand do ,not operate in the labor market
and that lower minimum wages would not have some positive impact on employment
particularly in Australia, where the safety-net is set relatively high
as a proportion of average earnings.
The critics also warn that such proposals will create a new class of US-style
"working poor" and a widening of income disparities. But another
uncomfortable reality is that greater income inequality may be part of
the price of cutting unemployment. While Australians may find unacceptable
the income disparities found in the US, the deregulated US labour market
nevertheless delivers a much lower jobless rate, even when differences
in incarceration rates and other factors are accounted for. (Mr Moore also
argues, using OECD figures, that the Australian system has created a similar
proportion of working poor to that of the US.) Is it better, economically
and socially, to have unemployed poor or working poor?
And even if, as a society, we find a less egalitarian income dispersion
undesirable, it doesn't follow that it should be the role of private employers
and the wage-fixing system to deal with these distributional issues. The
tax/transfer system is a better vehicle for achieving such equity objectives.
The earned income tax credit and the negative income tax are two such mechanisms,
although their potentially large claims on the Budget would demand reordering
of spending priorities.
These proposals, of course, have their flaws and are by no means the only
solution. Specific programs may be required to address structural inefficiencies
in the labor market, particularly as they effect the long-term unemployed
and young people. Enhancing "human capital" through training
and education programs to lift skills and productivity is also crucial.
But the fact that these and other ideas are emerging in a growing debate
suggests that Australia is finally beginning to recognise that solving
the unemployment problem will require new thin-king and the courage to
confront some uncomfortable realities. Hopefully, the nation's political
leaders will grasp, the, opportunity this represents.