Reforming labour market policy to strengthen social & economic participation

Anglicare Australia Annual Conference

13 September 2010

Michael HornSenior Manager, Research & Policy

Overview

• Core proposition about the labour market

• Appraisal of current performance – the data

• Imperative for further reform – labour market programs

• Policy challenge

Core proposition

• Australia can and should do far more to improve the economic participation of working age citizens as the most effective path out of poverty and social exclusion

• This requires a new social contract which balances individual obligations with government investment & acknowledges the structural barriers to participation

Current situation – key statistics

Labour Underutilisation levels:

• Unemployment: 5.1% or about 608,000

• LTU (over 12 months): 110,000

• Underemployment: 7.4% or about 874,000

• Underutilisation: 12.5% or nearly 1.5 million

(ABS Labour Force Survey, August 2010, seasonally adjusted figures)

Current situation – key statistics 2

Specific groups affected:

• 9% of 15-24 year olds on income support payments for >1yr (45% of these on DSP)

• 15-24 year olds: Unemployment rate 11.6% & underemployment rate 13.6%: over 25% underutilisation

• 780,000 people on Disability Support Pension

• Less than half of those with a disability are engaged in paid work

• 15% of children live in ‘jobless’ families

Current situation – key statistics 3

Labour market participation rates:• 15+ years: 65.4%

• 15-64 years: 76.1%

Likely to decline in absence of policy reforms

Job vacancies:• ANZ total job adverts: 172,000 per week (July 10)

• 10% of vacancies are public sector jobs (ABS)

• Internet vacancies: 222,000 lodged in July (DEEWR)

Current situation – job vacancies

Source: DEEWR Vacancy report - IVI

The challenge

• Prior to GfC, the sustained period of economic growth - but we left behind far too many working age Australians.

• We still have an underlying policy challenge - how to build a bridge for the pool of disadvantaged and disengaged working age Australians into meaningful paid work that matches their aspirations.

• As our economy picks up, and demographic change impacts on the labour force, labour shortages will reemerge across industries and regions.

• Employers will become frustrated again at the shortage of job seekers with the foundational or soft skills to take up and retain jobs.

Active Labour Market Programs

• Job search and self-help assistance, including basic labour exchange services aimed at job matching *

• Job placement services • Training programs to develop soft or foundational skills, strengthen vocational

skills of job seekers or retrain displaced workers with redundant skills or qualifications

• Intensive support aimed at disadvantaged job seekers who may be considered not ‘job ready’

• Job creation strategies such as intermediate labour market (ILM) or transitional employment programs using social enterprises to deliver work experience

• Job subsidies to stimulate demand from public and/or private employers, including self-employment incentives

* Includes conditionality or obligation provisions and sanctions for non-compliance

Long history of ALMP’s – here & in OECD

• Tended to be a reactive response to global shocks or internal recessions • With stubborn levels of unemployment & LTU in late 20th C, governments

introduced ALMP programs to build a bridge between the unemployed & jobs

• Expenditure on ALMPs dependent on politics of the day, stage in economic cycle, etc. but reliance on passive LMP’s no longer adequate

• Increased interest in ALMP’s as old industrial economies transition into service based economies over past 2 decades across OECD:

- reduction in % of ‘job for life’ employment (single employer)- high % of casual & part-time jobs and SMEs- majority of new jobs require higher level skills- increased occupational & regional mobility of labour

• Growing concern about changing demographics & health problems on labour supply to maintain productivity:

- ageing population- growth in single parent households- increased levels of disability

Australian ALMP developments • Australia has led the way in some aspects of design and governance of employment

assistance system over past 2 decades:• Strong suite of active participation, compliance measures and coercive penalties• Reduced role of public employment services & increased privatisation to commercial

and community providers• Expansion of universal & compulsory participation to broader groups of income

support recipients• Stronger drivers to improve performance focused on short term job outcomes• Use of a sophisticated assessment tool to stream job seekers for levels of assistance

(and $ for providers)

• But this innovation (Job Network) was in a period of strong economic growth until GfC

• Underpinning ALMP design was a ‘work first’ focus, based on assumptions about behavioural poverty to explain welfare dependence & job seeker behaviour

• Since GfC, immediate shift to human capital focus by Rudd government through a ‘training first’ agenda

• Some changes to Job Network model (now JSA) and disability employment services through contract renewal from 2009

Policy challenges for Australia

1. Insufficient investment in ALMP provision compared to OECD

2. Underinvestment in integrated models aimed at highly disadvantaged groups

3. Has Australia gone too far in privatising program delivery (JSA) in the quest for efficiency and performance?

4. Reconsider conditionality policy levers based on evidence of impact

Public expenditure on LMPs in OECD as % of GDP (2007/8)

Increase investment in integrated models

Further reforms to universal employment assistance system (JSA) to:

• Resource transitional employment programs (Intermediate Labour Market approach) as complementary pathway:

− Client centred assistance with continuity of support− Integrated training, real work experience and support− Vocational training and work experience linked to local jobs & employers− Utilise social enterprises to provide work opportunities

• Integrated service responses that join up assistance across silos and programs:− Effective engagement and complete assessment− Case management resourced− ‘Make work pay’ provisions

Has Australia gone too far in privatising program delivery (JSA) in the quest for efficiency and

performance?• Requires sophisticated profiling tools & assessment processes to

accurately categorise job seekers into 4 streams (JSA) – plus Disability Employment Services and Work Experience phase

• Complexity of contract management arrangements required to assess performance and prevent ‘creaming’ or ‘parking’ of job seekers

• Diverts provider resources to contract accountability

• Reduces case worker expertise & skills

• Constrains collaboration and sharing of best practice approaches between providers

• Limits independent research & evaluation of ALMP impact

Reconsider conditionality provisions

• Little evidence here or overseas in support of reliance on strong conditionality measures and harsh penalties for non-compliance

• OECD experience shows that a balanced approach to activation is required:

– Conditionality measures are needed to encourage the unemployed to engage in job search activities

– Strong penalties are not required

– Positive incentives more effective

– Personalised approach to assistance works best

– Address structural and external barriers faced by disadvantaged groups

Summary

• A solid case has been made for a new social contract to respond to the ongoing challenges, post GfC, of globalisation, technology change and demographic trends.

• A more coherent and balanced labour market policy framework is needed to:

– Substantially increase the working age participation rate and reduce the level of underutilization of the labour force

– Improve overall productivity & meet employer needs for labour

– Focus on disadvantaged groups, neighbourhoods and areas.

• Fundamentally, this requires increased investment to deliver effective labour market programs aimed at highly disadvantaged job seekers.

• It also requires a fair balance in policy measures between the obligations placed on individuals and the resolution of structural and systemic barriers to participation.

Thank you

For Brotherhood of St Laurence research publications:

www.bsl.org.au