Fostering inclusive growth through the Job Guarantee

Sean attended the 2018 OECD Forum in Paris. He is currently studying Undergraduate Studies in International Studies and Japanese at Curtin University.

Abstract

A key issue raised at the 2018 Organisation for Economic Co-operation and Development (OECD, 2018) forum was the need for nations to design solutions for inclusive growth “through studies and data surrounding better education, employment, healthcare and housing, making sure that growth is truly inclusive” (OECD, 2018). The inclusive growth program at the OECD has analysed the myriad sources for global inequality and has determined that, while acknowledging there is much room for future research, solutions lay with national governments (OECD, 2017, p. 5). The ‘Bridging the Gap’ publication argues for a re-orientation of welfare toward lifelong platforms that ensure a variety of outcomes for citizens, including job support, health, wellbeing, and foundations for future learning (OECD, 2017, p. 5).

A national Job Guarantee program is a comprehensive and universal replacement for welfare that is funded and directed by national governments. The foundation of a Job Guarantee program is guaranteed work for a guaranteed annual income set by the government. The Job Guarantee is a radical and necessary re-orientation of welfare addressing key issues outlined by the OECD. Only the government is in the position to address this and, as such, this policy paper seeks to explore the Job Guarantee program as a key policy recommendation to achieve inclusive growth.

Context

Labour Underutilisation

Any level of unemployment is an economic opportunity cost lost by states. Australia’s unemployment rate is 5.6%, an inflated figure due to the prevalence of part-time and casual work. Around 9% of Australian workers work part-time involuntarily, one of the highest among OECD nations, representing over 740,000 individuals willing to work as a full-time job offered to them (OECD, 2017, p. 2-4). Fewer working at their full capacity means fewer tax dollars received by the government, decreased consumption, and decreased production. Rough estimates have put this dollar figure in Australia conservatively at a daily loss of $A147 million (Mitchell, 2010).

During economic downturns and periods of stagnation, a rise in unemployment leads to generally decreased reported levels of happiness and wellbeing in society (Luo et al., 2011, p. 1141). Suicide rates in the United States increased significantly during the Great Depression, as well as in Hong Kong, Japan, and Korea during the Asian Financial Crisis (Luo et al., 2011, p. 1139). Unequal wealth distribution in societies, poor social mobility, and decreased opportunity have been found to increase youth suicide as individuals move into adulthood with expectations they are unable to meet (Gilchrist et al., 2007, p. 152). As Australia moves away from an economy driven by primary industries, in particular, manufacturing, entire regions will be left behind and, without appropriate programs and interventions, will feed back into themselves causing cyclical, inescapable problems (Myles et al., 2016, p. 122) (Kaplan et al., 2017, p. 281). 

 Unemployment schemes

This section will evaluate unemployment schemes trialled internationally targeting unemployment issues, including the Job Guarantee, Retraining and the Universal Basic Income. 

Job Guarantee

The Job Guarantee treats the government as the employer of last resort. When markets fail to deliver private employment opportunity to individuals, the government steps in and provides a job with a guaranteed level of income. Participants work each day doing a range of high- to low-skilled labour for this income. Participants on the Job Guarantee are always required to work and, if there is no job available, it is the state’s responsibility to find work for them by creating government-funded roles. The Job Guarantee keeps labour skilled during economic downturns allowing quicker recoveries as private industry has a more valuable pool of labour to turn to when hiring post-crisis.

The Job Guarantee has been enacted in Argentina as the ‘Jefes Plan’, in response to an economic crisis in 2002. The Jefes Plan cost around 1% of Argentinian GDP employed around 5% of the population or 13% of the overall labour force and was ceased once the crisis had passed (Wray, 2006, p. 2293). Participants were asked questions regarding their satisfaction with the program. 6% answered they were satisfied because they received an income, 12% because they helped the community, and 42% because they were doing something. The majority of participants stated that if they were forced to choose between receiving the income and doing nothing or receiving the income and undertaking work, they would choose the latter (Tcherneva,2014, p. 14). This revelation of the importance of dignity in work is one of the key factors separating the Job Guarantee from other unemployment initiatives. 

Retraining

Retraining schemes target workers whose industries are in significant decline and provide an opportunity for them to retrain into a more productive field for the economy. These are often linked to learning institutions offering discounted rates. For example, a select number of Victorian TAFE units will become free from 2019 onward to address under-skilling in key age groups and industries in Victoria, Australia (Victoria State Government, 2018). While successful in some respect, these retraining schemes cannot be relied upon as a response to unemployment. 

Furthermore, they do not address the financial hardships faced during the process of this retraining, in which bills can go unpaid, quality of life diminishes, and health issues increase (Granderson, 2014, p. 31). Even during employment, retraining does not reduce uncertainty and anxiety, as employees continue to experience employment insecurity (Chan, 2016, p. 359). Many companies are also reluctant to provide any retraining assistance in the first place, due to the fear of losing any previous investment they had made in an employee (Chan, 2016, p. 370). Retraining success is also not uniform; success varies by gender and occupation (Kruppe, 2018, p. 1578). Finally, this process provides no contingency for retraining workers who are unable to find work following their retraining (Stafek, 2016, p. 931). 

Universal Basic Income (UBI)

Universal Basic Income (UBI) is a guaranteed wage granted simply for living within a region. UBI does not address retraining or education but places responsibility on the participant as to how they wish to spend their income. 

The benefits of UBI is that it works across gender, race, and other social divisions, acting to drastically resolve developmental issues in at-risk communities. In Canada, in the mid-1970s the town Dauphin granted each adult earning below $13,800 a free $4,800 bonus package each year, during which it saw reduced economic inequality, reduced income instability, and increased participation and retention in school (Painter, 2016, p. 1). Results of UBI programs in other countries have resulted in decreased crime rates, greater small businesses success, better health, and empowerment of marginalised and oppressed peoples (Lacey, 2017, p. 94-5). 

Critics of the UBI point out that there is no guideline as to what amount of money is necessary nor who should receive it (Ghose, 2017, p. 178). There are also competing motives for rolling out a UBI, for instance, while this program is being considered in this context as a resolution for labour underutilisation and unemployment, the current Finnish trials are being conducted as an austerity measure to reduce budget deficits (Henley, 201; Koistinen, 2014,p. 41). Competing motives, the varying degrees of program comprehensiveness, and the lack of attention paid to the dignity of work result in UBI being an insubstantial method of resolving labour underutilisation. 

Policy recommendations

Considering the research outlined above, this paper proposes the following two key recommendations to address labour underutilisation:

1.    Small-scale Job Guarantee trials across multiple regions in Australia.

2.    Long-term research and evaluation project to gather as much relevant data as possible on those engaged in unemployment programs, to assist in future analysis and potential policy changes. 

Recommendation One: Small-scale Job Guarantee trials across multiple regions in Australia.

A constraint of other retraining programs has been when responsibility for financial support was placed upon the individual undergoing retraining (Granderson, 2014). The individual’s anxiety and uncertainty demonstrate that the best solution for resolving the economic, health, and eudemonic well-being of the unemployed (and even the employed) is to clearly place the financial responsibility outside of the individual (Chan, 2016). This is the impetus for the first key recommendation, being that any unemployment initiative must be guaranteed to run for an extended period. 

It is clear from participation in the Jefes Plan (Wray, 2006) that individuals experience an improved sense of wellbeing and purpose from working and contributing to society. Guaranteeing employment and work is beneficial in three key areas:

1)   Insulating the program against common critiques of UBI, which argue those on the plan become drains on society.

2)   Helping the program pay for itself, through increased consumption and production boosting the economic outcomes of the state, 

3)   Benefits to private industry, through the creation of a higher skill floor of labour.

In an Australian context, it would be highly valuable to trial the Job Guarantee program. Potential trial locations include Adelaide, South Australia (SA) and Tasmania. Adelaide is a region in decline following the recent collapse of the manufacturing industry in Australia (Smart Company, 2018), while Tasmania has the largest state unemployment in Australia at 6.6% (Department of Jobs and Small Business, 2018). 

These locations are ideal candidates for trials and it is recommended that the efficacy of the program is tested for at least a one to two-year period so that the satisfaction levels of the workers, as well as key statistics such as unemployment and Gross Domestic Product (GDP) levels for these states and locations, can be measured appropriately. This would provide a more objective foundation as to the success of a Job Guarantee program and whether it is a viable solution for tackling unemployment. 

Recommendation Two: a Long-term project to gather data on those engaged in unemployment programs, to assist in future analysis and potential expansion. 

Research on potential jobs in an Australian Job Guarantee has been conducted through cooperation with local government across the country and has determined that the nature of jobs would vary considerably across States and divisions (Cook et al., 2007, p. 127). Examples of priority jobs listed by local governments include cleaners, caretakers, community development assistants, kitchen hands, gardeners, drivers, and builders’ labourers (Cook et al., 2007, p. 134). 

As each local government surveyed responded with varying priority job areas they would seek under a Job Guarantee program, comprehensive engagement and cooperation with stakeholders under an eventual trial program is essential. Further research is necessary for this area to investigate the scope required in such a trial. For instance, as there will be differing priorities from community to community, it would be ideal to leverage the data obtained from the proposed trials in Adelaide and Tasmania. Allowing a government to gauge; the types of work and roles required, the uptake of these roles and the success of people moving from the Job Guarantee program into longer-term permanent work. In breaking down this data further, between metro and regional classifications, it can provide greater insights as to what could be expected when rolled out nationally in Australia as well as tailored approaches that are specific to roles and industries.

Data collection is essential in this case. The past failures of various welfare and social security proposals highlight the need for the establishment of a best-practice model based on recent and reliable data. A fixed, long-term trial will enable the creation of this model and allow it to be evaluated against other methods conducted in other regions. Leveraging from the post-Jefes plan evaluation, data collection would be largely conducted through surveys to participants, employers and communities, where a significant portion of the population are employed through the Job Guarantee. It is advisable that surveys collect quantitative data on measurable outcomes regarding employment, income, skills, education, the social benefit of work conducted, and factors influencing both participant and employee satisfaction with the program.

Furthermore, whilst valuable insights have been collected in Job Guarantee trials worldwide, it will be important to understand how this idea, in theory, translates to an Australian context. Irrespective of the success of the Job Guarantee program, the collation of data will provide valuable insights and could shed light on a new solution or method that would be viable in Australia. This underscores the importance of collecting this information as part of a longer-term strategy.

Limitations

A key limitation to the establishment of a Job Guarantee trial is public support. The instinctual reaction from the general public would be to critique the funding source of the scheme. In addition, many constituents in Australia may not agree that unemployment and/or underemployment is at a percentage high enough to warrant such a historically significant change in policy settings, given Australia aims for around 2-3% unemployment to combat inflation (Reserve Bank of Australia, 2018). There is significant research to support the maintenance of a 0% voluntary unemployment figure, yet still, the most common refrain from critics is ‘Why is this necessary?’ Implementing the Job Guarantee program would require the clear and wide-spread communication of the key message that the scheme ‘pays for itself’ by improving consumption levels, workforce skills, and living standards.

 

Conclusion

The Job Guarantee is a much debated but largely untested program. Increasingly, it is appearing as a challenger to UBI, with guaranteed employment directly addressing the common UBI critiques of the dubious social and economic benefit of simply ‘giving away money’. The greatest strength of the Job Guarantee Program is the emphasis it places on maintaining integrity for individuals affected by unemployment, offering a pathway to social utilisation and relevance to the unemployed, through a guaranteed living wage and role in the community. This is its greatest strength, but also its potential greatest weakness. Comprehensive cooperation with the communities involved in the program is necessary to ensure all jobs created are beneficial and appreciated by the worker and the community around them. The program is a radical rethinking of the concept of work and unemployment in society, providing the opportunity to change the face of employability, job satisfaction and how an individual contributes to society, in Australia forever. 

 

Bibliography

Chan, R 2016 ‘From Transitional to Permanent Uncertainty: Employability of Middle-aged Workers in Hong Kong’ Asian Social Work and Policy Review, vol. 10, 358–374 doi:10.1111/aswp.12104.

Department of Jobs and Small Business 2018 ‘Unemployment Rates (15+) by State and Territory, May 2018 (%)’ <http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate>

Ghose, A 2017 ‘Universal Basic Income in India: Some Comments’ Indian Journal of Human Development vol. 11 no. 2, pp. 177–179.

Gilchrist, H, Howarth, G, Sullivan, G 2007 ‘The Cultural Context of Youth Suicide in Australia: Unemployment, Identity and Gender’, Social Policy & Society vol 6,no. 2pp. 151–163. 

Granderson, C 2014 ‘An observation of displaced manufacturing workers in their transition for successful reemployment through community college education/retraining programs’ Mississippi State University, Dissertation Submission. 

Kaplan, E, Collins, C, Tylavsky, F 2017 ‘Cyclical Unemployment and infant health’, Economics & Human Biology, vol. 27, part A, pp. 218-288 doi: https://doi.org/10.1016/j.ehb.2017.08.001.

Kaspersen, S, Pape, K, Vie, G, Ose, S, Krokstad, S, Gunnell, D, Bjørngaard, J 2016 ‘Health and unemployment: 14 years of follow-up on job loss in the Norwegian HUNT Study’, European Journal of Public Health, vol. 26, no. 2, pp. 312–317, doi:10.1093/eurpub/ckv224. 

Kruppe, T and Lang, J 2017, ‘Labour market effects of retraining for the unemployed: the role of occupations’, Journal of Applied Economics, vol. 50 no. 14 pp 1578-1600 <https://doi.org/10.1080/00036846.2017.1368992

Kruppe, T, Lang, J 2018 ‘Labour market effects of retraining for the unemployed: the role of occupations’, Applied Economics, vol. 50, no. 14, 1578-1600 doi: 10.1080/00036846.2017.1368992. 

Koistinen, P, PerkiöJ 2014 ‘Good and Bad Times of Social Innovations: The Case of Universal Basic Income in Finland’Basic Income Stud., vol. 9, no. 1-2, pp. 25–57 doi: 10.1515/bis-2014-0009.

Lacey, A 2017 ‘Universal basic income as development solution?’, Global Social Policy, vol. 17, no. 1, pp. 93–97. 

Luo, F, Florence, C, Quispe-Agnoli, M, Ouyang, L, Crosby, A 2011 ‘Impact of Business Cycles on US Suicide Rates, 1928–2007’ American Journal of Public Health, vol. 101, no. 6. 

Mitchell, B 2010, ‘The daily losses from unemployment’ <http://bilbo.economicoutlook.net/blog/?p=7308>

Myles, N, Large, M, Myles, H, Adams, R, Liu, D, Galletly, C 2016 ‘Australia’s economic transition, unemployment, suicide and mental health needs’, Australia and New Zealand Journal of Psychiatry, vol. 51, no. 2, pp. 119-123, doi: 10.1177/0004867416675035.

OECD, 2018, ‘Forum 2018 Issues: What brings us together?’ <http://www.oecd.org/forum/issues/>

OECD, 2017, ‘Bridging the Gap: Inclusive Growth 2017 Update Report’ <http://www.oecd.org/inclusive-growth/Bridging_the_Gap.pdf>

OECD, 2018, ‘Unemployment rate (indicator)’ doi: 10.1787/997c8750-en (Accessed on 23 May 2018)

OECD, 2017, ‘How’s Life? 2017: Measuring Well-being’ <http://dx.doi.org/10.1787/how_life-2017-en>

OECD, 2017, ‘How does AUSTRALIA compare? Employment Outlook 2017’ <DOI: 10.1787/empl_outlook-2017-en>

Painter, A 2016 ‘A universal basic income: the answer to poverty, insecurity, and health inequality?’, The BMJ, vol. 355 doi: https://doi.org/10.1136/bmj.i6473.

Paul, M, Darity Jr., W, Hamilton, D, Zaw, K 2018 ‘A Path to Ending Poverty by Way of Ending Unemployment: A Federal Job Guarantee’ RSF: The Russell Sage Foundation Journal of the Social Sciences, vol. 4, no. 3, pp. 44-63. 

Relationships Australia, 2017, ‘July 2017: Youth Suicide’ <https://www.relationships.org.au/what-we-do/research/online-survey/july-2017-youth-suicide>

Reserve Bank of Australia, 2018, ‘Inflation Target’ <https://www.rba.gov.au/inflation/inflation-target.html

Smart Company 2018 ‘The industries set to fly and fall in 2018’ <https://www.smartcompany.com.au/finance/economy/industries-set-fly-fall-2018/>

Stafek, P, Sanova, P, Novotna, Z, Laputkova, A 2016 ‘Effectiveness of Retraining as an Instrument for Solving the Problem of Structural Unemployment in the Czech Republic’ International Journal of Economics and Financial Issues, vol. 6, no. 3, 926-932.

Takenoshita, H 2017, ‘ The Impact of the Recent Economic Crisis on Unemployment Among Immigrants in Japan’ Journal of International Migration and Integration, vol. 18, no. 2, pp. 563-585. 

Tcherneva, P.R. and Wray, L.R 2005,‘Gender and the Job Guarantee: The impact of Argentina’s Jefes program on female heads of poor households’<http://interactions.eldis.org/sites/interactions.eldis.org/files/database_sp/Argentina/Plan%20Jefes/Plan%20Jefes%204.pdf>

Tcherneva, P 2012 ‘Beyond Full Employment: The Employer of Last Resort as an Institution for Chang’ Levy Economics Institute, Working Paper 732. 

Victoria State Government, 2018 ‘Free TAFE for Priority Courses’ <https://www.education.vic.gov.au/about/educationstate/Pages/freetafe.aspx>