I have received several E-mails over the last few weeks that suggest that the economics…
Training does not equal jobs!
There is a parable that the Australian Government still doesn’t understand – its the 100 dogs and 95 bones story that all children should be told at an early age. I will tell the story presently. I mention the parable because once again it seems that a major Government initiative designed to reduce disadvantage arising from unemployment will be poorly conceived and constrained by a reluctance of the Government to jettison the destructive neo-liberal approach that has dominated labour market policy for the last few decades. I am referring to today’s announcement from the Government that our youth will all be working, studying or training or face a loss of income support.
The Governmental leaders (via the Council of Australian Governments) today finally gave us their answer to youth unemployment. Its all supply-side and will fail to do anything much more than add coercion to the stress of joblessness.
The Government announced that any Australian under the age of 25 will from now on be “either working, studying or training”. While all 15-17 year olds will be required to be working, training or in school, all 17-20 year olds who are unemployed must also be either training or undertaking some form of study. The training places will be designed to “make the youth more employable”. So this is the full employability approach which is not the same thing as a full employment commitment.
To qualify for youth allowance, anyone under 20 years of age who did not complete Year 12 will have to be studying or in a training program. These conditions will also extend to their parents if they wish to qualify for Family Tax Benefit A. So I guess they are planning to continue to use the “breaching skills” that Centrelink and its privatised partners – the Job Network – built up and perfected under the previous regime to further penalise our disadvantaged citizens!
Where did they get this nonsense from? Well, in the OECD Jobs for Youth: Australia report which I have already discussed in the blog – OECD is at it again! – it is claimed that we should re-focus our secondary education system to increase retention rates up to Year 12 rather than set a minimum school-leaving age. The Report recommended that: (a) the youth allowance be made conditional on having attained, or committing to attain, secondary school qualifications; and (b) more vocational education and training courses and apprenticeships be run through secondary schools.
Anyway, it seems as though our leaders have been reading the OECD report because they are now following it lock-step. The Federal Government claims that it will reciprocate with a youth guarantee. But it isn’t much of a guarantee at all. They are merely guaranteeing “training” and presumably suppressing the labour force data to understate the unemployment rate. The unemployed will be now classified as “in training”.
They are using all the supply-side rhetoric that has dominated the policy debate for years – “need to lift their skills to make them more employable” – and which has been associated with high and persistent levels of labour underutilisation.
The supply-side approach has not worked! When will they understand that? More later in the blog.
The impact will be to degrade our educational institutions (secondary schools) further, by turning them into training centres for the capitalist sector. This is more or less what the so-called reforms of the tertiary education sector did in the late 1980s under the previous Labor regime. They forced an amalgamation between the educators (Universities) and the vocational training institutions (College of Advanced Education, Teachers’ Colleges and Technical Schools) and have compromised both elements of skill development as a consequence.
The plan also sets a national target Year 12 retention rate of 90 per cent by 2015. This has brought their Year 12 target forward five years from those announced previously.
What are the current Year 12 retention rates? The following graph shows Year 7/8 to 12 retention rates for indigenous and non-indigenous Australians from 1998 to 2008. The overall average is around 74 per cent. We rank 23rd in a list of 35 OECD countries for the number of students who complete Year 12. So there is a lot of improvement required in 6 years! As an aside, does their goal refer to the average or for all groups. You can see that while indigenous children have significantly increased their Year 12 retention rates since 1998, they would have to have to double their current rates to reach the 90 per cent target. That is not possible by 2015.
The problem goes deeper than this though. More than 20 per cent of 15 to 24 year olds in Australia are not in full time work or education. Further, more young Australians work than in most of the other OECD countries. Our school drop-out rates for under 16 year olds is higher than the OECD average (14.7 per cent compared to 12.9 per cent).
We have set up policy structures in this country that systematically waste our youth and undermine their potential and future prospects.
The problem for the Australian education system starts much earlier than the latter years of secondary school. We perform relatively poorly when compared to other advanced countries with respect to early childhood education where participation is low. The low participation rates are compounded by the low government spending in this area. The following graph is taken from the OECD’s Report Economic survey of Australia 2008: Enhancing educational performance. It shows the children aged 4 and under as a per cent of the population aged 3 to 4 in 2006. It speaks for itself.
The appalling policy performance in Australia impacts most on children from disadvantaged homes because their parents cannot afford early childhood care. The research evidence is clear – disadvantage is significantly reduced if children participate in well structured early childhood programs. The lack of investment in early childhood care is also exacerbated by our primitive approach to child care and parental leave which are both causalities of our neo-liberal wind back in the public sector and the wasteful surpluses that the previous regime saw fit to inflict upon the nation.
Unfortunately, to lift rates to 90 per cent will require significant changes to early childhood education and primary schooling. The current commitment by the Government to the previous regime’s punitive approach to public education and the massive subsidies to private schooling will not provide that investment and focus. The planning must start now and it will take around 13-15 years to turn the problem around. Very little impact will be noticed by 2015.
The parable of 100 dogs and 95 bones
The main reason that the supply-side approach is flawed is because it fails to recognise that unemployment arises when there are not enough jobs created to match the preferences of the willing labour supply. The research evidence is clear – churning people through training programs divorced from the context of the paid-work environment is a waste of time and resources and demoralises the victims of the process – the unemployed.
Imagine a small community comprising 100 dogs. Each morning they set off into the field to dig for bones. If there enough bones for all buried in the field then all the dogs would succeed in their search no matter how fast or dexterous they were.
Now imagine that one day the 100 dogs set off for the field as usual but this time they find there are only 95 bones buried.
Some dogs who were always very sharp dig up two bones as usual and others dig up the usual one bone. But, as a matter of accounting, at least 5 dogs will return home bone-less.
Now imagine that the government decides that this is unsustainable and decides that it is the skills and motivation of the bone-less dogs that is the problem. They are not “boneable” enough.
So a range of dog psychologists and dog-trainers are called into to work on the attitudes and skills of the bone-less dogs. The dogs undergo assessment and are assigned case managers. They are told that unless they train they will miss out on their nightly bowl of food that the government provides to them while bone-less. They feel despondent.
Anyway, after running and digging skills are imparted to the bone-less dogs things start to change. Each day as the 100 dogs go in search of 95 bones, we start to observe different dogs coming back bone-less. The bone-less queue seems to become shuffled by the training programs.
However, on any particular day, there are still 100 dogs running into the field and only 95 bones are buried there!
You can find pictorial version of the parable here (for international readers this version was very geared to labour market policy under the previous federal regime in Australia and was written around 2001).
Conclusion
If the Government was really serious about a youth guarantee then it would provide work for all those who did not want to stay at school and integrate skill development within that paid-work context.
It would also provide public sector jobs to all the over 55 year olds who have lost their jobs and set up mentoring relationships between the experienced older workers and the young inexperienced workers. All of this can be done within a Job Guarantee scheme run by the Federal Government. Then you would start to get dividends from the training and output from the workers. As it is you will get very little that is worthwhile – but lots of angst.
Good post Bill. The dogs and bones parable sums up the situation neatly. I read in my local rag yesterday that the president of the local chamber of commerce believes that we have bottomed and that the local employment situation will improve from now on. This sounds nonsensical to me. Within a month, a thousand well paid resource sector jobs will be defunct. Gauranteed gone. So how much spending will this pull out of a relatively small place like Gladstone. It must be tens of millions of $. I’ll be a monkey’s uncle if jobs in the local Bunnings, BCF, Harvey Norman and other retail outlets don’t suffer as a consequence.
I don’t really think he believes what he is saying, he is probably compelled by the politics of his position to talk up Gladstone as a great investment opportunity. The gas plant construction will create employment when and if it happens but unless construction can start next week (it can’t) then I can’t see how flow – on effects from a dramatic fall in local consumption spending are not inevitable.
Thanks Lefty
Local business chambers always talk up the economy but in the same breath talk down the need for wage increases. I was looking at world data today (US and Japan inventory movements actually) that suggests their economies might have bottomed or the bottom is approaching. But it will be a long while yet before production increases (although Japan had 1.6 per cent growth in industrial output in the last month – first time in 6 months it has been positive) and then employment growth resumes (tepidly).
Bad luck for Gladstone.
best wishes
bill
I always use the example of the game of Musical Chairs to illustrate this point. Since virtually everyone has played it at some point in their lives (at least in the U.S. – I don’t know about other countries), people generally get that, while you might be able to train somebody to get to a chair quicker and do better in the game, the game is designed so that there will always be one person standing at the end of every round.
Thinking back to leaving school, I quite clearly remember these training/motivational measures Bill. I left high school, having completed year 12 in 1990 and went out into the world – straight into the last recession that we suffered. I remember being in a hall with a large group of other unemployed youth, while a motivational speaker insinuated to us in carefull language that the real problem was our attitude – we just didn’t want to try hard enough to find work. Then, in the next breath she says “yes, these are tough economic times. There is currently 1 job in Gladstone for every 400 applicants”. So no matter how charged with enthusiasm everyone might become, 399 would still go away jobless!!!
The dogs and bones story is certainly accurate.
Dear Jimbo
Great suggestion, thanks. In Australia, it is also played. But it is a really good example of the point.
best wishes
bill
Under the new Julia Gillard model for employment everyone will get a chair – unfortunately 12% of the chairs will probably be electric.
Only 12 per cent Alan. The unemployment rate for 15 to 19 years olds is already above 18 per cent.
best wishes
bill
“The Government announced that any Australian under the age of 25 will from now on be “either working, studying or training”.
Bill, will this policy tidy up the official unemployment statistics for the current government? Am I being to cynical?
Off topic question: Is the CDEP scheme a type of Job Guarantee? How does it differ? Disclosure: I work in the Social Welfare sector.
Regards
Paul the Right Winger.
Dear Paul
Thanks for the question. I share your suspicion about the impact on unemployment data although we do not know yet whether the trainees will be counted in the labour force or not. If they are not then clearly the youth unemployment rate will plummet. The unemployed who refuse to undertake training or schooling will lose their Youth Allowance and so will have no incentive to be in the labour force either. So again the youth unemployment rate will fall. But before we get too cynical we should wait for the details.
The CDEP is a “sort” of Job Guarantee but in saying that I am drawing a very long bow. The Community Development Employment Projects (CDEP) is a programme of the Australian Government aimed at providing some work for unemployed Indigenous people in selected locations. It pays a supplement on the dole rather than the minimum wage. It does not provide on-going full-time work with social wage components and superannuation, holiday pay etc. But it does do some good work in remote areas and demonstrates that public sector job creation (albeit very limited in scope in the CDEP case) add productive inputs into local communities. The Job Guarantee is not a programme but an expression of our rights as citizens to a minimum level of paid work for a reasonable income. It would be open to any person in the country who wanted to work. It would pay the Federal minimum wage and supplement that with the usual statutory entitlements any job attracts (sickness benefits, holidays, superannuation etc). It would be on-going and the person could choose whatever hours they wanted to work (to suit their preferences). So the differences are significant between the two concepts.
By the way, in what way are you a “right winger”? Diversity is good – Lefty from Gladstone and Paul the right winger!
best wishes
bill
I’ll be cynical. I think the government / Gillard has done deals with certain training organisations (Six in Newcastle) and this little scheme simply guarentees those firms substantial income streams.
Much like the way they bailed the banks out of trouble this government robs the poor to feed the rich.
Cheers, Alan
Bill, thanks for your detailed reply.
Actually, I was wondering wether the basic administrative and structural arrangements of the CDEP could be utilised to roll out a JG across the country, if the political landscape changed. It appears from your definition of a JG, that the CDEP would not meet some of the basic requirements of the JG proposal. There also seemed to be both supporters and critics of CDEP administration, in its current form, although I admit I have never been up close to this particular scheme.
As for “Right Winger” or is that “Whinger”
-I read the newspapers in this country and detect a distinct left wing bias (I note your comments in an earlier article).
-I felt Bush/Howard did a good job for their countries.
-I’m a nationalist.
-I’d prefer to read Mark Steyn than Maureen O’dowd, Andrew Bolt than Philip Adams.
-My views would probably place me in the right faction of the ALP and the centre in the Libs.
-I believe in the power of incentive and self determination.
I could go on, but sadly in this country, with a list of beliefs like this, it seems that you are suddenly expected to invade Poland :). Plus I thought I’d get a bite from some commenters on this blog :). However, the thought has occurred to me for some time, that once your economics are in “paradigm” as WB Mosler likes to say, distinctions between left an right tend to become more matters of degree than oceans to forge across. Everything is negotiable we can have our cake and eat it too! We can take care of all the basic welfare needs of our people and have a first class modern economy.
Keep up the good work Bill!
Regards
Paul the right winger.
PS I’ll order my copy of “Full Employment Abandoned” soon.
Dear Paul
If you are interested in the administrative and structural arrangements of the Job Guarantee you might like to read this Report – Creating effective local labour markets: a new framework for regional employment policy” – that we launched late last year after a 3 year research effort. It captures how we would put the JG into operation. We thought that we should put both the conceptual case and also the practical implementation case into the public arena.
While I would disagree with most of your dot points by which you summarise your political position (and I agree they are just short jabs and incapable of capturing the complexity of any philosophical position) the point you make about where to go once one understands how the economy actually works – that is the modern monetary viewpoint that Warren and I share – is a good one. Once you achieve that understanding then you are free to impose on it (in terms of policy design) whatever you like. That is one of the great misunderstandings of both the “right and left wings” (so-called) – they both adopt views about the way the government with a non-convertible currency can (rather than should) operate. As a consequence we get needless crises and often unemployment and poverty. If you want a free market position, that is fine, but you would also have a Job Guarantee, for example without compromising the operations of your free market. I prefer more public goods but then that can also be done without compromising the “free market” operations of the private sector because it implies nothing about tax burdens etc.
So the Job Guarantee or modern monetary economics upon which the JG rests are not “left wing” creations. They are just a recognition of how the economy and monetary system actually work. Upon that you impose your philosophical position and invade Iraq or not as the case may be. But whichever way you go there are no financial constraints on invading Iraq and you would not have had to leave New Orleans paralysed for lack of spending because you were invading Iraq.
best wishes
bill
“That is one of the great misunderstandings of both the “right and left wings” (so-called) – they both adopt views about the way the government with a non-convertible currency can (rather than should) operate. As a consequence we get needless crises and often unemployment and poverty.”
Yes, exactly.
Thanks I’ll read the report over the next weekend.
Regards
Paul the right winger.
Dear Bill and Paul,
Here are my dot points.
– The Australian newspaper is effectively a Rothbardian propoganda document.
– John Howard transfered government debt to households forcing them to spend on credit to survive.
– I do not support any economic school of thought or political ideology.
– I’d prefer to read a Coles catalogue (luve them cheap T-bones — umm I mean lentil Burgers – Sorry Bill) than a newspaper.
– I believe that incentive and self determination are only available to those that purchased them through electoral donations.
Cheers, Alan
What do you think the best strategy would be to increase retention rates in schools? maybe I missed this point in the article.
Kind Regards
Dear K
I may write a blog about this one day. I would certainly not force children to remain in formal schooling if they are disinclined nor dumb down our secondary schools to make them training centres for the corporate sector.
best wishes
bill
I agree that skill development should be integrated in a paid work context but it’s not only youth in Australia that are disadvantaged from the current system. I have worked with young refugees that have come to Australia to start new lives. I was working with a single mother that could barely support herself, she was unemployed and did not get sufficient child care. This women was expected to get a Nursing certificate from TAFE to get her employment, but she couldn’t afford basic needs and understanding English which was making the course at TAFE difficult. The only support she got was from volunteers. I think the government should also spend more money helping refugees that come to Australia gain employment as well.
Kind Regards
Dear K
Within a Job Guarantee structure all those groups would get access to paid work (therefore income security), days off for training and language support, and skills development.
best wishes
bill