Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697630343259.pdf (Australia)
Social protection and the future of work - Overview Peter Whiteford, Crawford School of Public Policy, ANU 1.
Introduction Social protection encompasses a wide range of government programmes, other legislated provisions and informal mechanisms to protect individuals and their families from predictable life course risks (dependency in childhood, retirement from work, frailty in old age) as well as the unpredictable risks that individuals and their families face during their years of working age (sickness, temporary or long-term disability or other health conditions, accidents at work, personal job loss and general increases in unemployment in recessions, irregular work, and family breakdown).
These risks are generally associated with falls in household income or additional health expenses – social protection programmes are designed to partly compensate for these income losses and provide services and care that enable people to return to work or other productive activities.

In most high-income countries, social protection programmes – social security cash benefits, public health care and health insurance and community services account for more than half of total government spending.
High-income countries have social protection programmes in part because they are high income and can afford these programmes.

Governments also recognise that social protection both promotes economic efficiency and productivity and supports high levels of participation in paid labour markets and promotes a socially inclusive and more equal society.
Changes in the nature of work and labour markets potentially pose new challenges to the social protection systems of high-income countries, particularly those relying on contributory social insurance systems.

They may also challenge the extension of social security in middle and low-income countries.
Many of these systems are based to varying degrees on workers satisfying contribution conditions that require or assume full-time engagement in paid work for the majority of years that individuals are of labour force age, together with formal arrangements for the payment and recording of contributions by employers and employees.

They also often distinguish between employees and the self-employed.
As temporary work and changing forms of employment contracts become more prevalent, the assumption of full-time, permanent formal employment threatens to become less common, potentially undermining welfare state finances as well as the social protection of workers and their families.
In contrast to most other high-income countries, in Australia, most of the system of social protection – the government social security system, community services and public health insurance - is not based on contributory social insurance principles but is financed from general government revenue.

This offers the example of a system where some of the apparent vulnerabilities of the social insurance state may not be so salient, but where other challenges and trade-offs may have arisen.
In particular, Australia has been described as a “wage-earner’s welfare state” (Castles, 1985), where many forms of social protection have been associated with conditions of employment, including a relatively high minimum wage, paid sick leave (also now available for care responsibilities), paid holiday leave, paid parental leave, workers compensation and – more recently - superannuation.
As in social insurance states, changes in employment conditions 1 Senate Select Committee on the Future of Work and WorkersSubmission 155 could potentially undermine the Australian social protection system, with implications either for the security of households or costs to government, as a result of “risk-shifting”.
In addition, while the Australian social security system does not require explicit contributions to secure eligibility for coverage of social risks, social spending does require appropriate levels of taxation in order to be financed.

To the extent that changes in future work patterns undermine adequate revenue collection, social protection may be put at risk.
A further difference from most other OECD countries is that the Australian social security system is highly income-tested; with the result that overall spending on social security cash benefits is low compared to other high-income countries and is much more targeted to the poor than any other OECD country.

The administration of income-testing becomes much more complicated if patterns of work become irregular or other circumstances, such as multiple job holding become common.
To some extent, it can be argued that aspects of the so-called “robo-debt” issue reflect some of the difficulties of income-testing irregular or part-year work.

The attached detailed paper1, co-authored with Alexandra Heron of the Women, Work and Leadership Research Group, of the Business School at the University of Sydney addresses many of these issues.
Also attached is a PowerPoint presentation that gives a more visual presentation of some of these issues, and considers proposals for a Universal Basic Income that have come back into public debate in recent years, in part as a response to the perceived challenges of technological change.

This overview is structured as follows.


The next section discusses some of the main challenges to the future of social protection that have been raised, specifically the impact of automation and Artificial Intelligence (AI) on future employment, and the rise of the gig or platform economy facilitated by new technology, particularly mobile apps.
This is followed by an overview of how the Australian labour market compares with those in other OECD countries, arguing that Australia already has a very high level of temporary employment and non-standard work and that the increased risks anticipated by the future of work debate are already underway.
Section 4 discusses the idea of Universal Basic Income as a solution to the challenges of changing work patterns and argues that this is not a feasible or particularly helpful response to the challenges of changing work patterns.

The overview concludes with a brief discussion of ideas for practical adjustments to existing social protection systems to deal more adequately with changing labour market risks.

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The challenge of automation The most well-known recent study of the implications of technological change for the future of work is Frey and Osborne (2013), who use advances in Machine Learning (ML) and Mobile Robotics (MR) to categorise occupations according to their susceptibility to computerisation.

Their analysis looks at 702 detailed occupations.

They argue that about 47% of total US employment is “at risk” of becoming automated over the next one to two decades.
This involves 1 The OECD will publish this paper later this year.

The paper can be cited but should not be made publicly available until after its publication by the OECD.

A summary of the overall OECD work on social protection and the future of work was in seven OECD countries was presented at the recent OECD Social Policy Ministerial Summit in Montreal, Canada, with an overview paper at http://www.oecd.org/social/Future-of-social- protection.pdf.
2 Senate Select Committee on the Future of Work and WorkersSubmission 155 mainly routine intensive jobs – in transportation, logistics, the bulk of office and administrative support workers and labour in production.

They also conclude that jobs with high wages and requiring high educational attainment are less at risk.
Similarly, Durrant-Whyte et al (CEDA, 2015) estimate that computers could replace 40% of jobs in Australia within two decades, and a further 18.4% have medium probability of having their roles eliminated.

The similarity of their findings is because they replicate Frey and Osborne’s methodology (2013) with Australian occupational data.
Frey and Osborne (2013) have been criticised in a working paper by the OECD Economics Department (Arntz, Gregory and Zierahn, OECD, 2016) who take a task-based rather than occupation-based approach to estimating the effect of automation.

They estimate that in 21 OECD countries, the average risk is that 9% of jobs will be replaced by robots /algorithms/AI, ranging from 6% in Korea to 12% in Austria (Australia is not included in their analysis.)
They also find a strong educational and wage gradient, with high-skill and high-paid jobs more likely to be secure.

Arntz et al (2016) also highlight the need to take account of offsetting macro-economic adjustments, including the development of jobs that complement these new technologies, as well as the development of new jobs in the industries that actually produce the new labour- saving technologies and the associated increase in demand for these new products.
Artz et al (2016) therefore argue that the overall employment impact of future technological change is likely to be less than their smaller estimates.

This debate is ongoing.

It can also be noted that the projected impact of changes in technology on future work patterns is very similar to the past impact of “skills-biased technological change” (Card, 2002; Card and Di Nardo, 2002).
While technological change is certainly not the only factor behind widening wage inequalities in high income countries, it is commonly argued that it can be associated with labour market polarisation, where middle skill jobs are lost and there is a growth in both high-skill and low skill jobs, potentially leading to a hollowing-out of the middle.
A recent comprehensive survey of Australian trends is by Coelli and Borland (2016) which focuses on the issue of job polarisation, as referring to changes in the composition of employment where there is an increase in the share of employment in both high skill and low skill jobs and a decrease in middle skill jobs.
Their analysis of data from the 1960s to 2011 concludes that over this period the shares of employment in low paid jobs increased by 2.2 percentage points and the share in high paid jobs increased by 17 percentage points, with a fall in the share of middle paid jobs of 19.2 percentage points.

They found that this job polarisation primarily occurred in the 1980s and the 1990s, and was primarily a male phenomenon.
The skills and education gradient in the impact of automation projected by Frey and Osborne (2013) and also found by Arntz et al (2016) suggests that even if the majority of jobs do not disappear, there is the possibility of further labour market polarisation in the future.

The usual prescription to respond to this challenge is to increase investments in education and training in order to develop the appropriate skills for jobs complementing the new technology.
A better understanding, valuing and rewarding of skills seen as traditionally female (such as care work) could also lead to reclassifying many jobs into higher skills levels and improve economic wellbeing.2 2 Seven country analysis (with Australia included) of how care investments can be paid for: https://www.ituc-csi.org/investing-in-the-care-economy-a .
An example of modelling how better childcare workers pay could be paid for (UK only): https://wbg.org.uk/analysis/costing-funding-childcare/ 3 Senate Select Committee on the Future of Work and WorkersSubmission 155 The literature the future of work on these issues is rapidly growing and I am not an expert in this field, but my reading of the literature inclines me to the less pessimistic view of technological change and its impact on work patterns, at least in the near future.
Digital labour markets Recent analysis by the European Commission of the platform economy has identified two distinct types of jobs and labour markets that are promoted on the growing number of digital platforms.

The first type of digital labour market can be categorised as electronically transmittable services, or Online Labour Markets (OLMs).

Examples include Amazon Mechanical Turk, Upwork, and Freelancers.
These platforms enable work to be requested and provided anywhere in the world and include, for example, the design of websites, advertising campaigns, proof- reading, editing, writing student essays or even following people on Twitter, completing Facebook surveys or loading videos to YouTube.

Offshore call centres are analogous services, even if not necessarily digital.
The fact that these jobs can be performed anywhere in the world and delivered via the Internet is seen as creating a “flat world”, where people in low income countries – with the appropriate skills – can compete with more highly paid individuals in high- income countries.
As well as providing cheaper services than may be available from workers in high-income countries – subject to differences in the quality of the service – employers may benefit from time differences (delivery of services overnight, rather than by the end of their own next working day).

The second type of digital labour market also involves digital matching of “employers” and providers of services, but the delivery of services is physical.
The European Commission describes these as mobile labour markets (MLMs), and examples of these include Deliveroo, Uber, Lyft, and Airtasker in Australia.

Delivery of food or taxi services, for example, by definition means that the service provider has to be in the same city or town as the purchaser.
While digital platforms sometimes make claims that there are very significant number of people employed in providing these services, the conclusions of these EU studies is that the best estimate is that they involve no more than 1or 2% of the labour force in the USA and the UK.

in independent work The platform labour market is, however, a subset of what is often called the “gig economy”.
For example, in the United States it has been estimated that about 30% of the workforce are contract outside engaged (https://www.gigeconomydata.org/), either as income source or as a supplementary source of income.

Katz and Krueger (2015) estimate that 15.8% of the American labour force are engaged in independent work as their main job, where this includes temporary, on call, contracting and freelance work.
The “gig economy” data link above also states that only about 1% of the US workforce regularly use online digital platforms to connect with work opportunities, so currently digital labour markets are a relatively small sub-set of the gig economy.

their primary employment standard a While digital platform jobs are the product of technological innovation, like other “gig economy: jobs, the challenges they raise for the future labour market are regulatory.
Some is this work is essentially piece-work (for example, the PowerPoint gives the example of an Airtasker “job” that involved folding 10,000 pieces of paper).

These developments are related to outsourcing (of tasks) and offshoring and reflect changes in the nature of firms, or even the demise of the firm as it was conceived in the post-second world war world in high-income countries (Zarkadakis, 2018).
Uber drivers are essentially on-call, and this type of work blurs distinctions between employees and self-employed.

Many may involve regulatory “arbitrage” – Uber being an example, where the company is able to provide cheaper taxi services because 4 Senate Select Committee on the Future of Work and WorkersSubmission 155 it seeks to avoid to varying degrees the licensing requirements historically associated with taxi companies, as well as tax liabilities and employee on-costs.
The risks of these types of jobs are that they pay less than the minimum wage (reduced further by the fees charged by the digital platform), and provide no workers compensation or sick leave or superannuation.

Some advertised jobs on Airtasker, for example, have in the past involved the removal of asbestos products with obvious implications for occupational health and safety - and the safe disposal of the asbestos by workers without training and who are likely to be low paid.
In terms of social protection, obvious questions are whether income tax or social insurance contributions where relevant are paid, and whether GST or VAT payments are made?

Similarly, many of the relatively low paid tasks advertised on these platforms raise the question of whether the earnings have been declared for social security income tests.
As noted, the evidence suggests that total employment derived from these platforms is a relatively small, but to the extent that they grow in future, they will potentially have an impact across a wide range of areas of social protection.

There are other major challenges to social protection arising from changing work patterns.
Population ageing is affecting Australia – though less so than in many other high-income countries and less than in North East Asia, where rapid increases in life expectancy and even more rapid declines in fertility have resulted in the fastest rates of population ageing in history.

Population ageing and its associated health care and age care implications will also have major implications for the types of jobs that grow in the future.
It is projected that the fastest growing area of employment will be “health care and social assistance”, comprising both some of the highest paid and the lowest paid occupations, a factor that may further contribute to a polarised labour force.

Another area where challenges to existing systems of social protection may be growing is in relation to international migration and temporary migrant workers.
In addition, to contributions and income-testing, one of the most important criteria for eligibility to various forms of social protection in Australia is citizenship or permanent residence.

In 2014-15, more than one million temporary migrants with conditional rights to work entered Australia (Wright et al, 2016).

These included students, those on working holiday visas, 457/TSS visas, and New Zealanders.
These groups have limited access to social security and health care (although they may have private health insurance as a condition of their visa).

Although such temporary workers would be entitled including accident compensation and superannuation, if they are casual they will not be entitled to sick pay, nor could they receive sickness allowance (low paid as that may be).

Mounting evidence attests to their vulnerability to exploitation through employer evasion of work standards.
to many workplace protections Labour market trends and comparisons In the Australian context, one of the main markers of job quality is what is called “casual employment”.

A casual employee has no guaranteed hours of work and usually works irregular hours (but can work regular hours), does not get paid sick or annual leave and can usually have employment ended without notice.
The share of male workers in casual employment increased from around 10 per cent in the early 1980s to more than 20 per cent by 2014, while the share of female workers in this situation increased from around 25 per cent to over 30 per cent.

Borland and Coelli (2016) point out, however, that virtually all of this increase occurred in the 1980s and 1990s, with the share of casual employment being stable since around 2004.
They also note that the share of workers 5 Senate Select Committee on the Future of Work and WorkersSubmission 155 in short-duration jobs (less than one year) has fallen for women since 1982 and been stable for men.

Figure 1 shows trends in the share of “good jobs: for men aged 16 to 64 between 1978 and 2016 and Figure 2 shows the same trends for women of the same age (Whiteford, 2018, forthcoming).

Percentages are expressed as a percentage of the population of working age.
The labour force survey data are then matched with figures from the OECD Wages database, that identify the extent of low pay – defined as the per cent of full-time workers earning less than two-thirds of the median (also expressed as a per cent of the total population of working age).

The figure shows the share of the working age population defined as being in “good jobs” - full-time workers who are not in low paid employment.
For men, it can be seen that the share of the population in good jobs was above 70% at the beginning of the period.

This fell throughout the 1980s and again in the recession of the early 1990s by about 10 percentage points.

The share in good jobs continued to fall at a slower rate up until 2016, with the overall result that between 1978 and 2016 the share of the male population in good jobs fell by nearly 16 percentage points.
Figure 1: Trends in share of “good jobs” for men, Australia, 1978 to 2016 Percentage of population of labour force age Source: Whiteford, (2018, forthcoming).

Of this decline, about 5 percentage points – or one-third – was in the share of men not in the labour force (which rose from 13 to 18 per cent), with another third being accounted for by men in part-time work not looking for longer hours and around one-fifth or 3.3 per cent being part-time workers who would like to work longer hours (underemployed).
In total, more than half of the total change is due to the increase in part-time work.

While the share of men who were unemployed doubled between 1978 and the peak of the 1990s recession, it subsequently fell and so was not any larger in 2016 than it had been in 1978.

The share of the low paid has risen, but in fact was highest just before the Global Financial Crisis, but it only contributed around 1.5 percentage points of the overall change.
Figure 2 shows the corresponding trends for women over the same period.

For women, the trends are in the opposing direction, with a fall in the proportion of women not in the labour force of more than 20 percentage points, from nearly half of women of working age to under 6 Senate Select Committee on the Future of Work and WorkersSubmission 155 30 per cent.
The unemployment ratio for women does not show as great a fluctuation as for men and was only slightly higher at the end of the period as at the beginning.

The share of workers who are underemployed and looking for longer hours increased more significantly for women than for men, while the share of women working part-time but not looking for longer hours rose by close to 10 percentage points.
Low-paid women were a slightly higher share of the population of working-age at the end of the period compared to the beginning.

Overall, the share of women in “good jobs” rose from about 24% to 30%, which only partly offset the fall in the male population in well-paid full- time jobs.

Over the whole period, the share of the total population of working-age in “good jobs” fell from 47% to 41%.
Figure 2: Trends in share of “good jobs” for women, Australia, 1978 to 2016 Percentage of population of labour force age Source: Whiteford, (2018, forthcoming).

It could be argued that not all part-time work is a “bad job” and indeed the majority of those who worked part-time were not seeking longer hours.
If all part-time jobs where people did not want longer hours were counted as “good jobs”, then the increase for women would be greater – from around 38% to 54% - and the fall for men would be lower – from 74% to 64%.

Of course, this is an upper limit, as not all part-time jobs, even if those having them are not seeking longer hours, are well-paid.
Moreover, there is considerable debate what constitutes a “good job” that encompasses far more than whether the job is full-time and not low paid both for women and men.

For a discussion, see the ILO’s Decent Work Agenda.

In addition, from a macroeconomic perspective, part-time workers are more likely to be paying lower levels of taxation and are more likely to be receiving social security payments, with implications for government budgets.
For example, in June 2016 there were close to 450 000 people both working and receiving social security payments, which was equivalent to around 12% of all part-time workers in Australia.

For people of working age receiving social security payments, around 17% are receiving earnings as well as their income support payments.
The highest level of earnings is received by 7 Senate Select Committee on the Future of Work and WorkersSubmission 155 those receiving Youth Allowance for students (36%), lone parents receiving Parenting Payment Single (25%) and those receiving unemployment payments (Newstart at 21% and Youth Allowance Other at 19%).
The share of social security recipients with part-time work has increased significantly since the 1980s because of policy changes from 1980 onwards designed to encourage part-time work as a “stepping stone” to full-time work.
In addition to these people receiving income support and working part-time there would also be many low and middle-income families with children simultaneously receiving supplementary family payments and working; although in most cases, there would be a full- time worker in these households.

Both young men and women may not be seeking longer hours due to study commitments, while some may accept low-paid part-time jobs due to family and other care commitments.
Having said this, the share of part-time work is very high in industries where low pay would be expected.

In 2016, 47 per cent of men and 62 per cent of women working in retail trade were part-time, as were 57 per cent of men and 67 per cent of women working in accommodation and food services and 51 per cent of women and 41 per cent of men working in health care and social assistance (Borland, 2017).
The recent OECD report In It Together (OECD, 2015a) provides valuable figures on the extent of non-standard employment in Australia compared with other OECD countries.

The share of part-time temporary employees in Australia is the highest of all the countries included, being four times the OECD average and nearly twice the next ranked countries (the Netherlands and Japan).
Australia also has a relatively high share of workers in full-time temporary contracts, at 12.7% of employment it is around 50% higher than the OECD average, although exceeded by Spain, Poland, Portugal and Korea.

Both of these groups are likely to be casual workers.

In contrast, Australia has a relatively low share of self-employment – 7.2% compared with an OECD average of 10.5% – and exceeding only eight other OECD countries.
The Australian employment-to-population ratio is higher than the OECD average, with a number of the countries with a very high share of full-time employment having lower total employment rates.

Other aspects of Australia’s labour market outcomes are important.
Australia has a relatively high minimum wage – the third highest in the OECD in purchasing power terms (OECD, 2017a) – and due to the relatively low level of taxes and social security contributions paid by low-income earners (OECD, 2017b), the purchasing power of the full-time, after-tax minimum wage is the highest in the OECD (OECD, 2015b).
In the mid-2000s, Australia had the third lowest level in the OECD of in-work poverty among households of working age (3.1%) and the second lowest as a share of the working-age poor (around 25%) (OECD, 2009).

Relative income poverty in working-age households in Australia is highly concentrated in households where no one is in paid employment (Whiteford and Adema, 2007).
These favourable outcomes in terms of income distribution and poverty – despite the high level of part-time and temporary work – show that there are still strong equalising effects from Australian institutions, particularly the minimum wage and the highly targeted social security and family payments system, as well as the progressive income tax system.

Is Universal Basic Income the answer?


In recent years, there has been renewed attention to the idea of a Universal Basic Income (UBI), in part because of ongoing labour market difficulties since the Global Financial Crisis and in part in anticipation of the impact of technological change.
8 Senate Select Committee on the Future of Work and WorkersSubmission 155 For example, in 2016 American tech incubator Y Combinator announced it would launch an experiment in basic income with a pilot study of 100 families in Oakland, California.

Y Combinator will give each family between $1,000 and $2,000 a month, for between six months to a year, to be spent as recipients please.
Venture capitalist Marc Andreessen, web guru Tim O’Reilly and a group of other Silicon Valley denizens have expressed support for UBI as the “social vaccine of the 21st century”, arguing that UBI subsidizes disruptive technologies.

“The motivation behind the project is to begin exploring alternatives to the existing social safety net.
…If technology eliminates jobs or jobs continue to become less secure, an increasing number of people will be unable to make ends meet with earnings from employment.” Some have argued for UBI in terms of encouraging entrepreneurship and developing human capital.

Steve Waldman, a well-known programmer and economics writer, praises UBI by referring to it as “venture capital for the people”.
More concretely, there are a range of larger-scale experiments and proposals in other parts of North America and in Europe.

As is well known, Finland is experimenting with a variation of the concept.

Under the two- year, nationwide pilot scheme, which began on 1 January 2017, 2,000 unemployed Finns aged 25 to 58 will receive a guaranteed monthly sum of €560.

The income will replace their existing social benefits and will be paid even if they find work.
Kela, Finland’s social security agency, said the present system can discourage jobless people from working since even low earnings trigger a big cut in benefits.

The withdrawal of benefits under the Finnish system can produce effective marginal tax rates of 80% and over: “For someone receiving a basic income, there are no repercussions if they work a few days or a couple of weeks ...
Working and self-employment are worthwhile no matter what.” http://www.kela.fi/web/en/experimental-study-on-a-universal-basic-income Basic income experiments are due to take place in several cities in the Netherlands, including Utrecht, Tilburg, Nijmegen, Wageningen and Groningen.

In Utrecht’s version, called Know What Works, several test groups will get a basic monthly income of €970 under slightly different conditions.
One will get the sum as unemployment benefit, with an obligation to seek work – and sanctions – attached.

Another will get it unconditionally, whether or not they seek work.

A third will get an extra €125 providing they volunteer for community service.

Another will get the extra €125 automatically, but must give it back if they do not volunteer.
This experiment starts in June 2018 and will continue until 2019. https://www.uu.nl/en/news/what- works-researchers-from-utrecht-university-to-conduct-study-into-better-welfare-benefits Livorno began giving a guaranteed basic income of just over €500 a month to the city’s 100 poorest families in 2016, and expanded the scheme to take in a further 100 families in 2017.

Ragusa and Naples are considering similar trials.


The Five Star movement in Italy – the dominant partner in the new Italian government – has also proposed a “Citizen’s Income” of up to 780 euros per month.http://www.dw.com/en/italys-5-star-movement-defends- guaranteed-income-pledge/a-43323755 In June 2016, the government of Ontario commissioned a long-time basic income advocate Hugh Segal to provide advice on how to best design a Basic Income pilot pilot.
A report, Finding a Better Way: A Basic Income Pilot for Ontario, was released in November 2016, and a three-year pilot began in 2017, which will study whether a basic income can better support vulnerable workers and give people the security and opportunity they need to achieve 9 Senate Select Committee on the Future of Work and WorkersSubmission 155 their potential.
It will also study whether giving people a basic income can be a simpler and more economically effective way to provide income security support to people living on low incomes.

The pilot will measure outcomes in areas such as Food security; Stress and anxiety; Mental health; Health and healthcare usage; Housing stability; Education and training; and Employment and labour market participation.
The Ontario Basic Income Pilot will ensure that participants receive up to $16,989 per year for a single person, less 50 per cent of any earned income; up to $24,027 per year for a couple, less 50 per cent of any earned income; and up to an additional $6,000 per year for a person with a disability.

Existing Child Benefits will continue to be paid.

Participants on Employment Insurance (EI) or on the Canada Pension Plan (CPP) will have their monthly basic income payment reduced dollar for dollar.
These payments will provide roughly CAN$ 5,000 a year more in disposable income for beneficiaries and those working at the minimum wage.

Some of this discussion is confusing because different people have used the same term to describe programmes that differ significantly in scope and expense.

For example, the Ontario pilot is actually a scheme that resembles Australian social security payments for people of working age, albeit with significantly more generous payment levels.
Similarly, the Italian proposals reflect the fact that Italy does not have a national social assistance safety net – although some cities do.

In the Italian case, these new payments are more similar to social assistance schemes in other European countries, while the proposal from the Five Star Movement in the new Italian government is more like a negative income tax.
One of the essential aspects of the concept is that a UBI would involve some degree of integration of the system of cash transfers and the income tax system.
There are different ways of achieving this, and the variations in approaches can be categorised as follows” • Universal Basic Income, Unconditional Basic Income, Guaranteed Minimum Income -These are payments with no income test, no categories and no condition attached (for example, recipients are not required to look for work), and are generally viewed as replacing existing social security systems.
• A Social Dividend is a smaller payment, which is not intended to be sufficient for people to live on, but is also universal and without any conditions.

This is sometimes funded by natural resource revenues ( for example, the Alaska Permanent Fund Dividend https://apfc.org/ which in 2018 will be US$1,600 per eligible resident) • A Demogrant is an income-test free payment to all people in a specified demographic group e.g.
people over 65 (New Zealand and Canada), or children (Australian Family Allowances until 1987).

• A Negative Income Tax (NIT) is a cash payment withdrawn as other income rises at a single (linear) rate, with the net amount being paid.

The system of Universal Credit being introduced in the United Kingdom is a negative income tax.
Effectively, since the 1980s the Australian social security system has evolved into a set of categorical negative income taxes, with payments and income tests varying by the category into which individuals fall.

• There are other forms of payments through the tax system that provide income supplementation to specified groups, with examples including the Earned Income Tax Credit in the United States and the Canadian GST Tax Credit.
Table 1 below shows the spectrum of income maintenance programmes that are theoretically possible or actually existing, ranging from tightly income-tested social assistance schemes, through Negative Income Taxes, demogrants, varieties of Basic Income – none of which 10 Senate Select Committee on the Future of Work and WorkersSubmission 155 actually exist – earnings-related social insurance systems, and public or private defined contribution pension schemes.
Table 1: Policy responses: the spectrum of income maintenance programmes Type of programme Examples Coverage/Eligibility Social Assistance Most OECD countries, China Special Benefit - Australia Citizens/residents; Income and assets-tested Refundable Tax Credit Canada GST/HST Tax Credit United States EITC Citizens, taxpayers; May be income-tested Negative Income Tax Categorical – Australia General – UK Universal Credit Citizens/residents; Income- tested Demogrant New Zealand Superannuation Child benefits Alaska Fund Dividend Age group/ citizens State/ residents Universal Basic Income None Citizenship Social insurance More than 20 OECD countries Contributions Notional Defined Contribution Scheme Italy, Latvia, Poland, Norway, Sweden, China Contributions Mandatory Private Pensions Individual Savings Accounts Superannuation - Australia Contributions Proposed Contributions In considering possible responses to the risks discussed above, it is important to emphasise that different forms of social security will be more relevant in different national circumstances.
In a sense, welfare state institutions, employment structures, wage-setting institutions and the regulation of employment conditions and the structure and level of taxation are “co-produced” both historically and institutionally.
For example, a program like the Earned Income Tax Credit in the United States is required to “make work pay” under conditions where minimum wages are low and the social security contributions workers make for their retirement and disability are not progressive, but reduce the meagre wages of low paid workers.
The social security system that is appropriate for Germany, where more than 20% of the employed population are still in manufacturing will differ from the system that is more appropriate in a country with a large financial sector or services sector.
Similarly, the Australian social security system developed to complement the “wage earner’s welfare state” and it was also well suited to a country eager to encourage permanent migration 11 Senate Select Committee on the Future of Work and WorkersSubmission 155 after the Second World War, since a contributory system would have disadvantaged migrants who had less than a full earnings history.
Having said this, no system of social protection is pure, with Australia combining an income-tested social security system based on need, a universal health insurance system based on residence/citizenship, and a compulsory superannuation system based on contributions.
In considering the desirability and feasibility of some form of Universal Basic Income to replace existing forms of social protection, it is also important to note that the costs and distributional impact of such a reform will inevitably reflect the cost and distributional impact of the system that it replaces.
In the case of Australia, we currently have a relatively low level of spending on cash benefits, but we target our spending more on low-income groups than any other country in the OECD (and probably the world).

Spending on cash benefits in 2014 was 8.6 per cent of GDP, the sixth-lowest level of thirty-five OECD countries.

The Australian system relies more heavily on income-testing than any other OECD members.
OECD figures show that nearly 80 per cent of Australian cash benefit spending is income-tested, compared to just over half in Canada, 37 per cent in New Zealand, around 26 per cent in Britain and the United States, and less than 10 per cent in most European countries.

As a result, lower-income earners receive a bigger share of benefits than in any other country in the OECD.
The poorest 20 per cent of the Australian population receives nearly 42 per cent of all social security spending; the richest 20 per cent receives around 3 per cent.

In other words, the poorest fifth of Australians receives twelve times as much in social benefits as the richest fifth.

In the United States, the poorest get about one and a half times as much as the richest.
At the furthest extreme are countries like Greece, where the rich are paid twice as much in benefits as the poorest 20 per cent, and Mexico and Turkey, where the rich receive an extraordinary five to ten times as much as the poor.

The highly targeted nature of our relatively low level of spending has two implications.
If Australia was to introduce a UBI that cost the same amount as our existing social security and family payments system (around $110 billion) then we would be able to pay all adults about $5,800 per year.

This would increase income inequality more than in any other country and make all social security recipients considerably worse-off.
The corollary of this is that if we were to pay the base rate of Age Pensions to all adults this would increase our level of spending more than any other country in relative terms.

A rough “back of the envelope” calculation is that paying all adults the Age Pension and also paying universal child benefits at the base rate of Family Tax Benefit would have a “gross” cost of $470 billion a year, compared to current spending of $110 billion.
Other Commonwealth government spending – on education, health, defence, general government services – is around $300 billion.

Total Commonwealth government revenue is currently about $433 billion and individual income tax is about $205 billion.

A GMI to replace all cash payments and leave other spending the same would therefore imply total “spending” of around $770 billion or around 42% of GDP, compared to a Commonwealth tax take that is currently around 23-24% of GDP.
The Henderson GMI would have required a linear tax of over 50% on all other income.

Age and disability pensions are now about 75% higher in real terms than in 1975 (2.1 times the 12 Senate Select Committee on the Future of Work and WorkersSubmission 155 level in 1972).

We can therefore expect the tax rate required to fund such a system would be considerably higher now.
There are other forms of taxation that could be used to increase the tax take, such as wealth taxes, mineral resource rent taxes or land taxes, but it would still be necessary to raise this total amount of revenue.

It is important to emphasise that this gross cost is not the same as net cost.

A UBI at this level would effectively give the equivalent of very large tax cuts to low and middle-income individuals.
It would also significantly increase the disposable incomes of working-age individuals on allowances, but it would not increase the incomes of those receiving Age Pensions, Disability Support Pension or Carer’s payments.

Whatever the attractions of such a scheme in philosophical terms, it is difficult to envisage this being implemented in current political, social and economic conditions.
It is also difficult to see that it would be implementable if automation or the gig economy resulted in a significant loss in employment and tax revenue.

It can also be questioned whether such a scheme would appropriately address the challenge of irregular work.

A UBI is usually seen as platform below which no one can fall and is sometimes justified as supporting people to be more entrepreneurial.
While a UBI would certainly provide an income floor, it would not have the counter-cyclical nature of existing income-tested payments.

Under our existing system of social security and family payments benefits rise when income falls, partly compensating for income losses, and benefits fall when income rises.

This counter-cyclical feature of our current system would be foregone with a UBI.
Future social protections through a reformed social security system: some ideas for debate There is a very fundamental issue to be considered before deciding whether further reforms are needed to social security arrangements.

That is whether it is desirable to adjust the benefit system to deal with irregular work or whether the prevalence of irregular work should be limited through regulation of working conditions - or what is the best middle ground between these approaches.
Reforming the social security system to deal with greater instability in working hours or to support temporary workers in times when they are between contracts can be regarded as supporting risk-shifting from employers to government and taxpayers.

Indeed, this seems to be the attraction of UBI to some of its Silicon Valley proponents.

It is also not entirely clear how responsive payments should be to changes in earnings or other circumstances.
A more responsive system could offset short-term fluctuations in earnings, but there is evidence from the United Kingdom, that low-income households may prefer to have at least one of their income sources that is predictable (Millar, 2017), and around which they can plan how to deal with other fluctuating components of their incomes.

There is also a nexus between the adequacy of wages and working conditions and the level of the social security safety net.
It is widely argued that if the level of benefits in the income support system is too high, then this may give incentives for individuals to reduce their work effort.

The logical extension of this is that if the level of benefits are too low or the conditions to satisfy eligibility are too onerous, then workers will put up with unsatisfactory work conditions because the alternative of claiming benefits while looking for a better job is unacceptable.
13 Senate Select Committee on the Future of Work and WorkersSubmission 155 Just as it is difficult to justify adequate social security benefits without an adequate minimum wage, the maintenance of an adequate minimum wage and working conditions also requires an adequate benefit safety net.
Possibilities for reform As suggested by the broad typology of approaches to social security programmes set out in Table 1, there are actually a large number of options that could be considered to deal with possible changes in the nature of work.

There are various approaches that could be considered as consistent with the approach embodied in a UBI, which would be worthwhile in themselves even if a UBI were considered utopian.
The principles underlying a UBI are that it would be universal – applying equally to everyone – and unconditional.

For a UBI to be successful it would also need to be adequate.

Universality and equality of treatment It would be possible to increase the degree of universality in the social security system by category – for example by making income-test free payments for children or for older people.
As discussed earlier, Family Allowances were universal between 1941 and 1987, and there are universal payments for children in many European countries.

New Zealand has a very similar social security system to that of Australia, but its payment for people over the age of 65 is universal and paid without an income or assets test, although payments are clawed back through the income tax system.
Canada combines a universal pension floor with an income-tested supplement for low-income retirees (plus an earnings-related supplement).

In the first instance, however, this would extend assistance to higher income older people or higher income families with children, although the overall distributional impact would depend on how the increased spending was financed.
It might also be questioned whether these are the income groups more likely to be affected by income instability, or whether it is more appropriate to consider options that assist lower income families with income instability.

It would also be possible to move towards a common working age payment to replace all of the existing categories to achieve greater equality of treatment of people of working age.
This would tend to follow the recommendations of the recent McClure Inquiry into the social security system and move our system closer to the Universal Credit system being introduced in the United Kingdom – although we would be advised to learn the lessons of the difficulties in implementation and policy design that have occurred there.

The government has already started to follow this recommendation of the McClure Review, although without addressing the issue of the adequacy of Newstart.
Income and asset-testing It is also possible to consider reducing existing withdrawal rates to 40% or lower.

This would extend assistance over wider ranges of income and make payments responsive to more income changes (but less responsive to current income changes).

Another way of relaxing income tests is to increase the free areas or the earnings disregards so that individuals and families keep more of their income fo periods of part-time work.
Recipients of student payments have higher income test thresholds than other social security recipients ($437 per fortnight compared to $104 per fortnight for Newstart), for example, and students also have the highest share of recipients with earnings, although there may be other factors that contribute to this.
Increasing the income banks for students and working credits – which allow people to “save” the difference between their actual current income and their income thresholds so that future 14 Senate Select Committee on the Future of Work and WorkersSubmission 155 earnings do not reduce payments as much – is a way to use existing mechanisms to allow people to smooth their incomes.

A related option is to set fixed payment periods.


Entitlements would be set on the basis of earnings at the time of claim, but would then remain the same for a period of six months, say, unless there was a very significant change in circumstances.

This is the approach used with the Family Income Supplement introduced by the Fraser government in the early 1980s (and previously in the UK).
This would of course make the payment less responsive to income changes but would provide the stability that some families value.

Liquid assets tests The Hawke government introduced the liquid assets test in February 1991.

This involved a waiting period of four weeks for those claiming allowances with liquid assets of $5,000 or more.

The level of liquid assets allowed was reduced in 1997 and the waiting period was extended.
The level has subsequently been increased again, but is currently $5,500 with a waiting period of up to 13 weeks.

If it had been indexed to inflation since its introduction, the threshold would currently be around $9,560.

The purpose of the liquid assets test – apart from saving money – is to ensure that benefit claimants rely on their own resources in the initial phase of looking for work, as in many cases the short-term unemployed are able to find work in a relatively short period.
There would appear to be a case for some form of liquid assets test of this sort, but the risk it introduces is that some people will run down their savings to such an extent that they will be unable to deal with future episodes of job interruption or illness.

Increasing the threshold to what it would be if indexed since 1991 and reducing the period of exclusion to its original four weeks would mean that workers would be better placed to deal with irregular work.
Adequacy of payments It is widely recognised that the level of Newstart is increasingly inadequate with only a marginal real increase since 1994.

This is because it has continued to be indexed to the CPI since that time, while the Age and other pensions have been formally indexed to wages since 1997 and were very significantly increased in real terms following the Harmer Review in 2009.
There is a wide gap between the level of payments and the minimum wage, with Newstart plus the Energy Supplement being $547.60 per fortnight or around 38% of the minimum wage before tax.

Newstart recipients may be entitled to additional payments such as the very small Energy Supplement – which in any case the Government proposes to abolish – as well as family payments and Rent Assistance.

However, family payments are received in recognition of the fact that those with children have additional costs.
Rent Assistance can hardly be said to address the inadequacy of Newstart since its own level is inadequate to deal with the costs of renting in most Australian cities.

For a single person, the maximum rent assistance is about $135 per fortnight, but if you pay less than $120 per fortnight no payment is made, and to get the maximum amount, fortnightly rent has to be at least $300 per fortnight – and if it is more than this, no additional amount is payable.
The most recent Anglicare Rental Affordability Snapshot reviewed 67,000 rental listings across Australia and found 3 properties affordable for a single person on Newstart, with none in Sydney, Canberra, Melbourne, Adelaide, Darwin or Perth.

For payment levels to be adequate for persons with work interruptions or other forms of instability in earnings, payments would need to be increased substantially.
It is probably 15 Senate Select Committee on the Future of Work and WorkersSubmission 155 most appropriate to set the rate for the long-term following a thorough review of adequacy similar to that undertaken for the Harmer Review of the adequacy of pensions, although this does not reduce mean that there should not be an immediate substantial increase.
For example, an increase of $170 per fortnight would mean that single people would receive about half the minimum wage, and would still have very strong incentives to seek full-time work.

In combination with a more flexible income test, it would also provide incentives for those receiving payments to take on part-time work as a “stepping-stone” to a full-time job.
The current inadequacy of payments is because for most of the past quarter century payments have basically only risen in line with prices, so that the unemployed have received very little of the benefits of Australia’s economic growth.

It is worth noting that this decoupling of benefits and wages will only worsen in the future.

The assumptions underlying the 2015 Intergenerational Report are that over the next 40 years wages will grow by 4% per year on average while prices will grow by 2.6% per year.
If the indexation provisions were to be unchanged over this period, then by 2055, the single rate of Newstart would be around 9% of Male Total Average Weekly Earnings (MTAWE), the benchmark for pension indexation.

It is also worth noting that the Intergenerational Report also assumes that in the middle of this century the unemployment rate will still be around 5%.
The continuation of present policies will inevitably lead to the deep impoverishment of the future unemployed, even though other aspects of policy are based on the assumption that the level of unemployment will be broadly unchanged.
If it is considered undesirable to legislate to index allowance payments to wages, then there is a strong case for ad hoc increases, based on regular reviews by an independent panel reporting to Parliament, in a way that is analogous to the Minimum Wage hearings of the Fair Work Commission, with Parliament required to formally consider and debate these reports.
The inadequacy of payments will also - under current policies – increasingly apply to families with children, because of the Rudd government decision in 2009 to change the indexation of Family Tax Benefit Part A from wages to prices.
This and the decisions in 2005-2006 and in 2013 to move lone and partnered parents from Parenting Payments to Newstart is likely to lead to an increase in child poverty and effectively undo most of the progress that resulted from the Hawke government’s child poverty initiatives from 1987 – which had the effect of reducing child poverty by close to half in a short period of time.
There is also the issue of increasing conditionality attached to payment receipt, including income management, the Cashless Welfare card and proposals for drug-testing of payment recipients, as well as proposals in the 2018-19 Budget to “encourage lawful behaviour”.

Increasing conditionality of this sort is likely to result in those affected having fewer resources and less capacity to respond to changing employment opportunities and working conditions.
Finally, by definition, there is considerable uncertainty about the future of work – technological change could come far more rapidly than envisaged here and with far more significant implications for wages and working conditions.

There is much that we do not know about existing working conditions.

The Australian Bureau of Statistics data on wages and employment patterns provides invaluable data to assess trends over time.
The Household Income and Labour Dynamics in Australia (HILDA) survey also provides invaluable data on changes in working patterns between years and the existing prevalence of employment, earnings, health and family risks over time.

16 Senate Select Committee on the Future of Work and WorkersSubmission 155 However, information on income and employment variability within years is lacking.

The rise in non-standard employment is projected to be likely to increase this volatility.
A possible source of data on within-year volatility is the new longitudinal administrative dataset developed by the Department of Social Services as part of its new Investment Approach to welfare reform.

Achieving greater access to these data and developing complementary new sources of data on within-year income changes is an area to be addressed.
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