Creating effective local labour markets:a new framework for regional employment policy.

Beth Cook, William Mitchell, Victor Quirk and Martin Watts
Centre of Full Employment and Equity
University of Newcastle

November 25, 2008

Centre of Full Employment and Equity
The University of Newcastle, Callaghan NSW 2308, Australia
Home Page: http://e1.newcastle.edu.au/coffee
Email: coffee@newcastle.edu.au© Collection, Cook, Mitchell, Quirk and Watts, 2008

First published in 2008,
Centre of Full Employment and Equity
The University of Newcastle
Callaghan NSW 2308, Australia

ISBN 978-0-9805035-5-5

Foreword and acknowledgements
This Report finalises an Australian Research Council Linkage Partnership between the Centreof Full Employment and Equity (CofFEE), at the University of Newcastle and Jobs Australia
Pty Ltd.
The ARC Linkage Project (LP0454210) was entitled Creating effective local labour markets a new framework for regional employment policy.
The collaboration sought to develop a new framework for the design of regional employment
policy. Motivating the research was the view that the major deficiency in current Australian
employment policy remains a lack of consideration of public job creation strategies.
The research aimed to assess how the existing policy mix could be complemented by arenewed focus on public job creation. We considered this would establish more effective
ways to assist disadvantaged individuals into employment and advance sustainable solutions
to persistent unemployment in Australia.
At the heart of the research design is the fundamental view that persistent unemployment
reflects a demand-side failure (not enough jobs being generated) rather than a supply-side
failure (inadequate skill development; poor work attitudes of the labour force etc). The latterview dominates policy making throughout the OECD countries and has led to a massive
wastage of labour resources for almost 35 years.
The Project partners have been active in developing new directions for employment policy inAustralia. In collaboration with major organisations such as ACOSS, the ACTU and the BCA,
Jobs Australia advocated a coordinated policy approach to advance regional job creation
strategies targeted at the long-term unemployed.
For its part, CofFEE has developed a proposal for a Job Guarantee that would provide paid
employment and structured training opportunities in the public sector for the young and longterm unemployed.
On behalf of my co-authors, we wish to thank many people for their help over the period of
the project. But specifically we thank the following. We appreciate the generosity and insightsof our Industry partner, Jobs Australia and its CEO David Thompson in particular. We also
sincerely thank the staff at Jobs Australia who have helped make the collaboration fluent.
We wish to thank Melinda Hannan and Graham Wrightson at CofFEE who provided excellent
editorial and administrative support throughout the project. Their work is of high quality andis equally regarded. In particular, Melinda’s contribution was pivotal in finalising thiscomplex document.
We wish to acknowledge the contribution that Emma Allen made by providing initial draft
material which formed part of the analysis in Chapters 7, 8, 9 and 11. She also played asignificant role in the design, implementation and analysis of the national survey. She is,however, not responsible for the final report.
We should also sincerely thank the respondents to the Pilot and final survey, the Job Network
staff who participated in the focus groups, and the local government staff who participated in
the costing interviews. Their input was extremely valuable and we are grateful for the timethey took to help our research become more grounded in the realities of the situation.
While we have benefited from the input of others, all the errors remain our own.

We consider that the research presented in this Report presents a major challenge to theFederal government which has so far not demonstrated it is committed to restoring full
employment and abandoning the ineffective supply-side emphasis of its predecessors.
We consider the detailed analysis of how a Job Guarantee could be introduced in addition toits integration into a National Skills Development framework is innovative and compelling.
We urge the relevant policy makers to abandon their failed ‘full employability’ approach andinstead embrace the policy structures laid out in this Report.

Professor Bill Mitchell
Director, Centre of Full Employment and Equity
University of Newcastle, Australia
November 24, 2008

About the Authors
Dr Beth Cook
Post Dotoral Fellow, Centre of Full Employment and Equity, University of Newcastle
Professor Bill Mitchell
Professor of Economics and Director, Centre of Full Employment and Equity
Mr Victor Quirk
Research Officer, Centre of Full Employment and Equity
and Associate Professor Martin Watts
Associate Professor of Economics and Research Associate, Centre of Full Employment andEquity.

Table of Contents
Executive summary

1Part 1 – Regional Development Challenges
1

Introduction

29

2

Current policy development – big on promise, short on prospect

39

3

The failed Full Employability framework

48

Part 2 – Current Policy Framework
4

Active labour market policies (ALMP)

65

5

Regional and local employment policies

76

6

Australian experience with national, regional and local employment policies

94

Part 3 – Local Government Survey
7

The local government survey: research methodology and results

117

8Transport amenity

139

9Community welfare services

154

Part 4 – Solutions for Regional Development
10

A strategic framework for regional development

172

11

A targeted expansion of public sector employment

180

12

Creating a National Skills Development framework

206

13

The Job Guarantee

226

14

Investing in a national Job Guarantee

255

References

266

Executive Summary
Chapter 1
1.1

1.2

Introduction

This Report is the culmination of a three year research project between The Centre of
Full Employment and Equity at the University of Newcastle and Jobs Australia Pty
Ltd. and was motivated by the objective of developing a new approach to social andeconomic policy making that is:Capable of delivering macroeconomic stability which we define as true full
employment in jobs that meet the decent work standards and price stability;Ensuring regional development is sustainable in social, economic andenvironmental terms, such that communities throughout Australia have access tothe economic and social infrastructure necessary to facilitate full participation andpromote wellbeing.

This Report presents a new integrated framework for regional development which we
consider will be instrumental in achieving these objectives. Specifically, the Reportoutlines 3 important and integrated policy initiatives:An expansion of the public sector to deliver services and jobs to regional
Australia;A new national Skills Development Framework; andImplementation of a Job Guarantee (JG) where the government acts as an
employer of last resort by providing employment at a fair minimum wage to all
those willing and able to work who cannot otherwise find employment.

1.3

The Report embraces the viewpoint that employment is necessary for economic
survival and to enable individuals to lead productive lives and maximise wellbeing.
Therefore, the work provided must offer sufficient remuneration to provide a decent
standard of living and enable participation in the social life of the community.

1.4This report focuses on how employment creation and protection of the environment
can be achieved through the design of employment opportunities that provide
meaningful employment to large numbers of workers but simultaneously protect orenhance natural resources.

Unemployment, underutilisation and spatial disparities
1.5
After nearly 17 years of sustained growth in Australia, the economy still wastes
around 9 to 10 per cent of its willing labour resources. Official unemployment, stillaround 500,000, has been outstripped by the “growth disease”, underemployment.
1.6

The Australian economy has been hamstrung by poor macroeconomic policies (forexample, the obsessive pursuit of budget surpluses) while job creation has increasingly
been of a casualised precarious form.

1.7

The burden of the persistently high unemployment and underemployment has not been
distributed evenly. Low-skilled workers have been disproportionately represented in
the ranks of the unemployed or those engaged in precarious employment.

1.8

Further, the disadvantage has also been spatially concentrated with some regions
experiencing diminishing job opportunities and population decline as younger workers
migrate to areas where their chances of gaining employment are higher. Australia is1now a patchwork of advantage and disadvantage and the failure of any form ofregional development policy in Australia has exacerbated the tensions that exist
between the social and economic settlements.
1.9

The entrenched disadvantage produces a myriad of long-term consequences thatreinforce multiple disadvantages and cause social exclusion, poor school performanceand poor human capital formation produces a low productivity workforce and low
income. These neighbourhood effects must be countered by effective education andemployment policies.

Skill shortages and skill formation
1.10 The abandonment of the state as a significant source of employment and on-the-job
training has left a 30 year legacy of chronic labour under utilisation and inadequate
skill formation capacity.
1.11

Most strategies aimed at imparting practical skill presume that industry will bear the
responsibility of furnishing such supervised experience, failing to acknowledge thechronic incapacity (and uneven willingness) of the private sector to do so for much of
the population.

Population ageing
1.12 The ageing of the Australian population has implications for the labour market andmaintenance of living standards. As the working age cohort shrinks as a proportion of
the population it will be necessary to encourage working age Australians to work andto ensure that all those who want to work are able to find employment in order tomaximise economic growth and meet the economic needs of the Australian
population.
1.13

As the population ages there will be an accelerating need for social services to meetthe needs of the elderly and enable them to choose to “age in place”. A range ofauxiliary services will be required including assistance with domestic work,
gardening, caring and transportation. These types of assistance are currently
chronically undersupplied in Australia (see, for instance Australian Government
Department of Health and Ageing, 2007)

Research approach and content
1.14 The primary purpose of this research is to investigate the feasibility of the introductionof a Job Guarantee scheme in Australia that would deliver full employment, improve
economic and social infrastructure and improve access to services that are currently
not provided or undersupplied. The research consists of a number of strands ofanalysis:

Review of international literature on policies relating to employment services andthe use of ALMP.



Review of international literature on regional policies including new regionalism(NR), social entrepreneurship (SE) and local partnerships.



A national survey of local government social planners to examine the feasibility of
introducing a JG by determining:- The level of unmet need in regions in relation to: Transport amenity; Publichealth and safety; Recreation and culture and Community welfare services.

2

- The types of public sector jobs that could be created under the JG for low
skilled workers to fulfil these unmet needs.
- The number of jobs that would be necessary to meet these needs.


Focus groups with Job Network employees to assess the effectiveness of existing
employment services and ALMP and to obtain feedback on the JG proposal.

Development of a new framework for regional development capable of producing
sustainable development by meeting economic, social and environmental
objectives.



Designing a model to estimate the investment needed to implement a national JG
in Australia. Information obtained included costs of labour, materials, equipment,
supervision and overheads as well as the structure of work teams and employee tosupervisor ratios.

Chapter 2

Current policy developments – big on promise, short on prospect

2.1

Since taking office in November 2007 the Rudd Labor government has announced
several policies that relate directly to employment policy, welfare reform, skill
development, regional policy and infrastructure.

2.2

The Rudd Government has been highly critical of the Job Network system in relation
to the services offered to job seekers, the lack of training opportunities, and theinability of the system to assist the most disadvantaged job seekers and the emergenceof extensive skill shortages.

2.3

The review of employment services identified several problems with the current Job
Network model which accord with the problems and shortcomings identified in thisReport. Interestingly, several of the criticisms of the Job Network are similar to
criticisms of the CES that were used to justify the introduction of the Job Network in
1998.

2.4

The new employment services contract that will commence in July 2009, will retain
many of the features and requirements that currently exist, including: privatiseddelivery, a supply-side focus that erroneously identifies unemployment withinadequacies of the unemployed in terms of skills and attitudes; Mutual Obligation,
Welfare to Work and breaching.

2.5

Major changes for the new employment services contract include a greater focus on
disadvantaged job seekers, employer servicing and meeting the needs of the local
labour market. There will be a shift in emphasis away from the “work first” approachto a much greater recognition of the need for skill formation through formal training,with 238,000 training places for the unemployed in the Productivity Places Program.
The new compliance framework will concentrate on re-engagement of job seekers
rather than punishment.

2.6

A greater emphasis on skill formation will include Productivity Places Program which
will provide places for those in the workforce to upgrade skills.

2.7

A new Regional Local Communities Infrastructure Program (RLCIP) will be
introduced in 2009-10 but some projects will be fast-tracked through the government’s$300 million funding package in response to the economic crisis.

3

2.8

The Government has committed $20 billion to its Building Australia Fund forinfrastructure such as rail, roads, posts and broadband which is a small fraction of theestimates of necessary infrastructure investment.

2.9

In short, the Rudd Labor Government has implemented policies that represent more ofa continuation of the Howard Government policies than a break with them. There isevidence of a more “human face” in the Job Network, greater human capitaldevelopment and an increase in infrastructure expenditure. However, these measuresfall far short of the policies required to restore full employment and provide adequatelevels of economic and social infrastructure.

2.10

The system retains the supply-side focus for employment services that concentrates on
addressing the inadequacies of the unemployed. Despite the fact that unemployment is
forecast to rise, there is no perspective of addressing labour demand through job
creation. In the absence of job creation the new employment services will not succeedin assisting the most disadvantaged job seekers to return to work since they willremain at the end of the jobs queue in an economy where labour supply outstrips
labour demand.

2.11

The fact that the Federal Treasurer is still demonising the use of budget deficits as alegitimate option for the responsible macroeconomic management of the economy is atelling sign that this federal regime will not accomplish full employment. As we arguein Chapter 3, the Federal Government must abandon the fetish in favour of budget
surpluses and reject the political rhetoric that sustains the fetish. It must realise that inusual times, a federal deficit will be necessary if the private sector desires to save andeconomic growth is to be sufficient to generate full employment.

Chapter 3

The failed Full Employability framework

Full employment and full employability
3.1
The Post World War 2 economic and social settlement in most Western countries was
based on 3 pillars that constituted the “full employment” framework: (a) the Economic
Pillar was defined by an unambiguous commitment to full employment; (b) the
Redistributive Pillar was designed to ameliorate inequalities driven by market
outcomes through provision of income support, wage setting norms and componentsof the social wage including education, health, housing and community services; and(c) the Collective Pillar provided the philosophical underpinning for the intervention
based on a concept of the intrinsic rights of citizenship.
3.2

Until the mid 1970s, most advanced Western nations maintained very low levels of
unemployment. Governments were willing to manipulate levels of aggregate demandusing fiscal and monetary policy to ensure enough jobs were created to meet thepreferences of the population.

3.3

The first OPEC oil price hike in 1974 caused an inflation spike and ushered in aresurgence of pre-Keynesian thinking, which had categorically failed to resolve themass unemployment of the 1930s.

3.4Full employment was redefined as a unique unemployment rate (the NAIRU) where
inflation was stable. The NAIRU was determined by supply forces (individual
disincentive effects arising from welfare provision, skill mismatches, and excessive
government regulation) and was invariant to Keynesian demand-side policies.
Opposition to the use of budget deficits to maintain full employment solidified and theinflation-first rhetoric became the dominant discourse in macroeconomics.
4

3.5

The 3 major pillars of the Post War full employment consensus were abandoned andfull employability and price stability became the major economic aims of government.

3.6

The hallmark of the full employability era is that individuals have to accept
responsibility, be self reliant, and fulfil their obligations to society. Unemployment iscouched as a problem of welfare dependence rather than a deficiency of jobs.

3.7

With unemployment persisting at high levels due to the deliberate constraints imposedon the economy by restrictive fiscal (and monetary) policy, rising welfare payments
placed pressures on the Redistributive Pillar.

3.8

The OECD’s response to rising and persistent unemployment was the 1994 Jobs Studythat advocated extensive reforms, notably the reduction of budget deficits and public
debt, labour market deregulation, redefinition of the responsibilities of government interms of full employability, widespread reform of unemployment and related benefit
systems and investment in formal education and training to improve the skill base of
disadvantaged workers.

3.9

Despite the OECD Jobs Study the OECD economies still generated an unemployment
rate of 5.8 per cent in January 2007. Since the 1991 recession, underemployment has
risen in all OECD countries.

3.10

Mitchell and Muysken (2008) provide a comprehensive critique of these policy
developments and the way that the OCED drew on academic research that has now
been shown to be fragile. There is also strong evidence that active labour market
programmes have been largely ineffective in reducing unemployment and improving
the outcomes of the most disadvantaged workers in the labour market.

3.11

In the face of mounting criticism and empirical argument, the OECD has also begun toback away from its hardline Jobs Study position acknowledging that the evidence
supporting the Jobs Study ‘remains mixed’ and ‘is somewhat fragile’, there is no
significant correlation between unemployment and employment protection legislation,
the level of the minimum wage has no significant direct impact on unemployment andhighly centralised wage bargaining significantly reduces unemployment.

3.12

The most damning indictment of the OECD policy agenda is that in recent years
employer groups have argued that Australia is suffering from a skill shortage, despite
the continued high rate of labour underutilisation. This implies that the large numbersof unemployed Australian workers who have been shunted continually through these
expensive training and compliance programmes under the Job Network and relatedbodies, have not acquired any useful skills.

3.13Internationally, there is a growing acknowledgement that the creation of paid public
employment must be a part of the employment policy mix.

3.14

In Australia, for example, the limited role of public sector job creation, and thewithdrawal of the public sector from its historical role as a countercyclical employer
have served to entrench high unemployment.

The flawed macroeconomics of the Full Employability framework
3.15 A modern monetary system is characterised by a floating exchange rate (so monetary
policy is freed from the need to defend foreign exchange reserves) and the monopoly
provision of fiat currency. The monopolist is the national government.
Macroeconomic principles explain the fundamental flaws in the arguments used tojustify abandoning full employment.
5

The costs of unemployment
3.16 The economic benefits of sustained full employment are indisputable.
3.17

Conversely, the economic and social costs of failing to achieve and maintain full
employment are considerable.

Unemployment and underutilisation in Australia
3.18 While the official unemployment rate in Australia has exhibited a long term decline
since its peak in February 1993, there has been a significant rise in underemployment,
resulting from an increase in the number of part-time workers seeking more hours of
paid work.
3.19

The hours based measure of labour underutilisation which incorporates hidden
unemployment and underemployment was developed by the Centre of Full
Employment and Equity.

3.20

There is unequal spatial distribution of the burden of unemployment.

Chapter 4
4.1

Active labour market policies (ALMP)

Government expenditure on labour market policies to address unemployment can bedivided into 2 categories:“Passive” assistance refers to payment of unemployment benefits; and

“Active” assistance takes the form of Active Labour Market Policies (ALMP)
such as job search assistance, training programmes, public sector job creation,
and wage subsidies.

Justification for ALMP
4.2

The theoretical justification for ALMP is that they increase labour market efficiency,
productivity, employment outcomes and earnings for the unemployed.

4.3

ALMP have several potential disadvantages that reduce employment creation
programme effects. These include deadweight loss, displacement, substitution andattachment effects.

International experience with ALMP
4.4
Active Labour Market Policies have changed significantly over time reflecting theshift from the full employment Keynesian welfare state to the full employability
paradigm.
4.5Internationally the initial response to rapidly rising unemployment in the 1970s was
the introduction of job creation programmes.

4.6

In the 1980s training programmes assumed increased importance.

4.7

In many countries job creation in the public sector has been replaced with punitive
workfare schemes. As public sector job creation lost ground, there has been a greater
reliance on the use of wage subsidies.

Expenditure on ALMP
4.8
The shift to activation in OCED countries was reflected in the increasing proportion of
ALMP expenditure in total labour market policy expenditure between 1990 and 2005.
Between 1990 and 2005 the relative share of ALMP expenditure changed: public
6

sector job creation increased in the early 1990s then waned; the share of wage subsidy
expenditure increased in most OECD countries; and training programmes remained
important.
Evaluations of ALMP
4.9
ALMP programmes have several, sometimes conflicting, objectives. Therefore
evaluations have studied a variety of issues including: costs, effectiveness, efficiency,
net impact, sustainability and issues of programme implementation. In general there
are 2 main programme effects of interest to researchers:macroeconomic evaluations seek to determine whether programmes provide a netsocial benefit; andmicroeconomic evaluations compare programme participants with non-participants
to identify whether participation increases earnings, employment rates, speed oftransition out of unemployment, or reduces reliance on social welfare programmes.

4.10

Evidence on the efficacy of ALMP as a tool for reducing unemployment or increasing
earnings is often contradictory, confusing or inconclusive.

4.11

In addition, evaluations are affected by the econometric techniques used and theparticular characteristics of programmes, making generalisations difficult and resulting
in contradictory findings.

Who do ALMP help?
4.12 Jobsearch and employment assistance have been found to be beneficial for mostjobseekers, including disadvantaged jobseekers, women and sole parents.
4.13

Public sector job creation programmes (PSJC) evaluations have produced mixed
results.

4.14

Wage subsidies are claimed to be one of the most effective labour market programmesin terms of increasing employment outcomes and have been found to assist the longterm unemployed, sole parents and female re-entrants.

4.15

Self-employment or micro-enterprise development schemes have positive impacts on
employment and earning prospects for a small group of the unemployed, who areusually relatively well educated prime aged adults.

4.16

Training programmes are the most widely used and diverse component of ALMP,
incorporating general education and vocational skills training with durations lastingfrom a single day to several months. They are generally found to be more effective forwomen and of less benefit to men, while disadvantaged youth rarely benefit.

4.17

Despite the fact that many ALMP programmes are associated with deadweight loss
and substitution effects, they may provide equity benefits since they provide
opportunities for disadvantaged job seekers who would otherwise not succeed in
obtaining employment.

4.18

The inescapable conclusion from the international experience of the past 30 years isthat implementation of various types of ALMP has proven to be an ineffectual
response to deficient labour demand in a constrained macroeconomic environment.

Chapter 5
5.1

Regional and local employment policies

Determining the appropriate “region” to examine regional disparities in GDP,
employment or unemployment rates is problematic. While it is generally agreed that7

the relevant territory should relate to functional labour markets, much economic data
relates to administrative jurisdictions such as states, provinces or counties that bear
little relationship to functional areas.
5.2

The persistence of high levels of geographical concentration in unemployment andlabour market participation prompted the OECD to note underscores the importance ofdemand-side factors and justifies specific policies targeted to regions with highunemployment.

What is new regionalism?
5.3
In recent years a range of strategies and institutional arrangements have emerged
which highlight the importance of regional and local economic development and fit
broadly under the rubric of “new regionalism”. Within the new regionalism literature
concepts such as clusters, networks, partnerships, the knowledge economy, cooperatives, social entrepreneurship and social inclusion are prominent and intertwined.
5.4

Jessop (2004) claims that globalisation has fundamentally changed or “hollowed out”
the role of the state and transformed the Keynesian welfare state into the
Schumpeterian workfare state as a consequence of the internationalisation of
production and financial markets. The state now focuses on the attraction and retentionof mobile international capital and increasing international competitiveness at theexpense of coordinated policies to promote balanced growth.

5.5

The coexistence of globally successful regions, and regions that failed to prosper,
focussed attention on several “successful” international regions such as Silicon Valley
in the US, Baden-Württemberg and Emilia Romagna in Europe.

5.6

There has been a shift from government to governance along the lines of “steering not
rowing”, marked by devolution to lower tiers of government or contracting out.
Community development is to be achieved by the promotion of social enterprises, selfemployment and small business development, training and work experience.

Clusters
5.7
Industry clusters have been promoted as the driving force for economic andemployment growth and regional prosperity through a dynamic process ofcompetitiveness, productivity and innovation.
5.8

Proponents claim clusters produce a multitude of benefits such as increasing
productivity, innovation, competitiveness, profitability, job creation, wages and therate of firm formation.

5.9

Porter (1998a & b) proposes that national, state and local governments develop
policies to reinforce existing or nascent clusters by investing in the creation of
specialised factors such as education and training centres and specialised
infrastructure.

5.10

The major negative consequences of successful clusters are congestion; escalating
prices for land, labour and services and negative distributional consequences.

5.11

There is a general consensus that cluster promotion strategies are unlikely to succeedin creating clusters from scratch, and that it is difficult to transplant successful
strategies that arise in unique local circumstances.

5.12

Cluster theory has been the subject of critiques on several grounds. Most importantly,
the proposition that cluster promotion constitutes an effective policy instrument for8stimulating regional economic and employment growth has been challenged because
cluster theory ignores the importance of aggregate demand.
Regional and local development strategies
5.13 The devolution of responsibility to lower levels of government raises the possibility
that national governments may absolve themselves of responsibility and jeopardise
service delivery by financially constrained state or local governments.
5.14

Entrenched high levels of unemployment and underemployment, combined withretrenchment of income support and social service provision, resulted in high levels ofsocial exclusion and threatened the legitimacy of neo-liberal policies.

5.15

Local development has been promoted by supra-national bodies as a complement tonational and supra-national programmes to reduce unemployment and inequality.

5.16

Key factors for the successful implementation of local development initiatives include:
coordination with national policies; development of an effective strategic plan with all
relevant parties including government, business and the local community; andeffective monitoring and evaluation mechanisms.

Social entrepreneurship5.17 Social entrepreneurship (SE) has been promoted as a means of addressing regional
disadvantage and entrenched unemployment. SE is based on 3 false premises: (a) thatthe federal government (issuer of the currency) has a financial constraint akin to that
faced by households (user of the currency); (b) that expansionary macroeconomic
policies are ineffective; and (c) that social policies are no longer affordable.
5.18

There are several problems and limitations of social entrepreneurship. SE may:prioritise the bottom line rather than social objectives or gradually erode the culture of
the organisation; lose autonomy due to contractual requirements such as “policing”
disadvantaged groups; and, importantly, SE creates the illusion that problems arebeing adequately addressed while governments continue with neo-liberal policies.

International regional policies
5.19 Regional policies are predicated on the belief that interventions are necessary todeliver regional convergence in economic outcomes. Governments have fostered thedevelopment of industry clusters to promote regional development.
5.20

The traditional approach of concentrating regional policies on assisting lagging
regions has been jettisoned in favour of encouraging all regions to concentrate on local
assets to increasing competitiveness in a rapidly globalising economy where it has
been proposed that regions are becoming more important and less dependent on thefortunes of the national economy.

5.21

The adoption of SE and other local development strategies is closely related to new
regionalism and government abrogation of responsibility for full employment and thedesire to outsource services previously delivered by the public sector.

5.22

Persistent regional disparities in unemployment demonstrate that these strategies areincapable of restoring full employment in the presence of macroeconomic constraints
and a situation where private sector job creation has proven to be insufficient toprovide jobs to all those willing and able to work.

9Chapter 6 Australian
employment policies

experiencewith

national,

regional

and

local

The Australian experience with ALMP
6.1
Australian ALMP expenditure has varied over time but remained in the lower half ofOECD countries in 2005. Job creation programmes have been used in response toperiods of high unemployment but have given way to workfare schemes over time.
Wage subsidies have been used since the 1970s and training programmes became
more important from the 1980s in line with the “full employability” paradigm.
Activating the unemployed and other workless groups
6.2
The Social Security Review and the Active Employment Strategy of 1991 emphasised
activation of the unemployed and other workless groups, such as sole parents andpeople with disabilities.
6.3

Implementation of recommendations of the 1994 employment white paper, Working
Nation continued the agenda of the SSR and introduced new ALMPs to address thedire unemployment situation

6.4

The 1994 White Paper, Working Nation, provided additional jobs for thoseunemployed more than 18 months either through private sector employment throughJobstart, existing programmes or the New Work Opportunities programmes.

6.5

While employability and compliance objectives assumed increasing importance under
ALP governments they became virtually the only policy of the Howard government
after most labour market programmes were abolished and reciprocal obligation was
replaced by Mutual Obligation that included Work for the Dole.

6.6

The McClure Report recommendation that Mutual Obligation be extended to include
other jobless income recipients of workforce age including sole parents and people
with disabilities has been implemented progressively with the major initiative being“Welfare to Work” changes that commenced in July 2006.

6.7

Some state governments have also implemented ALMP to address particular needs
such as recruitment and retention of apprentices through payment of allowances orwage subsidies, or providing payroll tax concessions and exemptions from workers
compensation premiums.

Employment Services in Australia: from the CES to Job Network
6.8
The Commonwealth Employment Service (CES) operated from 1946 until it was
replaced by the Job Network in 1998. Implementation of Working Nation included
contracting out of some case management services to the private and non-profit sector.
The privatisation push was extended by the Howard Government through the Job
Network that is comprised of for-profit and non-profit providers of employment
services.
6.9

The Job Network has undergone several changes in the 10 years since its
establishment as successive contracts have attempted to rectify serious inadequacies inservice delivery, transparency and accountability and to stamp out unacceptable
practices.

10View from the coalface: Report on focus groups with Job Network staff
6.10 Three focus groups were conducted with staff from non-profit Job Network providers
in late 2007. Participants were asked to comment on the role of the Job Network andassess how well it functioned.
6.11

Participants were unanimous that interaction with DEWR was time consuming,
frustrating and had a negative impact on their ability to assist job seekers.

6.12

Many participants commented that their primary function was policing theunemployed rather than providing employment assistance and that they felt pressured
to breach clients or force them to undertake activities of dubious worth such as fulltime Work for Dole.

6.13

The commercial and competitive nature of the Job Network model was considered tohave a negative impact on the quality and quantity of service provided to job seekers.

6.14

Participants indicated that a growing percentage of the unemployed faced severe
employment barriers or were in need of extensive assistance including professional
interventions that were not possible due to funding constraints and the commercial
interests of providers.

Has the Job Network delivered?
6.15 A primary justification for the Job Network model was that a focus on outcomes
would provide better quality services that incorporate client choice of provider andinnovative solutions to overcome employment barriers.
6.16

Client choice of provider has been constrained, individualisation of services has been
deficient and the overall quality of services criticised, particularly in relation to lack ofguaranteed service provision, very limited customisation of services, as well as“parking” and “creaming” practices.

Regional and local policies in Australia: the federal government
6.17

Regional and local policies to stimulate economic and employment growth are
implemented by all 3 levels of government to varying degrees, but Australian policies
are notable for the lack of a coordinated national approach and attempts to shift
responsibilities and costs.

6.18

The attitude of Commonwealth governments to regional policy has vacillated fromabrogation of any responsibility to active participation in top-down decentralisation
policies and more recently policies that stress bottom-up, self development
approaches. In addition to regional programmes the Commonwealth has also provided
assistance to specific industries, and provided assistance for firms to enhanceinnovation and exports, or incentives to attract investment to Australia.

6.19

State governments operate a number of programmes to stimulate regional employment
and development, promote clusters and assist business. There is a long history of states
engaging in bidding wars to attract inward investment by providing tax breaks or
discounts for services such as electricity.

6.20

Local governments have played a limited role in regional development but haveassumed responsibility for a range of community and social services in recent years.

6.21

As the public sector has receded, social entrepreneurs in the form of non-profits havebecome integral to social services on a contract basis.

11

Chapter 7

The local government survey: research methodology and results

Purpose of the study
7.1
The underlying objective for undertaking this research was to investigate thefeasibility of implementing a Job Guarantee. A national local government JG survey
was conducted with 2 major aims:


To compile an inventory of unmet need for infrastructure and services incommunities across Australia; and

To identify both the type and quantity of socially meaningful work that could
be performed by low skilled workers employed under the JG and would
contribute to community development.

The preliminary study
7.2
Comprehensive pre-testing and evaluation of the research objectives, processes andinstruments was undertaken. This involved conducting a literature review, holding
focus groups with fellow researchers, and a Pilot survey.
7.3

Of the 15 local governments that were invited to participate, 13 attempted the survey,
and 8 fully completed the survey.

7.4

The interview process revealed that the survey was too broad and that 2 separate
surveys would be necessary to fully document the unmet needs in community
development and environmental remediation.

7.5

The pre-interview process also revealed that respondents needed to develop a
conceptual understanding of the JG model to better allow them to answer thequestions.

7.6

The preliminary study identified significant unmet need in terms of welfare services
and corresponding potential job opportunities for low skill workers. However,
respondents generally signalled a conservative understanding of the scale of needwithin their communities relative to the scale identified in the extant research
literature. In turn, this reduced the estimates of potential jobs that could be generated
to service the need.

Survey administration method
7.7
Local governments were identified as the appropriate survey population as they covera defined geographic area with clear boundaries that do not overlap. Local
governments are also a first point of contact for communities and have extensive anddetailed information about issues of local community need.
7.8

Social planners and community development officers were targeted to complete themain survey because their main function is to develop strategies to research andremedy social problems and thus improve the social environment.

7.9

A 50 per cent sample of local governments throughout Australia was selected bymeans of a stratified random sampling technique, using categories derived from theAustralia Classification of Local Governments (ACLG).

7.10

The final survey comprised semi-structured in-depth telephone interviews.
Respondents would be asked to:comment on need for community development within the local governmentarea under 5 subcategories including public health and safety, recreation and12culture, transport amenities, community welfare services and an others
category;

identify tasks that could be undertaken by low and unskilled workers; andestimate the number of workers that could be employed to meet these needs.

7.11

The survey population consisted of 665 local governments throughout Australia(excluding Torres Strait Islands off the coast of Queensland). Three hundred andtwenty eight (328) local governments were invited to participate. Forty six per cent of
the sample (151) completed the entire survey, 10 per cent partly completed the survey
and 35 per cent declined to participate.

7.12

New South Wales and Tasmania had the highest response for full survey completion(68.4 and 71.4 per cent, respectively). Responses were lowest for Western Australia,
the Northern Territory and Queensland (between 30.1 and 38.7 per cent).

7.13

To ensure the sample remained representative of the overall population, the response
data was weighted to adjust for non-response (de Vaus, 2002: 85).

Survey results
7.14 The socially meaningful work that respondents considered could be created nationally
represented jobs for around 40 per cent of all unemployed people in local government
areas that participated in the survey (at March 2006) (DEWR, 2006a). Potential JG
employment opportunities in community welfare services (27,194) are greater than theother categories in all states. Transport amenity had the second greatest employment
generating potential (9151 jobs) followed by Recreation and culture (8680 jobs) then
Health and Safety (4774 jobs).
7.15

Eight types of jobs were consistently identified as being urgently required to meet
community needs with a number of other jobs considered to be less urgent. These
included: the construction of public housing and public infrastructure; provision of
additional teacher’s aides; and community-based home care support for the elderly;
and transport needs.

7.16

The results varied considerably across states. The highest number of potential JG
employment opportunities as a proportion of the unemployed population identified
was in surveyed LGAs in South Australia (65 per cent), while the lowest proportion ofjobs identified were in surveyed LGAs in Western Australia (25 per cent).

7.17

Spatial disparities are also evident. The highest proportion of potential JG jobs
identified as a proportion of unemployment was in local governments in rural areas(57 per cent). This was significantly larger than in urban developed areas (40 percent), urban fringe areas (36 per cent) and urban regional areas (36 per cent).

Limitations of survey
7.18 The data analysis of the main survey confirms that decision-making processes, and theinformation that people use to aid them in this process, is very much grounded in theirown prior experience and knowledge. The data collected through this survey, while
extremely useful in setting out the type of unmet needs that persist in regional
communities, definitely under-reports the scale of employment creation that is needed
to service these community needs.

13Chapter 8

Transport amenity

Transport amenity, infrastructure and social need
8.1
Effective transport systems are important for access and equity. They impact on
wellbeing and the ability to participate in economic and social activities.
8.2

State and territory governments have been responsible for arterial roads, public
transport systems, urban design and the planning of transport systems. Local
government authorities have been responsible for maintaining local low volume roadsystems and other infrastructure including footpaths and bicycle tracks. The federal
government is responsible for national highways and highway link roads.

8.3

Many respondents to the national local government JG survey acknowledged the needfor major funding to construct, improve and extend major highways and railway, andlight rail systems. An estimated $14 billion shortfall in local government expenditure
on infrastructure has been attributed to insufficient growth in revenues (AFTF, 2007:160).

Local roads and local governments
8.4
The maintenance of local low volume road systems, footpaths and bicycle tracks
accounts for a large portion of local government expenditure. Funds to maintain local
roads are primarily derived from local rate revenue, federal government grants andsome limited state government funding. Federal funding (totalling $1.15 billion in
2006-07) encompasses the Federal Assistance Grant (FAG), the Roads to Recovery
programme, the Strategic Regional programme, and Black Spot programme.
Analysis of survey results
8.5
Analysis of data collected from Local Government Social Planners indicates that
councils typically struggle with local road maintenance with respect to: bituminisinggravel and dirt roads; widening local roads to adjust to increases in local demand; androad maintenance activities, including filling potholes and clearing invasive
vegetation.
8.6

The highest proportions of local governments reporting need for additional funds werein Queensland (83.8 per cent) and Western Australia (81.6 per cent), while the lowest
proportions were reported in Tasmania (33.6 per cent) and NSW (41.7 per cent).

8.7

Need for additional assistance increases across the ACLG remoteness index. Only 43
per cent of urban LGAs reported additional funding needs compared to over 98 percent of LGAs from remote areas.

8.8

The spatial themes that emerged from this analysis indicate that the lack of investment
in rural and remote Australia leaves those locations with a higher degree of unmet
need than their urban counterparts. The areas with the greatest reported need for
additional road maintenance funding (remote areas) are also the least advantaged areas
according to the SEIFA index.

8.9

Funds allocated to local governments for expenditure on alternative transport
infrastructure, such as footpaths and cycle-ways compete with the pool of funds
available for local road investment.

8.10

Survey respondents indicated need for further investment in alterative transport
infrastructure, including footpaths and cycle-ways, that was quite similar to need forinvestment in road infrastructure. Again the greatest level of need was reported in14

remote areas, followed by rural and finally urban areas. A higher percentage of
respondents in urban areas reported a need for investment in alternative transport
infrastructure (57 per cent) than for additional local roads funding (44 per cent).
8.11

There has been a long term shift from investment and maintenance of rail
infrastructure which has resulted in the closure of rail lines, particularly in regional
areas. The need for rail links was most evident in both urban developed and urban
regional areas. Urban developed councils also pointed to the need for investment inlight rail systems. Respondents were generally unable to quantify the number of jobs
that could be created.

8.12

For many communities, the lack of regular public transport was a serious impediment
to social and economic participation. Respondents emphasised the importance ofcommunity transport that was flexible enough to accommodate the needs ofcommunity members including the elderly and people with disabilities.

8.13

A large number of potential JG jobs could be created for the construction andmaintenance of roads, footpaths and cycleways. These would include paving / surface
labourers, gardeners and builders labourers. The greatest number of jobs that could be
generated by addressing the need for transport services would be for drivers ofvehicles of various sizes from cars to buses. A substantial number of positions would
also be available for personal carers to accompany the aged and disabled, while asmaller number of jobs would be generated for clerical personnel.

Chapter 9

Community welfare services

Housing and accommodation
9.1
Affordable housing is a prerequisite for full participation in economic and social life.
Affordability issues are evident in both the rental and home ownership markets.
9.2

The federal government has increased assistance to people renting in the private
market over the past 2 decades and reduced assistance to public housing tenants.

9.3

Provision of public housing is a superior policy for ensuring housing affordability
since rents can be set as a proportion of income. In contrast, rents for rent assistancerecipients are determined by the market and one-third of recipients remained in
housing stress after receiving rent assistance (SCRGSP, 2008).

9.4

The Supported Accommodation Assistance Program (SAAP) is jointly funded by the
Commonwealth and State governments and is the major form of assistance for
emergency accommodation. There is evidence of unmet need since 56 per cent ofapplicants were turned away in 2004-05.

Analysis of survey results: need for social housing, crisis accommodation andbrokerage services
9.5
Eighty seven per cent of respondents noted that housing affordability was an issue intheir local government area, and 77 per cent reported that expansion of public housing
was needed. Examination of the data by the Australian Classification of Local
Government (ACLG) and the SEIFA advantage / disadvantage index (2001) reveals an
inverse relationship, with a higher percentage of respondents in areas that have low(relatively high disadvantage) SEIFA scores indicating a need for additional public
housing.

15

9.6

Some local governments, particularly those in rural areas continue to ease the shortfall
in public housing by providing a small amount of social housing. However, local
government revenues are not adequate to address housing needs. Only the federal
government has the fiscal capacity to meet public housing needs.

9.7

Forty four per cent of respondents reported the need for additional crisis
accommodation. Crisis accommodation facilities for those involved in domestic
violence was the most frequently cited need, followed by refuges for homeless men
and youth.

9.8

A higher percentage of survey respondents from local governments outside
metropolitan areas reported need for domestic violence refuge facilities (28 per cent),
than their counterparts in urban developed areas (8 per cent).

9.9

The need for additional youth refuge accommodation was reported by 17 per cent ofrespondents in urban developed areas and 18 per cent in rural agricultural areas.

9.10

Forty two point three (42.3) per cent of respondents from medium sized urban regional
local governments, particularly those along the NSW coastline, reported unmet
demand for accommodation to cater for homeless men (as did 35.7 per cent of local
governments in urban fringe areas).

9.11

Respondents suggested that there was great need to provide post-crisis
accommodation for various vulnerable groups that could incorporate a range of social
support, childcare and substance abuse services.

Services for the Elderly
9.12 Australia has an ageing population and adequate systems to cater for the needs of theelderly are needed urgently. The ABS Disability, Ageing and Carers (2003) survey
found that 41 per cent of people aged over 60 years required assistance with healthconditions or daily activities, but the rate increased from 26 per cent for those aged 6069, to 84 per cent for those aged 85 years or older. Assistance was required withproperty maintenance, health care, transport, housework, mobility and self care (ABS,2003).
9.13

There is substantial evidence of unmet need for community care services that are
currently fragmented and inflexible. Twenty five per cent of those self-identifying aneed for assistance with everyday activities felt that their needs were not being fully
met, including 50 per cent of those with a profound limitation (ABS, 2003).

9.14

While future demand for care will increase, the future availability of informal care is
expected to fall due to changes in family structure, increased labour market
participation by women and population ageing.

Analysis of survey results: assistance for the elderly
9.15 Respondents consistently reported the need for investment in residential aged carefacilities such as nursing homes, unit complexes and retirement villages, in order tocater to the diverse needs of the elderly.
9.16

Respondents indicated considerable unmet need for basic care services to promoteindependent living. Jobs identified by local government social planners associatedwith community welfare services in aged care included provision of general household
assistance such as cleaning, meal preparation, personal care, yard maintenance, andactivities such as changing light bulbs and painting.

16

9.17

Reported unmet need varied between states and areas. In metropolitan New South
Wales respondents reported the need for long day care services for elderly people,
while respondents from rural and remote areas, particularly in Western Australia,
highlighted the need for visitation programmes, social support and personal careservices.

9.18

Respondents commented that there was need for expansion of flexible community
transport services for the elderly including “dial-a-ride” community transport services
to assist with independent living needs.

9.19

In total, community welfare services, excluding community transport, accounted for13.5 per cent of all jobs identified. Community transport accounted for 2.7 percent ofthese potential job opportunities, construction of accommodation suitable for theelderly accounted for over 3 percent of all jobs, while the general expansion of public
housing accounted for a further 26 per cent of jobs identified in the survey.

Chapter 10 A strategic framework for regional development
10.1

Rapidly changing economic conditions over the past 3 decades have impacted
unevenly across Australia, producing pockets of high and entrenched unemployment
and labour underutilisation. De-industrialisation occurred as major manufacturingindustries were exposed to international competition in a rapidly globalising economy
while periods of prolonged drought have affected the viability of rural industries.

10.2

Government responses to these problems have been manifestly inadequate. Australian
governments have embraced the OECD Jobs Study recommendations to implement
supply-side policies with an emphasis on ALMP to enhance ‘employability’ rather
than making extensive use of job creation programmes.

10.3

The abandonment of full employment and extensive social provision of the Keynesian
welfare state in favour of the full employability framework has had major implications
for the workforce and communities throughout Australia.

10.4

The results of the national local government JG survey revealed that there aresubstantial unmet needs for infrastructure and services across urban, regional andremote areas. Need was unevenly distributed across states and regional areas.

A new national strategy to address employment and service needs of Australiancommunities
10.5 The overriding objective of the new strategic framework for regional development
proposed in this report is sustainable development where economic, social andenvironmental objectives are achieved and available labour resources are fully utilised.
A spatial Keynesian approach would facilitate the development of regionally focusedinterventions to provide infrastructure and services according to the specific needs ofthe community.
10.6

The strategic framework outlined in this report will address equity by ensuring that
there are opportunities for all to engage in productive work and have access to social
services. The spatial Keynesian approach to economic and social policy would
involve:An expansion of the public sector to provide critical infrastructure andservices;A National Skills Development framework;17

A Job Guarantee that would provide public sector employment for all thosewilling and able to work.

Chapter 11 A targeted expansion of public sector employment
The changing role of Australian governments
11.1 The neo-liberal challenge to the traditional public sector role from the early 1980s was
driven by the need to open up new avenues for private corporations and to restrict
deductions from surplus value that constituted the social wage. The role ofgovernment has been reduced as part of the transformation from the full employment
to the “full employability” welfare state. Governments have increasingly sought todeliver physical and social public infrastructure through private providers. Policies
such as deregulation and privatisation have amplified the disadvantage and poverty
experienced by vulnerable groups.
The shift in investment from the public to the private sector
11.2 Since 1976 there has been a gradual decline in public sector investment expenditure
which has been offset to some degree by increased private sector investment. Private
sector investment has increased rapidly in recent times due to reforms introduced
through the National Competition Policy. However, much of the increased investment
from the 1990s onwards was due to mergers and acquisitions rather than new capitalformation.
11.3

Infrastructure investment in contemporary Australia has become increasingly
concentrated and localised with a focus directed towards construction of industry
clusters and information nodes, which have potential to intensify returns on
investment and maximise investor profit (O’Neill and McGuirk, 2002:243). The
nature and benefits of growth and competition have been concentrated, especially inmajor urban centres such as Sydney and Melbourne.

The need for infrastructure investment in Australia
11.4 The Australian Council for Infrastructure Development (2001, cited in AFTF,
2007:153) estimated that there was need for an additional investment of $150 billion
to repair, upgrade and complete road, rail, water and energy infrastructure projects inAustralia. ABN-AMRO (2006) identified a base for infrastructure spending that
required investments of $338 billion over the next decade, $184 billion of which
would be on economic infrastructure (roads, rails, electricity, gas, water and ports) andthe remaining $154 billion on social infrastructure (schools, hospitals, universities anddefence).
11.5

The findings of the 2007 national local government JG survey confirm that current
infrastructure provision does not meet the needs of communities throughout Australia.
Cost reductions, increases in efficiency and productivity, and increased involvementof the private sector have not provided communities with a level of infrastructure thatis satisfactory.

Public sector employment outcomes
11.6 Between 1983 and 2007 public sector employment stagnated in absolute terms andcontracted relative to total employment. Total public sector employment declined from
26.6 per cent of total employment to 16.5 per cent.

18

The focus on privatisation
11.7 Privatisation began in earnest in the late 1980s and accelerated in the 1990s under both
ALP and Coalition governments at the federal and state level. In addition to
privatisation of government assets, delivery of social and economic infrastructure has
increasingly been through outsourcing and the use of public private partnerships(PPP).
11.8

The term public private partnerships (PPP) covers a wide variety of collaborations
between the public and private sectors, including: a) Build, Own, Operate (BOO),
where the private operator retains ownership of the asset when the contract expires; b)
Build, Own, Operate, Transfer (BOOT), involving private construction and operation,
followed by ownership transfer to the public system after contract expiry; c) Build
Own and Lease Back (BOLB) involving private construction and ownership with thegovernment leasing and operating the asset; and d) Operate (O), where operation of
the asset is contracted out.

11.9

PPPs offer a hybrid model for public investment in infrastructure and services thatseeks to harness the benefits of a competitive market as well as private sector expertiseand innovation, transfer risk to the private sector and facilitate provision of higher
levels of public infrastructure than could be delivered by traditional public sector
provision.

National Competition Policy
11.10 NCP was introduced in 1995 to help address the various regulatory and institutional
restrictions on competition that led to perceived inefficiencies within the Australiandomestic economy. The NCP was to enhance competition through cost control,
innovation and responsiveness to consumer needs.
11.11 An evaluation by the Productivity Commission in 2005 estimated that NCP resulted ina 2.5 per cent increase in GDP (or $20 billion) but noted that benefits and costs varied
across the Australian landscape and across socioeconomic groups with somehouseholds being adversely affected by higher prices for particular services andemployment reductions experienced by some smaller regional communities.
A targeted expansion of the public sector
11.12 An expansion of public sector service provision is an essential component of anational strategy to address the employment and service needs of Australiancommunities. Public sector employment expansion would take 2 forms: 1) expansionof jobs that are necessary on an ongoing basis in order to ensure the needs ofcommunities are met; and 2) the JG to provide a mechanism to ensure that all people
who want to work could contribute to society on a paid basis.
11.13 The question as to which of the two delivery mechanisms should be used relates towhether the service is amenable to the buffer stock model or should be provided on an
ongoing basis. Jobs in many areas social service provision may not be amenable to theJG since needs are ongoing.
11.14 Physical infrastructure provision may be delivered by a combination of increases inpublic sector infrastructure programmes to cater for prioritised projects of significant
economic or social importance, and JG jobs for lower priority projects that may beplanned in advance and implemented to accommodate fluctuations in the labour
market.

19

Chapter 12 Creating a National Skills Development framework
12.1

The term “skill” refers to a specific ability, and is generally used where the ability is
assumed to have been in some sense developed through experience or training.

12.2

It is usually assumed that when employers speak of a “skills shortage” they arereferring to an absence of technical proficiency, but more broadly, they mean a rangeof worker capabilities and behaviours that contribute to their profitability.

12.3

Skills shortages are now well recognised by Australian industry as compromising theirability to innovate and compete in global markets. Both industry and government seem
reluctant to acknowledge that a significant cause of industrial skill shortages is theunwillingness of industry to invest in sufficient skill formation.

12.4

Analyses of skills shortages by industry and governments invariably consider the issue
from the perspective of business and profitability, which places the emphasis on
containment of labour costs both in terms of wages and conditions, and hence,
whenever possible, externalising the costs associated with developing the skills firms
require in their workers. Within this context, the notion of structural unemployment
arising from “skills mismatch” can be understood as implying an unwillingness offirms to offer jobs (with attached training opportunities) to unemployed workers thatthey deem to have undesirable characteristics.

12.5

The Australian public sector of the 30 year post-war era (1945-1975) largely kept skill
shortages at bay despite prolonged high labour utilisation because the public sector
deliberately trained more people than it required to counter the under-training
propensity of the private sector. With the privatisation of public utilities, thedownsizing of public sector workforces, and the widespread adoption of private sector
practices in the public sector, the skill building role was abolished with little
consideration as to the impact this would have on the maintenance of adequate levelsof skill development.

12.6

Up until the mid-1970s there was a capacity within the Federal and State employment
departments to conduct occupational forecasting and integrate that with acomprehensive apprenticeship and training structure. The neo-liberal cutbacks ingovernment spending and employment since the mid-1970s were accomplished, inpart, by abandoning these crucial capacities.

12.7

The degree of skill shortage and the persistent unemployment and underemploymentof the past 30 years represent two-sides of the same coin. They both reflect a lack ofgovernance at the federal level.

12.8

In terms of monitoring labour market developments, the former CES played asignificant role in detecting, analysing and coordinating responses to skills shortages.
But the fragmented and competitive nature of the Job Network prevents formation of acoherent overview, or the gathering of clear labour market intelligence with which to
inform policy.

12.9

The Howard Government actually discouraged unemployed people from undertaking
training by making its provision conditional on their first participating in its
compliance programme, known as “Work-for-the-Dole”.

20

The development of a National Skills Development framework
12.10 We propose a role for the state in direct skill formation through a National Skills
Development (NSD) framework which we consider will address the skills problem
and support the global competitiveness of Australian industry. The clear necessity isfor the state to provide experiential opportunities that develop vocational skills
designed to abstractly resemble the skilled tasks performed in local labour markets.
Several points need to be considered when developing a NSD framework.


Maintaining a buffer stock of public sector jobs provides work for all irrespectiveof their skill levels and also allows paid-work opportunities to be structured intotraining and career development;



The Federal and State Governments must renew their commitment to trade training
and to adequately fund our public schools and universities. Public policy must also
set in place safety-net structures to ensure that every person under 20 years of age
is in education, training or a paid job;Occupational planning capacities must be reintroduced to ensure that theapprenticeship and training programmes are targeted in areas of regional andindustrial need; and

By maintaining full employment private employers will be forced by competition
to take a major responsibility for training and skill development of our workforce.

12.11 It is proposed that, in developing the NSD, the Commonwealth will establish:Regional labour market coordination units to support the delivery of a range oflabour market support services, whereby several Commonwealth agencies colocate in order to: conduct multidisciplinary regional socio-economic research andanalysis; facilitate industry and community input into regional strategic planning;
promote employment, education and training institution alignment with regional
economic development strategic plans; and provide regional coordination of theIndustrial Simulation Service and Job Guarantee Service;

An Industrial Simulation Service (ISS) within each region to rigorously identify
the skilled tasks performed by industry, to design activities that inculcate the skills
to perform such tasks in novices, and to furnish the training authorities (school,
TAFE, University, Job Guarantee Service, rehabilitation provider, etc…) with thevenues, technical support, and equipment they require to provide experiential
activities to form those skills; and

The Job Guarantee will be a system of public sector employment paid at theminimum federal award, with particular emphasis on developing skills in local
demand while meeting unmet community and environmental needs. It will be
engineered to produce an internationally competent world class labour force,
generating a high standard of living with improving environmental and social
standards. The Job Guarantee will achieve these goals by giving unemployedpeople skill-enhancing jobs. The Job Guarantee would be supported in the designand equipping of its numerous workplaces and activities by the Industrial
Simulation Service, according to the skills formation strategy of the region.

12.12 In real terms, the cost of building Australia’s skill formation capacity is the extent towhich resources of value to the rest of the community are consumed in the process,and the more rapid and massive its deployment, the greater the impact we would

21

expect to have. However, the speed of the ISS and Job Guarantee roll-out can be paced
to minimise the impact on the broader economy of its resource requirements.
Chapter 13 The Job Guarantee
13.1

The Job Guarantee (JG) is a policy proposal to restore the role of the public sector as asignificant employer, and to do so in a way that also controls inflation (Mitchell,1998). The macroeconomic principles underpinning this proposal constitute analternative economic paradigm to that which has dominated economic policy-making
in Australia for 30 years, and which has entrenched under-employment, fuelled private
debt and destroyed the nation’s skills formation capacity (Mitchell, 2001b).

13.2

The JG is based on a buffer stock principle whereby the public sector offers a fixed
wage job for up to 35 hours per week to anyone willing and able to work, thereby
establishing and maintaining a buffer stock of employed workers which expands(declines) when private sector activity declines (expands), much like today’s
unemployed buffer stocks.

13.3

The JG provides a platform for developing the national skills base, by comparing theobserved skills and competencies of the JG workforce with the emerging skills
requirements of each regional labour market. This would inform the provision ofaccredited training (both in-house and via external providers such as TAFE), theindenturing of apprentices, and the design of JG activities so that they include
experiential development of skills expected to be in local demand, thereby restoring
the role of the public sector as a net trainer of skilled workers and minimising the
likelihood of inflationary bottle-necks in labour supply.

13.4

The flexibility of the JG would extend to designing jobs to accommodate individuals
with special physical, intellectual and behavioural needs. It could also be adapted toaddress the needs of rural and remote communities, and to reflect cultural norms
within indigenous and other non-Anglo Australian communities.

13.5

The JG is intended as a platform to: provide economic security and social integration
for those whose labour is currently being under-utilised; reduce social dislocation
arising from unemployment and poverty; and contribute to the quality of life of all by
its contributions to a better environment, public amenity and improved services.

13.6

As a minimum wage employer that accommodates the poaching of its skilled workers
by other employers, and even facilitates this practice when extra workers are needed in
the private sector, the JG is a superior price stabiliser than the present method thatentails keeping over a million people precariously unemployed and under-employed,
and in a condition of skill-atrophying idleness, social exclusion and poverty.

An illustrative model of an Australian Job Guarantee
13.7 The Central Office of the Department of Employment would undertake: policy
development; systems development and management; performance monitoring;financial management; research and development; dissemination of best practice;marketing and reporting. It would determine national targets and accounting
methodology for the ratio of expenditure on capital and labour
13.8

Zone or regional offices would oversee and support the performance of a cluster of JG
enterprises. Each zone would consist of a team of auditors, researchers, trainers,
counsellors, job developers, IT and ancillary staff that would support the establishment
and operation of JG enterprises in each locality. Zone offices would undertake:22

regional data collection and labour market analysis; determination of projected skill
formation requirements in their region; JG enterprise establishment and staff
recruitment; JG and PES information systems and other technical support; JG
enterprise and PES staff training and development; community consultation in thedevelopment of JG service specifications for local government approval; allocation of
approved service specifications to JG enterprises; JG enterprise budget development
and approval; auditing and monitoring of JG Services; specialist JG job design;
provision of visiting specialist counselling and social work support; local marketing
and reporting.
13.9

Ideas or requests for services to be delivered by one or several JG enterprises may bedirected to the JG zone office where they would be investigated by job development
officers who would: determine the potential for the service to meet local needs;
discuss draft proposals at the Community Consultation Forum; and liaise withmembers of the community, JG enterprises and local government staff.

13.10 JG Enterprises would perform the role of employer within the JG system. They would
consist of a general manager, administrative staff, audit and monitoring staff, anoperations manager, training staff, JG supervisors and JG workers. JG workers would
work in a team under the direction of a JG Supervisor. Teams would vary in size
according to the nature of the work and the supervision needs of the workers. These
teams would be flexibly increased and decreased in number, expanded and shrunk insize, and combined or broken up according to the number of people employed by theenterprise, their skills and supervision needs, and the nature of the services theenterprise is undertaking to deliver.
13.11 All JG workers would receive the minimum federal award wage and all conditions of
employment pertaining to permanent employees including holiday entitlements,
superannuation, workers compensation coverage, and other allowances relevant to themaintenance of work clothing and such as allowed under the award.
13.12 Team supervisors would be trained and professionally supported on the job to resolve
conflicts between workers and between themselves and workers. Should conflicts
remain unresolved to the satisfaction of either worker or supervisor, a range of
graduated options would be available.
13.13 With a fully operational JG system the role of the PES changes markedly from that ofmanaging a demoralised long term unemployed and under-employed population witha punitive activity testing regime, to providing a securely employed population withinformation and access to improved private and public sector employment
opportunities.
13.14 Local government has a significant role to play in the administration of the JG due to
its local democratic authority and its proximity to the community and environmental
issues that the JG would seek to address. Council meetings could withhold approvalpending supply of further information or modifications. By this arrangement, local
government will have the strategic power to impose standards of service performanceand responsiveness to local need, while the scale of a service, including its
withdrawal, will depend on the Commonwealth’s assessment of how best to achieve
its full employment and price stability objectives.
13.15 As a further public accountability measure, a representative of local government (acouncillor or council nominee) would be the ex-officio chair of a regular Community
Consultation Forum in which staff from the JG zone office and responsible officers of23

each JG enterprise, and the PES, would be mandated to attend and respond toquestions, criticisms and suggestions from the public.
Reactions of Job Network staff to the Job Guarantee proposal
13.16 The second function of the focus groups conducted with Job Network staff was to seek
reactions to, comments and suggestions on, the JG proposal from staff currently
engaged in employment services. The concept and operation of the JG was outlined
and the following questions were displayed for general discussion:

Would the availability of a programme such as the JG support the aims of the
Job Network?

How could the JG programme interact with the Job Network?

What considerations would need to be taken into account in implementing sucha strategy?

13.17 Some Job Network staff who attended focus groups took some time to comprehend
fully the implications of a JG for the operation of the Job Network and the labour
market as well as the implications for clients. Feedback from Job Network staff
indicated that the JG would provide clients with valuable employment experience,
opportunities for skill enhancement and importantly, enable them to participate ineconomic and social activities and thereby reduce the damaging effects of
unemployment that involve skill atrophy, loss of dignity and social exclusion.
13.18 The JG scheme is underpinned by modern monetary macroeconomic theory that is
applicable to flexible exchange rate economies such as Australia’s where the federal
government has the monopoly over currency issuance (a so-called fiat currency
system). This theoretical framework addresses the known deficiencies of mainstream
macroeconomic theory which is largely inapplicable to modern monetary economies.
13.19 The JG shows how price stability can be established and maintained without the needto render hundreds and thousands of Australian’s unemployed. So instead of imposing
economic hardship, social exclusion, skill-atrophy and despair on the mostdisadvantaged workers in Australia under a system of inflation targeting, which isunavoidable under current practices based on the prevailing macroeconomic
orthodoxy, the JG achieves price stability by maintaining full employment.
Chapter 14 Investing in a national Job Guarantee
14.1

We provide detailed investment estimates that would be required to run a national JG
in a JG scheme. The government spending to fund the JG wage would not be at market
prices because by definition there is no market bid for the workers in question. The
real resource costs would be the extra food, clothing and transport resources that the
JG workers might consume, given that they now earn the minimum hourly wage,
rather than receiving unemployment benefit, the disability support pension or no
income at all. Given that the minimum wage should be aligned with community
expectations of what constitutes a reasonable standard of living, the extra resourcesthat the JG workers would consume could not be considered excessive.

14.2

While some readers may interpret this as conducting a costing exercise, we caution
against this interpretation. The nominal entries that are recorded in budget statements
are not “costs” in any real sense. The real costs of the JG would be the extra resources(for example, food, capital equipment etc) that are required to change the system fromits present state to that with a JG.
24

14.3

As a derivative study to the national survey of local governments, interviews wereconducted with relevant local government officials to allow us to more accurately
assess the resource investment needed to mount a national JG. The interview collected
information about wages and other labour costs; the worker / supervisor ratio; costs ofmaterials and capital equipment; training costs and administrative costs.

14.4

Research into the cost structure of job creation programmes revealed a wide variety oflabour / capital ratios. Labour costs comprised between 30 and 86 per cent dependingon the capital intensity of projects.

14.5

From the interview and other research we differentiated tasks according to capitalintensity. For low capital intensity we assumed a labour / capital split of 75/25; formedium capital intensity – 60/40; and for high capital intensity – 50/50.

14.6

We categorised the jobs identified in the national survey according to capital intensity
and calculated their share in total JG jobs identified. 43.3 per cent were in low capitalintensity areas; 40.2 per cent were of medium capital intensity and 16.5 per cent werehigh capital intensity jobs. All private sector jobs are assumed to be of medium capitalintensity.

Current levels of labour underutilisation
14.7 In our calculations we use the figure of 2 per cent for the target rate of unemployment,so that we identify full employment with a modest rate of frictional unemployment,
rather than a rate of unemployment associated with stable inflation which has been
considered to be politically feasible.
14.8

In May 2008 there were 477 thousand workers officially unemployed out of a total
labour force of 11,115 thousand. In addition there were 145.8 thousand hidden
unemployed.

14.9

We expect that 17,800 people will make the transition from DSP to NSA as a result of
the eligibility changes introduced with Welfare to Work in July 2006.

14.10 In total 327.1 thousand full time equivalent jobs would need to be created to achieve a
2 per cent rate of unemployment, taking into account the hidden unemployed and theofficial unemployed. In addition, there were 472.2 part-time workers seeking an
average of an extra 14.4 hours of work per week in September 2007, which isequivalent to 194.2 thousand FTE workers. The total underutilisation means that theinitial Job Guarantee pool would be 489.6 thousand full-time equivalent workers
although clearly once the policy was introduced, the stimulus to the private sector
would also erode the pool.
14.11 While annual productivity per full-time equivalent employee was about $111,000 in
May 2008, we assume that the productivity of the newly employed full-time
equivalent workers in the private sector is $80,000. JG workers are paid $28,600.
Wage earners are assumed to have a marginal propensity to consume of 0.8.
14.12 If a JG were to be implemented, government outlays would increase through thepayment of income to newly employed workers and the associated on-costs. We also
make allowance for the fact that of the official ABS unemployment of nearly 477
thousand, approximately 429 thousand are registered Centrelink recipients of benefits.
14.13 In addition to reducing benefit outlays, the Federal government will receive higher
levels of tax receipts. In addition, we measure indirect taxes. We do not take accountof any of the likely savings in government outlays which currently are designed to25

address the high social costs of unemployment, notably higher crime rates and theincidence of ill-health, nor do we take account of the administrative employment
which is generated by the employment of JG workers and is reflected in the non-wage
costs.
Job creation requirements to reach full employment
14.14 To achieve a full employment level (consistent with 2 per cent official unemployment,no hidden unemployment and no time-related underemployment), an extra 559.2
thousand jobs would be required.
Five scenarios
14.15 We consider 5 scenarios below to provide an indication of orders of magnitude ofdifferent forms of expenditure associated with the achievement of full employment:
Scenario 1 is associated with a private sector expansion while the remaining scenarios
are based in the operation of the Job Guarantee.
14.16 Scenario 1 - The first case we consider is when there is a private sector expansion of
employment of nearly 560 thousand. The increase in output at market prices (that is,taking account of indirect taxes) would be approximately $43.6 billion. This represents
about 3.7 per cent of nominal annual GDP. The government reduces its outlays on
DSP and unemployment benefits of $3.1b and gains extra revenue of $8b, comprising
the increase in taxes on wages and profits and indirect taxes. In this scenario, ofcourse, there is no JG job creation.
14.17 Scenarios 2, 3 and 4 - Scenario 2 involves the implementation of the JG with low
capital intensity jobs that is, using the 75/25 rule (a rate of on-costs in the public sectorof 33 per cent). The employment of JG workers gives rise to increased disposable
income and increased consumption demand which leads to additional private sector
output, employment and income, which in turn leads to further increases in
consumption demand, as is depicted by the multiplier process. Thus the increase of
employment of 559.2 thousand is made up of both JG and private sector employment.
There are more modest savings on government outlays, because nearly 80 per cent of
the addition jobs are paid at the minimum wage. The change in employment outlays
represents the wage and non-wage costs of employing the JG workers. In the low
capital intensity scenario the net additional expenditures by government total $8.3b.
The shift to medium or high capital intensity JG jobs merely increases JG employment
expenditure by government to $18.6b and $22.3b, respectively which leaves net
additional expenditures of $11.9b and $15.7b, respectively.
14.18 Scenario 5 – We assume that the composition of JG jobs conforms to the shares
outlined above. This is equivalent to a 63.6/36.4 rule that is just below Medium capitalintensity. Consequently the net change in government expenditure is below thatassociated with medium capital intensity, namely $11b.
14.19 We have adopted conservative assumptions about behaviour and estimated the ordersof magnitude of expenditure, income and output that would be associated with such a
policy change. Even under the assumption of all JG jobs being associated with highcapital intensity, the additional government expenditure is less than the reported costof the Sydney Olympics, but, if incurred annually, will convey long-term economic
and social benefits to the most disadvantaged members of society.

26

14.20 These outcomes are summarised in Table 14.5 which we reproduce here.
Table 14.5 Implementation of JG to achieve true full employment, as at May 2008
Parameter

Estimated change

Δ Output (billions)

20.6

ΔPublic sector output (billions)

11.7

ΔPrivate sector output (billions)

8.9

Δ Public sector employment

445.0

Δ Private sector employment

114.2

Δ Employee Income (billions)

12.1

Δ Profits (billions)

0.7

Capital Intensity

75:25

60:40

50:50

JG distΔ Government Outlays ($billions)

11.9

15.7

19.4

14.7

Δ Unemployment benefits

-2.8

-2.8

-2.8

-2.8

Δ Disability benefits

-0.1

-0.1

-0.1

-0.1

Δ Employment expenditure

14.8

18.6

22.3

17.6

Δ Government Receipts ($billions)

3.7

3.7

3.7

3.7

Δ Taxes on wages

1.4

1.4

1.4

1.4

Δ Taxes on profits

0.2

0.2

0.2

0.2

Δ Indirect taxes

2.1

2.1

2.1

2.1

$8.3 b

$11.9 b$15.7 b$11.0bΔNet government expenditure

14.21 It should be emphasised that the net increase in government expenditure does not
represent real costs, unless greater benefits to society can be gained by an alternativeuse of this expenditure, but none have been articulated in the public debate. At present
the (full-time) equivalent of about 559 thousand workers are being underutilised. It is
important to note that the calculations do not include the employment of the 3.5
million individuals of working age, who are not in the labour force, except for thehidden unemployed. Some of these remaining people who are not in the labour force
have a marginal attachment to the labour force (ABS, 2007b).

27

Part 1
Regional Development Challenges

28

1
1.1

Introduction

Background

The post World War II social settlement throughout the OECD involved the introduction anddevelopment of the Keynesian welfare state that incorporated 3 pillars. The first pillar was thegovernment commitment to full employment. The second pillar was the provision of theformal components of the welfare state that represented attempts to ameliorate market
outcomes through provision of income support and services and regulations regarding
minimum wages and working conditions. The third pillar recognised that access to the welfare
state was a right of citizenship, making a distinctive break with previous welfare provisionthat was often discretionary rather than rights-based and made distinctions between thedeserving and undeserving poor.
Following the economic crisis of the mid 1970s induced by the oil supply price shock, theKeynesian welfare state came under attack as governments retreated from the commitment tofull employment and sought to eliminate deductions from surplus value and increase the profit
share of national income. The 3 major pillars of the Post War full employment consensus
were abandoned and full employability and price stability became the major economic aimsof government. The “full employability” framework advocated market-based outcomes
unfettered by government intervention as the major basis for economic prosperity. The
market-based solution to regional unemployment disparities is migration of workers in
response to relative wage differentials. Finally, the concept of individuality has replacedcollective will and the intrinsic rights of citizenship have lapsed in favour of ever increasing
conditionality and social controls.
The persistence of high levels of unemployment, underemployment and regional disparities
demonstrates that the “full employability” approach is incapable of delivering on the promisesthat were given by policy makers. It certainly has not been capable of providing a path back tofull employment.
This Report is the culmination of a 3 year research project between The Centre of Full
Employment and Equity at the University of Newcastle and Jobs Australia Pty Ltd and was
motivated by the objective of developing a new approach to social and economic policy
making that is:Capable of delivering macroeconomic stability which we define as true full
employment in jobs that meet the decent work standards and price stability;Ensuring regional development is sustainable in social, economic and environmental
terms, such that communities throughout Australia have access to the economic andsocial infrastructure necessary to facilitate full participation and promote wellbeing.

This Report presents a new integrated framework for regional development which we
consider will be instrumental in achieving these objectives. Specifically, the Report outlines 3
important and integrated policy initiatives:An expansion of the public sector to deliver services and jobs to regional Australia;29A new national Skills Development Framework; andImplementation of a Job Guarantee (JG) where the government acts as an employer oflast resort by providing employment at a fair minimum wage to all those willing andable to work who cannot otherwise find employment.

This introductory chapter is organised as follows. First we consider the right to decent workand social inclusion which are the primary economic and psychological benefits that
individuals derive from paid employment. The following section considers the need to ensurethat future development is ecologically sustainable. Section 1.4 presents some of the major
issues to be addressed in developing a comprehensive response to regional development inAustralia. Section 1.5 describes the content of the research. Section 1.6 outlines the structureof the report and the major conclusions of the research are presented in the final section.
1.2

The right to decent work

For the majority of the working age population earned income is the primary means formaintaining their living standards and facilitating participation in community life and leisureactivities. The quality of work also has a major impact on physical and mental wellbeing.
The concept of decent work was adopted in the ILO Declaration on Fundamental Principals
and Rights at Work. It includes aspects that relate to both quality and quantity: productive andsecure work; adequate income; freedom of association, collective bargaining andparticipation; absence of discrimination; forced labour; and rejection of child labour (United
Nations, 2006; International Labour Organization, 2008). Decent work is central to the
reduction of poverty, deprivation and to ensure social inclusion.
In the post war period the Keynesian welfare state provided a combination of full employment
and services such as education, health and social services that constituted the social wage.
During this time advances were made in remuneration from work and in working conditions.
From the mid 1970s unemployment increased internationally and sections of the population
were excluded for the labour market, often for extended periods of time or indefinitely.
In addition, there have been fundamental changes in the quality and quantity of work. The
proportion of part-time work has increased from 15.3 per cent in 1978 to 28 per cent in 2008
(ABS, 2008), permanency conditions have been eroded with an increased proportion ofpeople working in casual employment or on contracts for specified periods of time. Moreover,in many instances working conditions have deteriorated as conditions won during the boom
have been surrendered in wage negotiations in a period where workers’ bargaining power has
receded due to globalisation, deregulation and significant industry restructuring.
Despite more than 15 years of sustained economic growth in Australia there are still highlevels of labour underutilisation. The United Nations makes the point that economic growth
should not be viewed as a goal in itself but a means to facilitate welfare and ensure social
integration (United Nations, 2006). Therefore: ‘Any national and international strategy
towards development will require a balance between equity, economic growth, employment
generation, and environmental sustainability within a stable macroeconomic environment(United Nations, 2006: 29-30).’This Report embraces the viewpoint that employment is necessary for economic survival andto enable individuals to lead productive lives and maximise wellbeing. For these outcomes tobe achieved the work provided must offer sufficient remuneration to provide a decent
standard of living and facilitate participation in the social life of the community. The qualityof employment should reflect the attributes of decent work listed above.

30

1.3

Sustainable development

Sustainable development includes economic, social and environmental considerations.
Historically, industrialised societies have failed to adequately consider negative externalities
such as pollution because these costs were not included in production costs. In recent years
there has been growing alarm about global warming and damage to the environment produced
over the past few centuries in particular. The effects of global warming and climate change
threaten the economic, social and health outcomes, particularly in regional areas severely
affected by drought and chronic water shortages.
Australian governments adopted the National Strategy for Ecologically Sustainable
Development in 1992 (Department of the Environment Water Heritage and the Arts, 1992).
The Strategy aims to conserve resources by changing the nature of production andconsumption to satisfy needs by using fewer resources and producing less waste. The guiding
principles of the Strategy included:
integrating economic and environmental goals in policies and activities;



ensuring that environmental assets are properly valued;

providing for equity within and between generations;

dealing cautiously with risk and irreversibility; andrecognising the global dimension.

The Environment Protection and Biodiversity Conservation Act 1999 sought to use acooperative approach of governments, the community and land-holders to protect theenvironment, particularly areas of national environmental significance such as national
heritage areas and national parks, and promote ecologically sustainable development. The
federal government has launched the $12.9 billion Water for the Future plan to ensure thatwater supply for the Australian population can be maintained and that water flows in the
Murray-Darling Basin are increased through the buy back of water entitlements in an attempt
to reverse damage inflicted through many years of overuse.
To date responses to environmental challenges have been piecemeal and woefully inadequate.
There is an urgent need for attention to remediation of environmental degradation due toenvironmentally abusive activities in primary production and manufacturing and to ensurethat the environment is protected in the future. Economic growth is capable of providing
economic benefits through employment and the social opportunities that income provides, butdoes not ensure that the environment is protected. However, employment creation andprotection of the environment can be easily integrated if an appropriate job creation
framework is implemented. This Report focuses on how these two objectives can be achieved
through the design of employment opportunities that provide meaningful employment to large
numbers of workers but simultaneously protect or enhance natural resources as well as
providing services that enhance wellbeing.
1.4

Current issues relating to unemployment and regional development

1.4.1 Overview
A longstanding issue in regional analysis is the difficulty with defining the boundaries ofregions. Traditionally regions have been defined using administrative jurisdictions which do
not necessarily conform to regions in a functional or interactional sense. If regions are definedon too small a geographical scale differences may be accentuated. If defined on too large ascale, spatial differences may be lost due to the high level of aggregation.

31

Several different spatial scales have been used to define regions in Australia. OECD regional
analysis is confined to the state level which means that the substantial variation between thediverse intra-state areas is lost and regional variations are therefore understated. Labour
market analysts such as Mitchell, Bill and Watts (2007) seek to define regions by examining
economic behaviour using journey to work data. This approach to labour market analysis
provides richer information on regional performance, including employment andunemployment outcomes and industry developments.
Other approaches seek to define regions by the functionality of the regions. The National
Institute of Economic and Industry Research (NIEIR) uses a hierarchy of regions that includes
sub-global cities, service based metropolitan areas, resource based regions, industrial oriented
regions, rural based regions and lifestyle based regions (Senate Employment Workplace
Relations Small Business and Education Committee, 1999). Similarly, the AustralianClassification of Local Governments (ACLG) was published by the Department of Transportand Regional Services (DOTARS) in 1994. The ACLG classifies local governments
according to population, population density and the proportion of the population classified asurban. Initially councils are classified as urban or rural. Urban councils are then categorised ascapital city, regional towns or fringe areas. Rural areas are categorised as areas of significant
growth, agricultural areas or remote areas. The final step in the classification process
categorised local government areas as small, medium, large or very large on the basis of
population.
This research used local government areas as the basis for regional analysis because they
cover a defined geographic area with clear boundaries that do not overlap. Local governments
are also a first point of contact for communities and have extensive and detailed information
about issues of local community need. The research results are reported by state and ACLG,
providing a basis for comparison between jurisdictions and according to the type of local
government.
This Section considers contemporary issues in relation to regional unemployment anddevelopment.
1.4.2 Unemployment, underutilisation and spatial disparities
Since 1975, employment growth in Australia has failed to keep pace with labour force growth
resulting in persistent unemployment and a rising incidence of underemployment due to the
expansion of part-time and casual employment that often fails to match the quantum of workthat individuals require (Mitchell, 2001a). The situation has deteriorated further with theintroduction of active labour market programmes. Since the release of the OECD Jobs Study
there has been an accelerating trend towards precarious employment (limited dismissal
protection) in the form of part-time and casualised employment and the commensurate failureof economies to provide enough hours of work to match the preferences of the workforce.
In October 2008 unemployment stood at 4.2 per cent of the labour force, and in numericalterms this means that 481,100 are officially jobless (ABS, 2008). In addition to official
unemployment there is widespread evidence of labour underutilisation. In 2007 there werealso 571,900 part-time workers who required an average of 14.4 hours additional work per
week (ABS, 2008). Reductions in unemployment have been accompanied by large increases
in the number of Disability Support Pension (DSP) recipients. Between 1995 and 2007 DSP
recipients increased by 51 per cent to 697,000 (Gregory, 2008 cited in Keating, 2008).
The Centre of Full Employment and Equity (August 2008) estimates over 8 per cent ofwilling labour are underutilised in various ways (unemployment, hidden unemployment andunderemployment) despite the official unemployment rate being at 4.2 per cent (as at October32

2008). This is a conservative estimate given the official statistician estimates total labour
underutilisation to be 9.9 per cent in October 2008 (ABS, 2008).
The burden of unemployment and underemployment has not been distributed evenly. Low
skilled workers have been disproportionately represented in the ranks of the unemployed or
those engaged in precarious employment. Youth unemployment currently comprises 19.7 percent (94,600) of total unemployment, and long-term unemployment constitutes 14.8 per cent(71,200) of all unemployed (ABS, 2008).
Despite more than a decade and a half of uninterrupted economic growth there isoverwhelming evidence that the economic and social benefits have not been distributed
evenly throughout Australian communities. It has failed to eliminate poverty, deprivation andsocial exclusion (Australia Futures Task Force, 2007; Saunders, Naidoo and Griffiths, 2007:
xi).
Analysis by Garlick, Taylor and Plummer (2007: 30) found that between 1984 and 2002
‘spatial divergence has increased and become more concentrated, with fewer regions
becoming larger high-growth centres and more regions becoming low-growth areas’. The key
beneficiaries of a prolonged period of economic growth have been major metropolitan areas
while other regions have had declining growth. Unemployment rates have varied by state. In
2006-07, Tasmania and the Northern Territory had the highest unemployment rates, while
Western Australia recorded the lowest rate. Unemployment rates have been consistently
higher outside the major metropolitan areas of each state.
1.4.2 Skill shortages and skill formation
The abandonment of the state as a significant source of employment and on-the-job training
has left a 30 year legacy of chronic labour under utilisation and inadequate skill formation
capacity.
Current national skills formation strategies recognise the crucial importance of providing
novices with well-supervised opportunities to practice skilled work, as per traditional training
arrangements such as apprenticeships and other forms of on-the-job training (Wood, 2004).
Implicit learning and tacit knowledge of a skill, which underpins confident proficiency, isonly developed by actually performing work requiring that skill, thereby consolidating
explicit formal training, verbal on-the-job instruction, and other sources of codified
information.
The opportunity for supervised practice is as relevant to a graduate engineer undertaking acomplex project as it is to a person with an intellectual disability learning what is sociallyappropriate in a workplace. But while governments and industry have invested considerable
time and energy in an effort to build a skills formation infrastructure and culture, thedeficiency in opportunities for all citizens to practice and exercise vocationally relevant skills
remains a strategic weakness. This deficiency is evident in restricted access to well structured
and accommodating practical vocational experiences for several populations:

People highly marginalised from labour force participation;

Underutilised members of the labour force (unemployed and precariously employed);Students in higher education (Universities and TAFE) that need to complement formal
study with practical work;

Secondary school students;



People undertaking various forms of physical, mental rehabilitation; and33



People in industry with insufficient training opportunities.

Most strategies aimed at imparting practical skill presume that industry will bear the
responsibility of furnishing such supervised experience, failing to acknowledge the chronic
incapacity (and uneven willingness) of the private sector to do so for much of the population.
A viable regional development strategy must address the skills formation question with astrategy that includes a means of delivering high quality experiential training to a large
number and range of citizens.
1.4.3 Population ageing
Australia has an ageing population as the baby boomers approach retirement age and the
proportion of elderly people living alone is increasing. By 2051 the proportion of the
population aged over 65 will reach almost 25 per cent and the proportion aged over 75 will be
more than 13 per cent (ABS, 1998 cited in Australia Futures Task Force, 2007).
The ageing of the Australian population has implications for the labour market andmaintenance of living standards. By 2040 there will only be 2.4 working age Australian perperson over 65 compared to the current level of 5.6 (Australia Futures Task Force, 2007). As
the working age cohort shrinks as a proportion of the population, it will be necessary to
encourage working age Australians to work and to ensure that all those who want to work areable to find employment in order to maximise economic growth and meet the economic needsof the Australian population. The imminent withdrawal of the baby boomers from the paid
workforce also requires the training of replacement workers through a national approach totraining and workforce planning.
As the population ages there will be an accelerating need for social services to meet the needsof the elderly to remain in the community. A policy of expanding assistance to the frail
elderly will enable them to choose to “age in place” rather than have to go to a nursing homeor move to other areas and lose contact with their families and social networks. A range ofauxiliary services will be required including assistance with domestic work, gardening, caring
and transportation. These types of assistance are currently chronically undersupplied inAustralia (see, for instance Australian Government Department of Health and Ageing, 2007).
Even with the current level of unmet need for services for the elderly, population ageing will
increase the level of assistance required. For example, Home and Community Care (HACC)
assistance is expected to grow from three-quarters of a million services per year in 2004-05 toalmost 1.2 million over 20 years, and intensive assistance to the frail elderly under theCommunity Aged Care Packages (CACP) is expected to treble over 40 years from 2004-05.
Nevertheless, there will also be a need to increase residential aged care accommodation
significantly to cater for the needs of those who would prefer to use, or who require the levelof services provided by, residential care.
In addition, population ageing will be spatially concentrated so that some regions will beaffected to a greater degree than others. The Productivity Commission (2005) examined
demographic change at a regional level between 1981 and 2001 and found there was a rising
proportion of aged people in coastal areas. The population share of people over 65 rose incoastal and inland urban areas due to both inward migration of older people and outward
migration of younger people in inland rural areas. In contrast, the average population age fellin metropolitan and remote areas.

34

1.4.4 Other issues for Australian regions
The solution to regional disparities in employment opportunities is assumed to be out
migration to areas of higher employment growth. However there are several complicating
factors that reduce the efficacy of this strategy. First, differentials in housing and living costs
may preclude mobility, particularly since house prices in declining areas are likely to havedeclined relative to high growth areas. Secondly, in the current macro-constrained
environment where growth is insufficient to restore full employment, those migrating to highgrowth areas are not guaranteed of employment success. Importantly, even when there are
economic benefits from migration there may be detrimental social impacts by disrupting
social networks and reducing social cohesion (Australia Futures Task Force, 2007).
The Senate Employment Workplace Relations Small Business and Education Committee(1999) summed up the experiences of communities where declining employment
opportunities become self-perpetuating due to negative income multipliers and result in theloss of services, population and ultimately threaten economic viability. Reduced employment
in industries in decline impacts on local businesses, including support industries, with further
negative consequences for employment. More mobile workers and school leavers migrate toareas with superior employment prospects causing population decline. As the population
shrinks, government services may be withdrawn along with other businesses, such as financial
institutions, which move to larger centres. School populations decline, housing prices
plummet and local rate receipts decline causing further contraction of local services. Evidence
presented to the Committee emphasised the negative effects on regional Australia of thewithdrawal of government services including regional health centres, railways and regional
offices.
Similarly, National Competition Policy (NCP) has had negative consequences for many
regional areas. According to the Productivity Commission (2005), privatisation of many
services that were previously provided by the public sector has produced economic benefits
but has been accompanied by concentrated losses for some regions including Gippsland in
Victoria and Wheatbelt in Western Australia, where employment in infrastructure industries
declined by 11.27 and 4.19 per cent respectively.
Entrenched disadvantage in particular areas produces a myriad of long-term consequencesthat reinforce multiple disadvantages and cause social exclusion. Glennerster et al (1999)
explain that lack of work opportunities results in poor school performance and poor humancapital formation; produces a low productivity workforce, and low income. Theseneighbourhood effects must be countered by effective education and employment policies.
Declining housing affordability reinforces disadvantages in some regions due to entrenched
unemployment and the loss of services as the public sector has retreated from service
provision. The HIA Housing Affordability Index shows that housing affordability in Australia
remained at a 24 year low in June 2008 with repayments for a typical first home buyer
accounting for 28.5 per cent of income (HIA, 2008). Rental stress is also a major problem inthe private rental market and the provision of public housing has declined significantly due tosales of existing housing stock and a dearth of construction. In 2006 only 4.26 per cent ofdwelling were owned by state or territory housing authorities (ABS, 2006).
In short the spatial concentration of unemployment and underemployment as well as otherphenomenon such as poverty, housing disadvantage and lack of access to services ‘presents asignificant equity and social justice issue’ (The Australian Futures Taskforce, 2007: 123) thatis the focus of this Report.

35

1.5

Research approach and content

The primary purpose of this research is to investigate the feasibility of the introduction of a
Job Guarantee scheme in Australia that would deliver full employment and improve economic
and social infrastructure and improve access to services that are currently not provided orundersupplied. The research consists of a number of strands of analysis:
1. Review of international literature on policies relating to employment services and theuse of ALMP
2. Review of international literature on regional policies including new regionalism(NR), social entrepreneurship (SE) and local partnerships.
3. A national survey of local government social planners to examine the feasibility of
introducing a JG by determining:The level of unmet need in regions in relation to:- Transport amenity;- Public health and safety;- Recreation and culture;- Community welfare services.



The types of public sector jobs that could be created under the JG for low
skilled workers to fulfil these unmet needs.



The number of jobs that would be necessary to meet these needs.

4. Focus groups with Job Network employees to assess the effectiveness of existing
employment services and ALMP and to obtain feedback on the JG proposal.
5. Development of a new framework for regional development capable of producing
sustainable development by meeting economic, social and environmental objectives.
6. Designing a model to estimate the investment needed to implement a national JG in
Australia. This involved detailed structured interviews with local government
representatives to obtain estimates of costs involved in specific tasks that wereidentified as unmet needs by social planners. Information obtained included costs oflabour, materials, equipment, supervision and overheads as well as the structure ofwork teams and employee to supervisor ratios.
1.6

Structure of the report

This Report is organised into 4 main parts as follows. Part 1 is focused on the abandonment offull employment by western governments since the 1970s and the pursuit of diminishednational goals such as full employability. Chapter 3 traces the transformation of employment
and social policy along these lines. In the post war period the Keynesian welfare state wasfounded on government commitments to assuring full employment through fiscal andmonetary policy, the provision of income support for those unable to work and the provisionof services such as education, health and housing. This framework has subsequently been
supplanted by the “full employability” edifice built on neo-liberal economic and social
policies. This shift has been characterised by the shift from full employment to full
employability championed by the OCED Jobs Study (OECD, 1994) that stressed activation in
employment policy and retrenchment of social policy marked by the withdrawal of the statefrom direct provision of services which have been progressively returned to the market
through privatisation, contracting out or cessation of provision.
36

Part 2 examines the current policy framework for delivery of employment and regional
policies. Chapter 4 traces the development of Active Labour Market Policy (ALMP) noting
the shift in emphasis that coincided with abandonment of full employment in favour of full
employability. Chapter 5 outlines the transformation of regional policy from assisting lagging
regions to the emphasis on new regionalism that recommends the development of clusters ofinternationally competitive firms and the use of social entrepreneurship and local partnerships
to address local development issues. Chapter 6 presents information on the implementation of
employment policy in Australia, tracing the trajectory of the CES and Job Network and theimplementation of ALMP. Developments in Australia have mirrored international experience
in relation to ALMP but have been at the more extreme pole of implementation of the OECD
activation recommendations, implementing a work first approach that has paid scant attention
to skill development.
Part Three reports the results of the national local government JG survey that was conductedin order to establish the extent of unmet need in regional Australia and the employment
opportunities that could be developed under a JG to satisfy those unmet needs and improvethe economic, social and general wellbeing of Australians through the development of
spatially specific solutions tailored to the needs of individual communities. The results of theresearch indicated extensive unmet needs in Australia. However, the inability of some
respondents to put aside the conception of budget constraints suggests that the results
underestimate actual need to a considerable extent.
Chapter 7 reports the entire survey results for the 4 categories of need included in the survey
and finds that unmet needs varied throughout Australia and demonstrates that there issignificant unmet need in communities across Australia. Chapters 8 and 9 provide a closer
examination of specific aspects of the survey and compare the survey results with other data
sources. This approach confirms that needs were almost certainly underreported by survey
respondents.
Part 4 of the Report elaborates a new framework for regional development in Australia
designed to restore full employment. The framework outlined in Chapter 10 and each of thefollowing 3 chapters details one component of the strategy. Chapter 11 discusses theconsequences of the failure of governments to adequately invest in the economic and social
infrastructure over the past few decades and identifies the need for increased public provision
to ameliorate these deficiencies. The report notes that this strategy requires further researchand development including identification of services that are essential to economic and social
participation and implementation plans for delivering these to Australian communities at an
appropriate scale on an ongoing basis.
Chapter 12 traces the failure of both the private and public sectors to invest adequately in skill
formation in Australia. The chapter traces the demise of the public sector as a major
component of the national skills framework; a consequence of government fiscal restraint andprivatisation policies. A new framework is elaborated that incorporates appropriate conceptsof skill recognition and is built on the principle that job-specific skills are most effectively
acquired within a paid-work environment (that is, learning on the job). A thorough critique ofthe supply-side approach to skill development which divorces training from paid employment
is provided.
Chapter 13 elaborates the Job Guarantee strategy to restore full employment by providing up
to 35 hours employment in the public sector to all people who want to work. The JG buffer
stock would expand (contract) as private sector employment contracted (expanded) and would
provide socially meaningful work that would include training opportunities. Persistent
unemployment and underemployment throughout the past 3 decades has proven conclusively
37that the private sector cannot ensure full employment or eliminate spatial disparities inunemployment. This chapter describes an illustrative model for the delivery of the JG in
Australia that outlines the roles and responsibilities of various organisations involved in
implementation, including interaction between these organisations, community consultation
and accountability.
Chapter 14 develops a framework assessing the investment required to implement a national
JG, which takes into account the outlays required to pay wages and on-costs for JG workers
and supervisors; equipment and material outlays and other overheads.
1.7

Conclusion

The major conclusion of this research is that there is an urgent necessity to develop a newframework for regional development that ensures economic prosperity through effective
training solutions to increase productivity, deliver full employment in decent jobs and provide
essential economic and social infrastructure.
This research has provided insights into the inadequacy of macroeconomic policies inAustralia and the failure of prevailing employment and ALMP to restore full employment. In
addition, there are significant costs due to persistent unemployment that include: social
exclusion and the loss of freedom; skill atrophy; psychological harm; ill health and reduced
life expectancy; loss of motivation; the undermining of human relations and family life; racial
and gender inequality; and loss of social values and responsibility.
The transformation from the full employment to the full employability framework resulted inwithdrawal of the state from service provision with detrimental impacts on quality of life andeven personal autonomy. There is overwhelming evidence that communities throughout
Australia have significant, and often urgent, needs that are currently not being met or not
being met on an adequate scale.
The national local government JG survey demonstrated the types of unmet needs forcommunity development that varied in their nature and quantum between regions. Regionswith the greatest level of reported need were strongly correlated with indicators of
disadvantage such as ABS Socio-Economic Indexes for Areas (SEIFA). Thus the economic
disparities identified by the spatial distribution of unemployment and underemployment areexacerbated by social disparities in access to services.
For these reasons Australia urgently requires a new framework for regional development thatmeets the criteria for sustainable development by addressing economic, social andenvironmental issues. The combination of a targeted expansion of the public sector to addressessential services that need to be provided on an ongoing basis, a new skill formation
framework and a JG to ensure full employment by providing jobs in the public sector meetsthese standards by addressing employment (economic needs), service provision (social needs)
as well as opportunities to remediate environmental damage and prevent further degradation.

38

2
2.1

Current policy development– big on promise, short onprospect

Introduction

Since taking office in November 2007 the Rudd Labor government has announced several
policies that relate directly to employment policy, welfare reform, skill development, regional
policy and infrastructure. The Government has identified social inclusion as a priority,
established a Social Inclusion Unit in 2007 in the Department of Prime Minister and Cabinet
and appointed a Social Inclusion Board in May 2008 to advise the government on policies toassist the most disadvantaged Australians including: jobless families, children at risk of longterm disadvantage, disadvantaged communities, homelessness, employment for people withdisabilities, and indigenous Australians.
The Government has responded to the world economic crisis with several major initiatives:

A $10.4 billion Economic Security Strategy to stimulate the economy;Guaranteed bank deposits to restore confidence in the banking system;

A $6 billion dollar assistance plan for the car industry; and$300 million in grants to local government for community infrastructure.

Despite these measures, Treasury has forecast that economic growth will decline from 3.9 percent in 2007-08 to 2 per cent in 2008-09 and the official unemployment rate will rise to 5 percent by the June quarter 2009, and to 5.75 per cent by the June quarter 2010 at 7.9 per cent
was almost double the official unemployment rate of 4.1 per cent (CofFEE, 2008). As
economic activity declines and the official unemployment rate increases, the extent ofunderemployment and hidden unemployment will also rise so that the total increase in labour
underutilisation will be significantly greater than the rise in official unemployment.
It should further be noted that the Treasurer continues to misunderstand the nature of thebudget that he is responsible for. His comments in recent days (reported on November 20)
that there was no need for the Government to allow a budget deficit to occur despite the majorrisk of a severe economic downturn being present. This continues the same budget surplus
fetishism that had dominated macroeconomic policy for more than a decade. It is the sameerroneous logic that has allowed persistent labour underutilisation, a degradation of our public
infrastructure and a major redistribution of income and resources towards the rich. We
consider these issues in Chapter 3.
This chapter places this Report in the context of economic and policy developments since theelection of the Rudd Government in November 2007 that will impact on social inclusion andeconomic participation. Section 2.2 outlines changes to employment services to commence inJuly 2009. It emphasises where the new arrangements constitute a continuation of, or breakfrom, current policy settings and the implications for job seekers and labour market outcomes.
Section 2.3 discusses changes to training and skill development as a consequence of Skilling
Australia for the Future. Section 2.4 discusses regional policy, while Section 2.5 outlines
infrastructure developments centred on the Building Australia Fund. Concluding remarks
follow.
39

2.2

Employment services

The Rudd Government has been highly critical of the Job Network system in relation to theservices offered to job seekers, the lack of training opportunities, and the inability of thesystem to assist the most disadvantaged job seekers and the emergence of extensive skill
shortages. For example, the Minister for Employment Participation, Brendan O’Connor statedthat both the proportion and number of people who had been on benefits for more than 5 years
had increased during the period of operation of the Job Network. In 1999 there were 74,000
people or one in 10 of the unemployed who were on benefits for 5 years or more but this had
increased to 110,000 or one in four (O'Connor, 2008a).
Upon taking office the Government initiated a review of employment services taking into
account the following principles (DEEWR, 2008b: 4-5):


Early intervention to minimise the number of long-term welfare dependent Australiansof working age, starting with a review of the Job Seeker Classification Instrument;Providing services that are relevant to the circumstances and needs of the job seeker;

Ensuring job seekers who are struggling the most get the most intensive assistance;Providing meaningful incentives for training which will improve the employability ofjob seekers;Ensuring there are means for job seekers who are in need of training to get thattraining;Providing the greatest rewards when Job Network providers find sustainable jobs forjob seekers quickly;Ensuring there are tendering and performance management processes that accurately
measure (prospective) performance; andMinimising the amount of time and money spent on administration.

Several problems were identified with the current Job Network model which accord with the
problems and shortcomings identified in Chapter 7 of this Report. Interestingly, several of thecriticisms of the Job Network are similar to criticisms of the CES that were used to justify the
introduction of the Job Network in 1998. Problems identified in the Job Network review
include (DEEWR, 2008b):


Poorly targeted assistance that is not concentrated on the most disadvantages job
seekers;

Failure to provide enough personally tailored assistance to meet individual needs ofjob seekers;Lack of incentives for skills and training since ‘current contract arrangements andincentives skew employment provider behaviour towards obtaining short-term jobs
rather than equipping job seekers with the skills they need to obtain sustainable
employment and contribute to Australia’s skills base and productivity’ (DEEWR,
2008b: 6);



Excessive complexity and fragmentation of the nine major employment programmes;

Overemphasis on process rather than outcomes;Insufficient employer focus;

Inadequate services for remote clients;40

Under-utilisation of the Job Seeker Account (JSKA) and lack of access to the JSKA
for the most disadvantaged; andA counter productive compliance system that fails to maintain contact with job seekers
who have incurred a non-payment period and exposes them to extreme financial
distress.

According to a speech by the Minister for Employment Participation at the National
Employment Services Association (NESA) conference in May 2008, the new employment
services arrangements for the contract period 1 July 2009 to 30 June 2012 will mark atransformation in employment services in Australia. He stated:
We can get people into real and meaningful work. We can find staff for our
employers. We can address the skills shortages which will otherwise put our future
prosperity at risk. Together, we will build a stronger, more stable economy. Together
we will build a truly socially inclusive Australia where all Australians can share in our
nation’s prosperity (O'Connor, 2008b: 3).
Figure 2.1 Stream services in the New Employment Services, 2009-2012
CENTRELINK REGISTRATIONJSCI/JCAPROVIDEREMPLOYMENT PATHWAY PLAN
EXTRA PPP PLACES FOR JOBSEEKERSWORK READYDISADVANTAGED JOBSEEKERSSTREAM 1

STREAM 2

STREAM 3

STREAM 4

53% of new job seekers 22% of new job seekers 10% of new jobseekers 15% of new job seekers
 $11m in Employment  $550 in Employment  $1100 in
Pathway Fund
Pathway Fund
Employment
Pathway Fund
 $385-$440 in Job
 $385-$2800 inPlacement fees
Outcome and Job
 $385-$6600 inPlacement
fees
Outcome and Job
 Up to $781 inPlacement fees
services fees Up to $885 in($833**)
services fees Up to $1130 in($966**)
services fees($1202**)

 Up to $1650 in
Employment
Pathway Fund
 $385-$6600 in
Outcome and Job
Placement fees Up to $2736 inservices fees($2760**)WORK EXPERIENCE Including Work for the Dole and Green Corps$330 work experience service fee*$500 in the Employment Pathway Fund
Up to $392 in service fees per year ($406**)

Source: (DEEWR, 2008a: 3, Figure 1)* a one off amount on commencement of the job seeker** amount without applicable attrition rate.

Under the new employment services arrangements, jobseekers will be classified into one of 4
streams using the Job Seeker Classification Instrument (JSCI) or a Job Capacity Assessment(JCA). Figure 2.1 provides estimates of the proportion of job seekers who will be allocated to41each of the four streams and the payment schedule for each stream. The Streams aregraduated to reflect the level of disadvantage faced by job seekers; Stream 1 is for job seekers
assessed as job ready and the most disadvantaged jobseekers will be in Stream 4. Those withparticipation requirements are required to enter an Intensive Activity for a minimum of 60
hours per fortnight (30 hours for those with part-time requirements) that can include training,
WfD, Green Corps or a range of other activities to address barriers to employment.
The new employment services contract will retain many of the features and requirements thatcurrently exist, including:The privatised provision of employment services;

The supply-side focus that erroneously identifies unemployment with inadequacies of
the unemployed in terms of skills and attitudes;The breaching mechanisms which impose harsh punishment on the mostdisadvantaged workers in our community which are disproportional when compared tofines and sentences handed out in our criminal courts.



The Government remains firmly committed to the Mutual Obligation framework
established by the Howard Government and the Welfare to Work measures that
introduced participation requirements for some sole parents and parenting payment(partnered) recipients and people with disabilities assessed as capable of working 15 to
29 hours per week (see Chapter 6).



The contractual relationship with income support recipients remains with the new
Employment Pathway Plan detailing the responsibilities of job seekers and breachpenalties will still be imposed when obligations are not met.

However, there are some significant changes that seek to address the inadequacies identified
in the Job Network. Major changes for the new employment services contract include agreater focus on disadvantaged job seekers, employer servicing and meeting the needs of thelocal labour market and a shift in emphasis away from the “work first” approach to a muchgreater recognition of the need for skill formation through formal training.
Under the new arrangements the Job Seeker Agreement will be replaced by an Employment
Pathway Plan (EPP) which will detail the requirements for individual job seekers. The
Jobseeker Account (JSKA) will be replaced by the Employment Pathway Fund (EPF) which
can be used to purchase vocational or non-vocational assistance such as training and skills
development, self-employment assistance, mentoring or work experience (DEEWR, 2008a).
The EPF will be easier to access and support a wider range of assistance than the JSKA. The
EPF will be available to assist job seekers to establish their own business.
In addition, job seekers are eligible for training under the Productivity Places Program which
will provide in excess of 238,000 places for the unemployed over a period of 5 years. These
places will be fully funded by the Commonwealth Government (see Section 2.3 for further
details).
Another innovation with the new employment services contract is the $41 million Innovation
Fund to deliver place-based solutions designed to address employment barriers of
disadvantaged job seekers. Organisations may tender to become part of the Innovation Fund
Panel and to work collaboratively with employers, service providers, training and community
organisations (Department of Education Employment and Workplace Relations (DEEWR),
2008a). Employer Broker Panels will have access to funding of $6 million over 3 years todevelop projects in collaboration with employers in particular regions or industries.

42

The Government remains committed to Mutual Obligation and is instituting a newcompliance framework designed to overcome inadequacies identified in the current
arrangements. In particular, the focus of the new compliance arrangements is to maintaincontact with job seekers and privilege re-engagement over imposition of financial penalties.
According to DEEWR (2008e: Summary), the new compliance system:…is intended to be more responsive to the needs of an increasingly disadvantaged job
seeker population, which means using early intervention and re-engagement rather
than punitive financial penalties to encourage compliance.
The new compliance framework will apply to Newstart Allowance, Youth Allowance,
Parenting Payment for persons who have participation requirements and some Special Benefit
recipients. There are 4 compliance failures under the new system (House of Representatives,
2008). The first is the “no show” no pay failure whereby a penalty equivalent to one day’s
benefit payment is deducted if a job seeker fails to attend an activity or job interview. The
second is a “connection” failure for job seekers who fail to attend an interview with theiremployment service provider or meet the requirements of their EPP. In the case of connection
failures, a reconnection requirement may be imposed such as attending another interview
rather than a financial penalty. If job seekers fail to comply with the reconnection requirement
they are deemed to have committed a “reconnection” failure and their payment will besuspended until they comply with the requirement. The final category is “serious” failure
which includes persistent failure to meet obligations or refusal of a suitable job offer. A
serious failure incurs a non-payment period of 8 weeks but the non-payment period may cease
if the job seeker commences a serious failure requirement.
In short, the new arrangements for employment assistance conform broadly with the current
system of “help and hassle” with additional emphasis on the help component in the form of
increased access to training, and less emphasis on the punitive breaching measures byattempting to re-engage job seekers rather than concentrating on punishment in the form of
imposition of non-payment periods. While the government promises superior service
provision under the new arrangements, the veracity of such claims will only be evident overtime.
Most importantly, the new arrangements continue to perpetuate the underlying myth inheritedfrom the previous government that there are enough jobs being created and the task ofgovernment is to ensure the unemployed are prepared and motivated enough to take them.
They clearly are at odds with the stark and unambiguous reality that the Australian economy
even at the height of the recent boom was not creating enough jobs and hours of work tosatisfy the demands of the willing labour force.
If the economy was generating enough work to fully employ the willing labour supply, muchof these employment services would be unnecessary. The current federal government clearly
is not taking responsibility for the creation of full employment and continues to pursue thediminished goal of full employability (see Chapter 3).
2.3

Skilling Australia for the future

The Skilling Australia for the future initiative (DEEWR, 2008c) represents a significant
increase in the federal government’s commitment to training in order to address skills
shortages and increase productivity and national competitiveness. The Productivity Places
Program is the delivery mechanism for Skilling Australia for the future and involves thecreation of an additional 700,000 vocational and education training (VET) places at a cost ofover $2 billion over 5 years. The Productivity Places Program has 2 strands; one for thoseoutside the workforce and another for those currently employed but seeking further education43

or training. Training options range from Certificate II to Diploma courses. Funding for job
seekers will be provided by the federal government. For existing employees theCommonwealth will contribute 50 per cent of the funding for the programme with the State /Territory governments contributing 40 per cent and, it is proposed that employers contribute
10 per cent.
Skills Australia will undertake labour market analysis to determine current and future skill
needs and provide advice to the government. Industry Skills Councils will have a greater rolein advising the government on industry needs and liaising with industry and training providers
to develop appropriate courses to meet these needs (DEEWR, 2008c).
A number of submissions responding to DEEWR’s discussion paper raised concerns about thesuitability of the Productivity Places Program as the primary vehicle for training theunemployed since their needs differ from those currently in the workforce. In particular,
concerns were raised regarding the level of training proposed under the Productivity Places
Program, with respondents emphasising that many of the most disadvantaged job seekers
were not ready to participate in courses at the Certificate II level or higher (DEEWR, 2008d).
It was noted that job seekers were frequently in need of pre-vocational courses, literacy andnumeracy or English language courses prior to commencing higher level courses.
Importantly, respondents stressed the importance of providing on-the-job training:
Many submissions emphasised that one of the most effective ways to ensure positive
employment outcomes is to support training models that are work-integrated and meetthe needs of industry. Workplace-based training, industry placements and work
experience were recommended as vital mechanisms for enhancing the likelihood ofsubsequent employment. It was suggested that unless training had a strong link toemployment itself, the training for jobseekers may well be misdirected (DEEWR,
2008d: 34).
In addition, several submissions questioned whether the use of a contestable market
framework for the Productivity Places Program could ensure quality education and training(DEEWR,2008d: 9). A competitive environment could be counter-productive since employers
may simply opt for cheaper, shorter courses rather than selecting the most appropriate
training.
The introduction of the Productivity Places Program marks a shift from the exclusive “workfirst” approach for the unemployed. For those already employed the programme facilitatesskill formation that should enhance productivity. It recognises that vocational training isimportant to assist job seekers to obtain and retain work and provide a basis for career
progression.
However, the valid criticisms of the program outlined above in relation to the unemployedsuggest that the outcomes from the programme in its current form will be limited. In order toensure that the unemployed develop skills requires a “learning by doing” framework where
skills are developed in paid work situations as explained in Chapter 12 of this Report.
On-the-job skill development must be within the context of paid employment. It is a waste oftime and resources churning workers through training programmes when the macroeconomic
policy settings ensure the economy is unable to produce as many jobs and hours of work thatare demanded by the willing labour supply.
2.4

Regional policy

On 20 March 2008 the Minister for Infrastructure, Transport, Regional Development andLocal Government, Anthony Albanese announced that the network of Area Consultative
44

Committees (ACCs) would provide the basis for the creation of Regional Development
Australia (RDA). The ACC Chairs Reference Group was appointed as the RDA Interim
Board. A report by the RDA Interim Board was handed to the government on 15 September
2008 to advise on the role and functions of the RDA and measures to improve AustralianGovernment engagement with regional communities, state government regional development
organisations and local governments (Department of Infrastructure Transport Regional
Development and Local Government, 2008). RDA will: ‘…provide strategic input into
national programmes, improve coordination of the Government’s regional development
initiatives, link closely to local government and other regional organisations’ (Albanese andGray, 2008).
In the 2008 Budget the government allocated $176 million for the Better Regions Program
over 4 years. The Better Regions Program, Regional Partnerships Program and theSustainable Regions Program have been closed for new applications. From 2009-10 a new
Regional Local Communities Infrastructure Program (RLCIP) will provide community,
recreational and environmental infrastructure (Albanese and Gray, 2008).
The House of Representatives House Standing Committee on Infrastructure, Transport,
Regional Development and Local Government is currently conducting an inquiry into theframework for the operation of the new programme, including establishing the programme
objectives, eligibility criteria, and how the new programme will interact with State / Territory
government regional development programmes (House of Representatives Standing
Committee on Infrastructure Transport Regional Development and Local Government,
2008b). The interim report released in November 2008 recommended 3 funding streams, lessthan $50,000, between $50,000 and $250,000, and more than $250,000 and that the Program
use a partnership model requiring Local Government to make contributions in the form ofcapital, maintenance or operational funding (House of Representatives Standing Committee
on Infrastructure Transport Regional Development and Local Government, 2008a).
At present the details of the RLCIP are still being finalised. The new programme was due tobe implemented in 2009-10 but some projects will be fast-tracked through the government’s$300 million funding package in response to the economic crisis. The government announced
the funding at a meeting with over 500 mayors held in Canberra on 18 November 2008. The
scope of the programme is yet to be determined but will form important criteria for judging
the adequacy of the programme in meeting the infrastructure needs of communities
throughout Australia.
The critical condition of community infrastructure is outlined in Chapters 7 to 9 of this Reportand documents the responses of local governments throughout Australia to a survey designed
to ascertain the adequacy of community infrastructure and services.
The establishment of the Job Guarantee to provide employment to all those willing and able
to work would constitute a more comprehensive approach to the provision of community
infrastructure and delivery of full employment in regions throughout Australia (see Chapter
13).
The Job Guarantee would provide an opportunity for communities to identify the
infrastructure and services that are currently undersupplied and establish projects to addressthese needs to enhance the lives of community members. At the same time meaningfulemployment would be provided for local residents who are unable to secure employment in
the private sector due to inadequate labour demand.

45

2.5

Infrastructure

The Australian Government established Infrastructure Australia through the Infrastructure
Australia Act 2008 to develop a coordinated national approach to the future provision of
infrastructure. Infrastructure Australia will primarily be responsible for providing advice tothe government on needs and priorities regarding nationally significant infrastructure. In 2008
Infrastructure Australian will conduct an infrastructure audit and produce an infrastructure
priority list.
The Government has committed $20 billion to its Building Australia Fund for infrastructuresuch as rail, roads, ports and broadband. The fund will operate from 2009-10 and be guided
by Infrastructure Australia’s priority list. In announcing the Building Australia Fund theMinister for Infrastructure, Transport, Regional Development and Local Government,
Anthony Albanese declared (Albanese, 2008):
For too long there has been a lack of investment in the nation’s infrastructure.
We are now living with the consequences of this underinvestment as well as the lackof national leadership and poor planning: higher business costs; and inflationarypressures….
The Commonwealth Government is back in the business of nation-building.
The $20 billion Building Australia Fund will provide only a small fraction of theinfrastructure funding that is urgently needed in Australia. As we point out in Chapter 11 thelack of investment in Australia’s infrastructure that the Minister refers to has resulted in theneed to urgently invest in infrastructure projects. For example, the Australian Council for
Infrastructure Development (2001, cited in AFTF, 2007:153), estimated that an additional
investment of $150 billion was needed to repair, upgrade and complete road, rail, water andenergy infrastructure projects in Australia. Similarly, ABN-AMRO (2006) estimated that
infrastructure investment of $338 billion was required over the next decade, including $184
billion for economic infrastructure and $154 billion on social infrastructure. Therefore theinfrastructure expenditure proposed by the government will be totally insufficient to meet thecatch-up in infrastructure provision required and cannot be viewed as “nation-building”.
2.6

Conclusion

While there are some significant differences between the policies of the present and previous
governments, the fundamental point remains that employment policy is predominantly
supply-side oriented. The legacy of the Keating and Howard Governments is that the decline
in official unemployment masked the extent of underutilisation in the labour market as
underemployment grew rapidly with the shift to a higher proportion of part-time and casual
employment. There is currently no intention to use public sector job creation in the face ofpredicted increases in unemployment as the economy slows. The Job Network is poorly
positioned to handle rapid increases in the unemployed population. Moreover, the prospect of
reduced vacancies means that the financial viability of Job Network members, who face
reduced outcome payments, will be at risk.
The Job Network model was designed to discipline the unemployed not enhance the creationof jobs necessary to absorb the excess labour supply. The new system to commence in 2009
may remove the most punitive aspects of the current system but it retains its fundamentally
coercive characteristics. Benefit receipt is conditional upon individual contracts that impose araft of activities that the unemployed must complete to maintain payments. While the Labor
Government claims that the changes to the Job Network will result in contracts that reflect the46

individual needs of job seekers, past experience under the Keating and Howard Governmentssuggests that such claims are unlikely to come to fruition.
The criticisms of the Job Network that are outlined in Chapter 6 remain relevant in the newenvironment. The past 10 years have demonstrated that commercial arrangements areincapable of providing high quality assistance to job seekers and the Job Network has failed
utterly in regard to service provision for the most disadvantaged job seekers.
Additional emphasis on training marks a departure from the Howard years when theunemployed could access few training opportunities and participation in VET involved
considerable costs for individuals as funding to the sector declined. However, the Productivity
Places Program concentrates on formal training without extensive on the job experience. As
we explain in Chapter 12, the importance of “learning by doing” as an effective training
mechanism requires that participants acquire skills on the job in a paid work environment.
Moreover, training provision in the absence of demand side policies to ensure adequate
employment opportunities cannot result in substantial reductions in unemployment.
The Government has promised substantial expansion of regional policy and infrastructure
funding. Region policy settings are currently being developed, however the likely absence ofdemand side policies does not bode well for the delivery of full employment in regional areas.
Similarly, the quantum of funding for infrastructure development falls far short ofinfrastructure needs identified by extensive research and assessments.
In short, the Rudd Labor Government has implemented policies that represent more of acontinuation of the Howard Government policies than a break with them. There is evidence ofa more “human face” in the Job Network, greater human capital development and an increase
in infrastructure expenditure. However, these measures fall far short of the policies required torestore full employment and provide adequate levels of economic and social infrastructure.
The system retains the supply-side focus for employment services that concentrates on
addressing the inadequacies of the unemployed. The government has instituted a $10.4 billion
stimulus package to encourage economic activity. However, despite the fact thatunemployment is forecast to rise there is no perspective of addressing labour demand throughjob creation. In the absence of job creation the new employment services will not succeed inassisting the most disadvantaged job seekers to return to work since they will remain at theend of the jobs queue in an economy where labour supply outstrips labour demand.
The fact that the Federal Treasurer is still demonising the use of budget deficits as a legitimate
option for the responsible macroeconomic management of the economy, is a telling sign that
this federal regime will not accomplish full employment. As we argue in Chapter 3, theFederal Government must abandon the fetish in favour of budget surpluses and reject thepolitical rhetoric that sustains the fetish. It must realise that in usual times, a federal deficit
will be necessary if the private sector desires to save and economic growth is to be sufficientto generate full employment.

47

3
3.1

The failed full employability
framework

Introduction

In the post-war period through to the mid 1970s, most advanced Western nations maintained
very low levels of unemployment. Governments were willing to manipulate levels of
aggregate demand to ensure enough jobs were created to meet the preferences of the
population. They used fiscal and monetary measures to stabilise the economy in the face offluctuations in private sector spending. While both private and public employment growth
were relatively strong, Western economies were able to sustain full employment because they
maintained a buffer of jobs that were always available and were readily accessible to the least
skilled workers (see Ormerod, 1994).
The first OPEC oil price hike in 1974 caused an inflation spike and provided the pretext for aresurgence of pre-Keynesian thinking, which had categorically failed to resolve the massunemployment of the 1930s. Most Western governments reacted to the inflation surge with
contractionary policies which led to stagflation. The paradigm shift that occurred led to theabandonment of the Keynesian notion of full employment and its replacement with the naturalrate or NAIRU (Non-Accelerating Inflation Rate of Unemployment) approach.
Full employment was redefined in terms of an unemployment rate (the NAIRU) at whichinflation was stable. The NAIRU was determined by supply side forces and was invariant toKeynesian demand-side policies, which were considered to be ultimately self-defeating andinflationary. Unemployment was re-conceptualised as a voluntary state reflecting the
optimising choices by individuals between work and leisure.
Opposition to the use of budget deficits to maintain full employment solidified, and theinflation-first rhetoric became the dominant discourse in macroeconomics. The paradigm shiftmeant that governments relinquished their commitment to full employment. The official
unemployment rate increased and rates of labour underutilisation never returned to the lowlevels that were the hallmark of the post-war period, despite the decline in the official rate ofunemployment in many countries over the last decade.
According to the NAIRU approach, government could only achieve better macroeconomic
outcomes (higher productivity, lower unemployment) through microeconomic reforms which
implied a greater reliance on market-based outcomes with a diminished role for the public
sector. In many countries successive governments cut expenditure on public sector
employment and social programmes, culled the public capacity to offer apprenticeships andtraining programmes, and commenced dismantling the alleged supply side impediments.
Within this logic, governments adopted the goal of full employability, thereby relinquishing
their responsibility for achieving the optimum use of their labour resources. Accordingly,
labour market policy was limited to ensuring that individuals were “ready for employment”.
This new objective was articulated in the 1994 OECD Jobs Study. Consequently,
governments in many countries began the relentless imposition of active labour market
programmes which were designed to churn the unemployed through training programme and /or force participation in workfare compliance programmes. The dominance of the NAIRU

48

approach is incomprehensible given the stark evidence since 1975 that there have never beenenough jobs available to match the willing labour supply.
These theoretical insights motivate our claim that in a modern monetary economy the returnto full employment and price stability requires the reintroduction of the buffer stock capacity
in the form of a Job Guarantee (JG) (Mitchell, 1998; Mitchell and Mosler, 2006a; Mitchelland Muysken, 2008). In short the shift by governments from the pursuit of full employment tothe adoption of the full employability paradigm has been fundamentally flawed.
In Section 3.2, the full employment and full employability paradigms are outlined andcontrasted. The flawed logic underpinning the full employability paradigm is exposed in
Section 3.3. In the following Section, the economic and social costs of the adoption of the full
employability paradigm are documented. Section 3.5 outlines the extent and distribution ofunemployment and underutilisation in Australia. Concluding comments follow.
3.2

Full employment and full employability

3.2.1 The Full Employment framework
Figure 3.1 depicts the Full Employment framework taken from Mitchell and Muysken (2008)
who argue that the Post World War 2 economic and social settlement in most Westerncountries was based on three pillars: (a) the Economic Pillar was defined by an unambiguouscommitment to full employment and initially based on providing enough jobs to satisfy
workers’ preferences. In the 1960s the definition became blurred following debate about
inflation and unemployment trade-offs; (b) the Redistributive Pillar was designed toameliorate inequalities driven by market outcomes through provision of income support andwage setting norms; and (c) the Collective Pillar provided the philosophical underpinning forintervention based on a concept of the intrinsic rights of citizenship.
The Great Depression showed that without government intervention, capitalist economies
could experience lengthy periods of mass unemployment. War-time spending generated
strong employment growth which highlighted the failure of the neo-classical remedies that
had tried to solve the mass unemployment during the 1930s. The publication of Beveridge’s(1944) Full Employment in a Free Society helped to conceptualise mass unemployment as asystemic failure in aggregate demand. The neo-classical emphasis on the ascriptive
characteristics and attitudes of the unemployed and prevailing wage levels was rejected.
Beveridge (1944, 123-135) defined full employment as an excess of vacancies at living wages
over the number of unemployed persons. He made it clear that the ‘…ultimate responsibility
for seeing that outlay as a whole … is sufficient to set up a demand for all the labour seeking
employment, must be taken by the State.’
From 1945 until 1975, governments manipulated fiscal and monetary policy to maintainlevels of overall spending which were sufficient to generate employment growth in line withlabour force growth, in the face of fluctuations in private sector spending. Governments
generally ran deficits, private savings were strong and most advanced western nations
maintained very low levels of unemployment, which were typically below 2 per cent. Thiswas in sharp contrast to what went before and what has persisted since the mid 1970s.

49Figure 3.1 The Pillars of the Full Employment framework
The Full Employment framework

Economic Pillar

Redistributive Pillar

Collective Pillar

Commitment to Full
Employment

Intervention toameliorate market
outcomes

Rights of citizenship

Keynesian fiscal andmonetary demand
management

Transfer payments
Redistributive
taxation

Public sector
employment

Services to enable
participation

Employer of Last
ResortRegulation
Conciliation andArbitration via
specialist tribunals

Uniform services
Pursuit of collective
willProfessional
administration
Services deliveredby the state

Government
mediates the classstruggle

Rights embodied inlegislation

Source: Mitchell and Muysken (2008, Figure 1.1). See also Cook (2006).

However, while both private and public employment growth were relatively strong, the major
reason that full employment was maintained was the existence of a buffer stock of jobs
accessible to the least skilled workers, mainly in the public sector. Ormerod (1994: 203) notesthat the economies that avoided sharp rises in unemployment in the 1970s after the first OPEC
price hike all maintained a sector ‘…which effectively functions as an employer of last resort,which absorbs the shocks which occur from time to time, and more generally makes
employment available to the less skilled, the less qualified.’ Ormerod argued that such
employment may not satisfy narrow neo-classical efficiency benchmarks, but that societies
with a high degree of social cohesion and a high valuation of collective responsibility would
have been willing to broaden their concept of costs and benefits of resource usage to ensure
everyone had access to paid employment opportunities. These insights motivate our claim thata return to full employment and price stability requires the reintroduction of this buffer stock
capacity in the form of an employment guarantee (Mitchell, 1998; Mitchell and Mosler,
2006a; Mitchell and Muysken, 2008).
The full employment commitment was supported by the introduction of the Welfare State,
which defined the state’s obligation to provide security to all citizens (Mitchell and Muysken,
2008; Cook, 2006). The Redistributive Pillar recognised that at times the mixed economy
would generate disadvantage for some citizens, principally in the form of unemployment.

50

Income support schemes were implemented to attenuate the disadvantage emanating from thevicissitudes of the market economy. Citizenship (under the Collective Pillar) replaced thedichotomy that had been constructed between the deserving and undeserving poor so that
individuals could access standardised services such as sector employment services, publichealth and education systems.
3.2.2 Full employment abandoned
The maintenance of full employment via policy interventions was always a source ofdissatisfaction for the capitalist class. For example, Quirk (2003) provides compelling
evidence to show that the captains of industry pressured Australian governments to create
some labour slack in the economy and that these entreaties were received sympathetically by
key conservative politicians.
However, despite this conservative opposition, the Post-War stability was not broken until thefirst OPEC oil price hike in 1974 caused an inflation spike. This event provided the stimulus
for a resurgence of pre-Keynesian thinking, which had categorically failed to resolve the massunemployment of the 1930s. This paradigm shift abandoned the Keynesian notion of full
employment, which underpinned the Full Employment framework, and replaced it with thenatural rate or NAIRU (Non-Accelerating Inflation Rate of Unemployment) approach (seeMitchell and Muysken, 2008 for a full account of this transition).
Full employment was redefined as a unique unemployment rate (the NAIRU) where inflation
was stable. The NAIRU was determined by supply forces (individual disincentive effects
arising from welfare provision, skill mismatches, and excessive government regulation) and
was invariant to Keynesian demand-side policies. The use of aggregate stabilisation policies
diminished, and then vanished. Opposition to the use of budget deficits to maintain full
employment solidified, and the inflation-first rhetoric became the dominant discourse in
macroeconomics. Governments relinquished the first major pillar of the Post-War framework– the commitment to full employment. Unemployment accelerated and labour underutilisation
has never returned to the low levels that were the hallmark of the Keynesian period.
3.2.3 The Full Employability framework
Figure 3.2 sketches the Full Employability framework which abandoned the 3 major pillars of
the Post War full employment consensus, and instead, promoted full employability and pricestability as the major economic aims of government. Further, market-based outcomes
unfettered by government intervention, are now seen as the major basis for economic
prosperity. For example, orthodox economists claim that regional unemployment disparities
are resolved via workers migrating in response to relative wage differentials into growing
areas (see Mitchell and Bill, 2006a for a contrary analysis). Finally, the concept ofindividuality has replaced collective will and the intrinsic rights of citizenship have lapsed infavour of ever increasing social controls.
Full employability means that the unemployed are prepared for paid employment as opposed
to governments providing the policy environment that ensures there are enough jobs. Thispreparation is achieved through training and compliance programmes designed to re-skill theworker and / or create more work-oriented attitudes and intensive search endeavour. The
focus on the supply side characteristics of workers, returns macroeconomics to the days when
the aberrant Say’s Law denied the possibility of generalised gluts in production arising fromdeficient aggregate demand. Importantly, the employer of last resort role played by the public
sector has been abandoned.

51

Figure 3.2 The Full Employability framework
The Full Employability framework

Economic Pillar

Redistributive Pillar

Individuality Pillar

Primacy of marketbased economic
outcomes

Intervention tostimulate market
outcomes

No intrinsic rights ofcitizenship

Inflation targeting

Compliance tests
and penalties
mediating transfer
payments
Taxation advantages
for high incomes

Non-uniform
services
Individuals
responsible for theirown outcomes
Mutual/reciprocal
obligation
Outsourcing of
public services
Privatised service
deliveryFiscal dragFull employability
and complianceprogrammes(Workfare)
Government as anagent for business

Policies to force
participation
Deregulation
Welfare-to-Work

Source: Mitchell and Muysken (2008, Figure 5.1).

The abandonment of full employment created a new problem. With unemployment persistingat high levels due to the deliberate constraints imposed on the economy by restrictive fiscal(and monetary) policy, rising welfare payments placed pressures on the Redistributive Pillar.
So in addition to the neo-liberal attacks on macroeconomic policy, concerted attacks weremade on the supplementary institutions such as the industrial relations and income support
systems. To force individuals to become accountable for their own economic outcomes,
welfare policy assumes that individual responsibilities are the necessary counter-balance toexisting rights while promoting the movement from passive to active welfare (Cook et al.,
2003; Cook, 2006; Mitchell and Muysken, 2008).
Individuals now face broader obligations and their rights as citizens have been replaced bycompulsory contractual relationships with behavioural criteria imposed as a condition of
benefit receipt. The aim of the redistributive pillar has become one of using governmenttransfer systems to stimulate rather than ameliorate market outcomes. In doing this,considerable power has been transferred from workers to employers.
Thus, the hallmark of the full employability era, is that individuals have to accept
responsibility, be self reliant, and fulfil their obligations to society (Giddens, 1998).
Unemployment is couched as a problem of welfare dependence rather than a deficiency ofjobs. To break this welfare dependency, responsibility had to be shifted from government to52

the individual. The necessity of reintegrating the allegedly, welfare dependent underclass into
the community provided the justification for mutual obligation and the abandonment of rights
of citizenship per se. To force individuals to become accountable for their own outcomes,
governments embraced a shift from passive to active welfare and the introduction of
responsibilities to counter-balance existing rights.
However, no reciprocal obligation is placed on government to provide enough jobs andenough hours of employment for all those seeking work. The major shortcoming of thisapproach is that the focus on the individual ignores the role that macroeconomic constraints
play in creating welfare dependence.
3.2.4 The 1994 OECD Jobs Study and its failings
The OECD 1994 Jobs Study reflected the theoretical foundations developed by orthodox
economists, most notably Layard, Nickell and Jackman (LNJ) (1991). This influential
document provided the policy link between NAIRU theories and the Full Employability
framework, by targeting product and labour market rigidities as the principal reason for the
failure of countries to generate sufficient employment.
The Jobs Study cited the negative roles played by legislated minimum wages; non-wagelabour costs; social security payments; and direct taxation in general. Employment security
provisions were also considered to be constraints on hiring because they allegedly encouragefirms to adopt an overly cautious approach to job creation. The particular focus on the labour
market was to increase the ‘speed limits to growth’ by reducing structural impediments.
The Jobs Study also advocated extensive macroeconomic reform, in particular the reductionof budget deficits and public debt, which was based on the claim that fiscal consolidation
would ‘allow interest rates to be reduced and hence provide a better environment for private
sector investment’ (OECD, 1994: 44). In short, the OECD appealed to a simple-minded
crowding out argument based on the primacy of market-driven private spending over public
spending. Section 3.3 reveals this logic to be flawed at a most fundamental level.
In advocating an increased emphasis on active labour market policies the OECD (1994: 44)
defined the responsibilities of government in terms of full employability rather than full
employment and recommended that public spending should be redirected from ‘passive
measures of income support to active labour market policies’. Accordingly, they advocatedwidespread reform of unemployment and related benefit systems to ensure that disincentive
effects were minimised, and encouraged governments to ‘legislate for only moderate levels ofbenefits, maintain effective checks on eligibility, and guarantee places on active programmes
as a substitute for paying passive income support indefinitely’ (OECD, 1994: 48).
In summary, the OECD’s response to the macroeconomic policy failure that resulted in risingand persistent unemployment, was to recommend a further diminution in state responsibility
and push the onus back on individuals despite the presence of a system failure which led to an
insufficient pool of jobs. This blame the victims approach, became the hallmark of the OECD
policy agenda. The mechanism to enforce the desired activism has been the adoption ofincreasingly pernicious compliance and penalty frameworks.
The move away from passive income support was to be accompanied by investment in formal
education and training as a means of improving the skill base of disadvantaged workers. Thishas been interpreted by many OECD governments as the implementation of programmes
which force the unemployed to churn through so-called training programmes and / orparticipate in Workfare-type compliance programmes. However, governments and theiradvisers seem oblivious to the absurdity of forcing people to relentlessly search for work - and53

to engage in on-going training divorced of a paid-work context – given the stark evidence thatsince 1975 most countries have not created enough employment to match the willing labour
supply (Mitchell, 2001b).
There is ample evidence that this approach to training, in the active labour market programme
environment, has failed. In this context, Australia is an interesting case. The OECD (2001b:11) praised Australia for its path-breaking lead in introducing ‘market-type mechanisms into
job-broking and related employment services’. The OECD (2001b: 14) concluded that interms of labour market policies Australia ‘has been among the OECD countries complying
best’ with the OECD Jobs Strategy. Successive Australian Governments have pursued
programmes of fiscal consolidation and inflation-linked monetary policy. This has beenaccompanied by the introduction of supply-side measures, notably severe labour market
deregulation, privatisations, and “activation” strategies. The Australian Government
privatised the public employment service and created a new structure for delivering labour
market services, including training. There is no evidence that treating the most disadvantaged
workers in this way provides any long-term benefits. Conversely, there is a host of studies that
demonstrate that the actual harm is borne by the unemployed who are deprived of benefits(see Cowling and Mitchell, 2003 for a summary).
The 1994 OECD Jobs Study was designed to provide a blueprint for the economic policy
reform in its member countries following the deep recession in 1991. However, OECDeconomies still generated an unemployment rate of 5.8 per cent (January 2007c Main
Economic Indicator rate for all OECD), down from 6.9 per cent in 1994 and The Euro area
experienced a rate of 7.4 per cent (down from 10.7 in 1994). Worse though is the fact that theofficial unemployment rate data significantly underestimates the extent of labour market
slack. Since the 1991 recession, underemployment has risen in all OECD countries, due to thetrend to part-time and casualised employment, so as the official unemployment rate has fallen,
time-related underemployment has risen.
This can be directly linked to recommendation 3 of the Jobs Study which urged governments
to ‘foster the growth of voluntary part-time work … by removing obstacles to, and facilitating
reductions in working-time and by reviewing existing taxation and social security provisions
which discriminate against part-time work’ (OECD, 1994: 45). However, while portrayed asproviding the flexibility for families to voluntarily balance their work life commitments, parttime (and casualised) work has, in fact, become the new form of labour underutilisation as
official unemployment rates have dropped (see Mitchell, 2001b). Unemployed workers havebeen increasingly absorbed into casualised jobs and have joined the working poor.
3.2.5 The winds of change are blowing and the OECD bricks are crumbling
Mitchell and Muysken (2008) provide a comprehensive critique of these policy developments
and the way that the OCED drew on academic research that has now been shown to be fragile.
They disagree with the claims of the OECD (2006: 12) that ‘countries which implemented its
recommendations outperformed those who did not.’ There is also strong evidence todemonstrate that active labour market programmes have been largely ineffective in reducing
unemployment and improving the outcomes of the most disadvantaged workers in the labour
market.
Many academic studies have sought to establish the empirical veracity of the neo-classicalrelationship between unemployment and real wages and to evaluate the effectiveness of active
labour market programme spending. The overwhelming conclusion to be drawn from thisliterature is that there is no conclusion. These various econometric studies, which have54constructed their analyses in ways that are most favourable to finding the null that the OECDline is valid, provide no consensus view as Baker et al. (2004) show convincingly.
Mitchell and Muysken (2008) outline the qualifications that economists such as Layard andNickell, who had wholly supported (and motivated) the OECD approach, are now putting on
their work (see Layard, 1997; Nickell and Quintini, 2001). In the face of mounting criticism
and empirical argument, the OECD has also begun to back away from its hardline Jobs Study
position. After acknowledging that the evidence supporting the Jobs Study ‘remains mixed’
and ‘is somewhat fragile’ (OECD, 2004: 81, 165), their June 2006 Employment Outlook
found that:

There is no significant correlation between unemployment and employment protection
legislation;



The level of the minimum wage has no significant direct impact on unemployment;andHighly centralised wage bargaining significantly reduces unemployment.

This latest statement from the OECD confounds those who have relied on its previous work
including the Jobs Study, to push through harsh labour market reforms, retrench welfare
entitlements, and attack the power base of trade unions.
Further, the OECD (2006) found that unfair dismissal laws and related employment protection
legislation did not impact on the level of unemployment, merely its distribution. Critics of theOECD approach have consistently pointed this out (Mitchell, 2001b). In a job rationed
economy, supply side characteristics will always serve to shuffle the queue.
The most damning indictment of the OECD policy agenda is that in recent years employer
groups have argued that Australia is suffering from a skill shortage. This implies that the large
numbers of unemployed Australian workers who have been shunted continually through these
expensive training and compliance programmes under the Job Network and related bodies
have not acquired any significant durable skills (see Mitchell and Quirk, 2005). Cowling and
Mitchell (2003) provide a comprehensive account of the failure of the Job Network inproviding employment services (see also Productivity Commission, 2002a).
Internationally, there is a growing sentiment that the creation of paid public employment must
be a part of the employment policy mix. There is growing recognition that programmes topromote employability cannot, alone, restore full employment and that the national businesscycle is the key determinant of regional employment outcomes (Peck, 2001).
In Australia, for example, the limited role of public sector job creation, and the withdrawal of
the public sector from its historical role as a countercyclical employer have served to entrenchhigh unemployment (Mitchell, 2001b). By contrast, low unemployment countries such as the
Ireland, Norway, Portugal and the US have been very active in providing paid public sector
employment. In a comprehensive analysis of public sector job creation programmes in the US,
Ellwood and Welty (2000) found that while poorly designed public sector job creation
programmes can be inefficient and displacing, carefully designed and implemented
programmes increase employment, minimise displacement effects, raise the earnings of lowskilled workers and produce genuinely valuable output.
Even the current Federal Minister for Employment Participation has expressed concern at theinadequacies of supply-side agenda. He said (O’Connor, 2008):
For too long job seekers, employers and providers have had to endure a complex andrigid employment service structure … Over the last 10 years skill shortages have55

worsened, dramatically hampering productivity and growth … Over the last 10 years
many thousands of job seekers have become increasingly detached from the labour
force. The Job Network has failed disadvantaged jobseekers who have needed
assistance to overcome barriers to employment and to gain the skills that employers
need. This is starkly illustrated by the proportion of people on unemployment benefits
for more than five years which has increased from one in 10 in 1999, to almost one infour today – an increase from 74,000 in 1999 to more than 105,000 now. It is
unforgivable that these jobseekers and their families have been denied economic andsocial opportunities and the dignity that comes from having a decent job.
3.3

The flawed macroeconomics of the Full Employability framework

This Section summarises the arguments developed in Mitchell and Muysken (2008) whichcentre on what these writers have termed modern monetary theory. They underpin the case forpublic sector job creation as an essential part of a regional development strategy designed toachieve and sustain full employment. In so doing, they provide a categorical rejection of thestandard macroeconomic reasoning that has been used to support the introduction of the Full
Employability framework.
A modern monetary system is characterised by a floating exchange rate (so monetary policy is
freed from the need to defend foreign exchange reserves) and the monopoly provision of fiat
currency. The monopolist is the national government. The following macroeconomic
principles explain the fundamental flaws in the arguments used to justify abandoning full
employment.
First, under a fiat currency system, the monetary unit defined by the government has no
intrinsic worth. It cannot be legally converted by government, for example, into gold as it wasunder the gold standard. The viability of the fiat currency is ensured by the fact that it is the
only unit which is acceptable for payment of taxes and other financial demands of thegovernment.
Second, as a matter of national accounting, the federal government deficit (surplus) equals the
non-government surplus (deficit). The failure to recognise this relationship is the major
oversight of neo-liberal analysis. In aggregate, there can be no net saving of financial assets
by the non-government sector without cumulative government deficit spending. The federal
government via net spending (deficits) is the only entity that can provide the non-government
sector with net financial assets (net savings) and thereby simultaneously accommodate any
net desire to save and hence eliminate unemployment. Additionally, and contrary to neoliberal rhetoric, the systematic pursuit of government budget surpluses is necessarily
manifested as systematic declines in private sector savings.
Third, the decreasing levels of net private savings financing the government surplus
increasingly leverage the private sector. The deteriorating debt to income ratios which result
will eventually see the system succumb to ongoing demand-draining fiscal drag through aslow-down in real activity.
Fourth, the analogy neo-liberals draw between private household budgets and the government
budget is false. Households, the users of the currency, must finance their spending prior to thefact. However, government, as the issuer of the currency, must spend first (credit private bankaccounts) before it can subsequently tax (debit private accounts). Government spending is thesource of the funds the private sector requires to pay its taxes and to net save and is notinherently revenue constrained.

56

Fifth, unemployment occurs when net government spending is too low. As a matter ofaccounting, for aggregate output to be sold, total spending must equal total income (whether
actual income generated in production is fully spent or not each period). Involuntary
unemployment is idle labour unable to find a buyer at the current money wage. In the absenceof government spending, unemployment arises when the private sector, in aggregate, desires
to spend less of the monetary unit of account than it earns. Nominal (or real) wage cuts per se
do not clear the labour market, unless they somehow eliminate the private sector desire to net
save and hence increase spending. Thus, unemployment occurs when net government
spending is too low to accommodate the private sector’s need to pay taxes and its desire to net
save.
Sixth, while the federal government is not financially constrained, it still issues debt to control
its liquidity impacts on the private sector. Government spending and purchases of government
bonds by the central bank add liquidity, while taxation and sales of government securities
drain private liquidity. These transactions influence the cash position of the system on a daily
basis and on any one day they can result in a system surplus (deficit) due to the outflow offunds from the official sector being above (below) the funds inflow to the official sector. The
system cash position has crucial implications for the central bank, which targets the level ofshort-term interest rates as its monetary policy position. Budget deficits result in system-widesurpluses (excess bank reserves). Competition between the commercial banks to create better
earning opportunities on the surplus reserves then puts downward pressure on the cash rate. If
the central bank desires to maintain the current target cash rate then it must provide analternative to this surplus liquidity by selling government debt. In other words, government
debt operates as the interest rate support mechanism via the maintenance of desired reserve
levels in the commercial banking system and not as a source of funds to finance government
spending.
3.4

The costs of unemployment

The economic benefits of sustained full employment are indisputable: the economy produces
at maximum capacity; microeconomic efficiency is enhanced through the improved process ofstructural adjustment; and, the provision of local employment opportunities militates against
the forced migration of workers to higher growth urban centres in search of employment
opportunities, with the attendant likelihood of increased congestion, resulting from higher
commuting flows.
Conversely, the economic and social costs of failing to achieve and maintain full employment
are considerable. The pecuniary costs of unemployment borne by individuals are normallyrepresented by the replacement ratio, but it fails to take into account the long-term potential
loss of income from a sustained spell of unemployment or reduced long term capacity tosecure employment due to skill atrophy (Junankur and Kapuscinski, 1992). In addition,
benefits may only be available for a limited period and / or subject to pernicious compliancerequirements.
There is a broad consensus across researchers from a number of disciplines, including
economics, psychiatry and epidemiology that sustained unemployment is also associated withsignificant personal and social costs that include:social exclusion and the loss of freedom;

skill loss;

psychological harm;

ill health and reduced life expectancy;57

loss of motivation;the undermining of human relations and family life;

racial and gender inequality; andloss of social values and responsibility.

This brief review below is not exhaustive, but is indicative of the flavour of the research
literature.
In a US study, Darity and Goldsmith (1993) show that exposure to unemployment and evenunderemployment impairs an individual’s self-confidence and sense of control, resulting in
reduced efforts to re-enter the work force or acquire skills, and reduces subsequent job
performance through reduced cognitive efficiency, the depreciation in human capital and theincrease in underlying stress (Darity, 1999). In their study of Australian immigrants Kennedy
and McDonald (2006) found that unemployment, and especially a long durations of
unemployment, were associated with poor mental health.
Brown et al. (2003) established a stronger link between unemployment and frequent mental
distress for those unemployed for less than 12 months, than those unemployed for longer,
which suggests some capacity to adjust to long-term unemployment. They advocate public
interventions to reduce the mental distress of the unemployed cohort of the population. In
another US study, Artazcoz et al (2004) found that unemployment had more of an effect on
the mental health of men than on that of women based on age-adjusted odds ratios, whichwere associated with differences in family responsibilities and social class (see also Thomas
et al, 2007).
Using data from the German Socio-Economic Panel (1984-89), Winkelmann andWinkelmann (1998: 13) find that, after controlling for various individual characteristics andincorporating fixed effects, unemployment had a significant and major negative impact on
satisfaction. These non-pecuniary costs considerably exceeded the pecuniary costs associatedwith income loss while unemployed. Articles in Kposowa (2003) document the relationshipbetween unemployment and suicide. Medical problems can also appear in response to a spellof unemployment which can be linked to lifestyle, involving poor diet and/or excessive
consumption of alcohol (Junankur and Kapuscinski, 1992).
The adverse consequences of unemployment not only impact on the victims, but also on theirfamilies and the rest of the community. Unemployment has been linked to truancy and noncompletion of schooling, family break up, spouse abuse, substance abuse, alienation,
discrimination, illness, premature death, and poverty (Siegel, 1994: 8). Secret and Peck-Heath(2004) found that the school performance of US children in public assistance families was
positively associated with the stability of maternal labour force participation, whether it was
employment or unemployment, rather than work status per se. However those whose mothers
had recent, current, or long-term employment were in better health than children whose
mothers had been unemployed for more than 2 years. Junankur and Kapuscinski (1992: 57)
showed that higher unemployment in Australia tends to reduce the incidence of marriage andraised the divorce rate.
Burgess and Mitchell (1998) note that social and economic exclusion encourages anti-social
behaviour and fosters the growth in illegal activity as a means of generating income (see also
Darity, 1999). Human rights of the unemployed are also undermined by their loss of freedom.
Without access to labour income they are reliant on social and / or family transfers, nonlabour income or savings. Many unemployed people do not have access to these sources of
support thereby limiting their ability to participate in the market economy. Thus choices about58

lifestyles and personal development and access to basic goods and services are restricted. In
addition, loss of social and professional contacts in the workplace further isolates individuals
and their families and promotes social exclusion (Sen, 1997; Darity, 1999). Sen (1997) argues
that high unemployment also contributes to jingoism as well as to inter-racial or interethnic
tensions, thereby undermining social cohesion.
Broom et al (2006) note that unemployment is associated with poor health. Using crosssection survey data of nearly 2500 Australians aged 40 to 44, they confirm the benefits of paid
work. However they find that poor quality jobs which ‘combine several psychosocial
stressors’ could be as detrimental to health, measured by depression, physical health, selfrated health, and general practitioner visits, as being unemployed. They emphasise theimportance of workplace and industrial relations policies that promote worker autonomy andsecurity.
Importantly, Dooley and Prause (2004) find that underemployment in the USA has similar
health consequences to unemployment, including psychological (loss of self-esteem anddepression), behavioural (for example, alcohol abuse) and underweight first-born children(Lengnick-Hall and Kulkarni, 2005: 251). Their study found that the causation between
underemployment and these adverse outcomes ran both ways. By failing to recognise theadverse impacts of low wage employment and involuntary part-time employment,
policymakers underestimate the magnitude of difference in health and related outcomes
between the unemployed and adequately employed (Glanville, 2005: 34).
3.5

Unemployment and underutilisation in Australia

3.5.1 Overview
While the official unemployment rate in Australia has exhibited a long term decline since its
peak in February 1993, there has been a significant rise in underemployment, resulting froman increase in the number of part-time workers seeking more hours of paid work. In
September 2007, 571,900 part-time workers required an average of 14.4 additional hours ofwork per week (ABS, 2008a). The growth of poorly paid part-time and casual employment
with limited hours in OECD countries is a manifestation of the neo-liberal obsession with
employment flexibility.
In Figure 3.3, the hours based measure of labour underutilisation (8.94 per cent), which
incorporates hidden unemployment and underemployment which was developed by theCentre of Full Employment and Equity, is contrasted with the official rate of unemployment
in Australia (4.38 per cent) in May 2007. This rate of underutilisation is equivalent to thatwhich prevailed in the late 1970s following the oil price shock and the implementation ofcontractionary policies by the government to counter the inflation.
Second, there is unequal distribution of the burden of unemployment. The average duration ofunemployment was 34.3 weeks in May 2007 (ABS, 2007c). Also, in May 2007 about 13.17
per cent of families had no parent employed, compared to 62.15 per cent of 2 parent families
with both parents employed (ABS, 2007d). In addition, unemployment is being inheritedacross generations with youth unemployment being much higher in households where no
person is employed. Despite the sustained decline in official unemployment over the past
decade, the regional dispersion of unemployment has not declined. Galbraith (1998: 133-149)
argues that unemployment increases the degree of income inequality in most societies (seealso Sen 1997: 164).

59

Figure 3.3 Labour underutilisation and official unemployment rates, Feb 1978 – May 200720

per cent

16

CU8

12

8

U3

4
1980

1985

1990

1995

2000

2005

Source:Centreof
Full
Employment
andEquity,
CLMI,
May
2007.
Notes: U3 denotes the official unemployment rate. CU8 denotes the hours-adjusted unemployment rate, which
includes underemployment, plus hidden unemployment (discouraged workers).

3.5.2 Unemployment by geographical area
As discussed in the Chapter 1, the definition of regions has a major impact on the visibility ofspatial disparities. Thus, if there is greater spatial disaggregation and hence smaller regions,disparities would tend to increase. For example, an OECD analysis in 1999 found that at thestate level Australia had the lowest unemployment disparities of the 23 OECD countries
examined. However, when the analysis was conducted at the Small Area Labour Market level
the coefficient of variation for Australia was the fifth highest (OECD, 2000). This section
details spatial disparities in unemployment and participation rates for ABS Labour ForceRegions.
Table 3.1 reveals significant spatial disparities in unemployment and participation rates inAustralia that represent underutilisation of potential labour resources. The national
unemployment rate in February 2008 was 4.5 per cent but unemployment was 2.5 per cent orless in Eastern Metropolitan Perth (1.8 per cent), Eastern Suburbs in Sydney (1.9 per cent),
Brisbane City Inner Ring (2.3 per cent) and Central Northern Sydney (2.5 per cent).
In contrast there were areas where unemployment rates were significantly above the national
average. The highest unemployment rate of 8.1 per cent occurred in Central HighlandsWimmera in Victoria, then Mersey-Lyell in Tasmania (7.7 per cent), and in NSW, GosfordWyong (7.3 per cent) and Newcastle (7 per cent).
Similarly, the participation rate displayed major deviations from the national rate of 65.3 percent. Participation rates exceeded 70 per cent in the Brisbane City Inner Ring, MurrayMurrumbidgee, the ACT, Remainder-Balance of WA and the Northern Territory. Areas
where participation rates were less than 60 per cent coincided with unemployment rates being
higher than the national average, with the exception of Goulburn-Ovens-Murray, whereparticipation was 59.4 per cent and the unemployment rate was only 3.3 per cent.

60

Table 3.1 Unemployment and Participation rates, February 2008
UR
4.5
4.8

PR
65.3
63.6

Queensland
Brisbane Major Stat. Region

UR
4.3
4.0

PR
67.0
69.0

Sydney Major Stat Region
Inner Sydney and Inner Western
SydneyInner Sydney
Eastern Suburbs

4.4

65.3

Brisbane City Inner Ring

2.3

75.0

3.2
3.3
1.9

68.4
68.9
65.1

Brisbane City Outer Ring
South and East BSD Balance
North and West BSD Balance

4.2
5.4
4.3

65.4
68.4
68.0

St George-Sutherland
Canterbury-Bankstown
Fairfield-Liverpool and Outer
South Western Sydney
Fairfield-Liverpool
Central Western Sydney
North Western Sydney
Lower Northern Sydney
Central Northern Sydney
Northern Beaches
Gosford-Wyong
Balance of New South Wales
HunterNewcastle
Illawarra and South Eastern
Illawarra

3.5
5.3

68.7
56.1

Balance of Queensland
South and East Moreton

4.6
3.5

65.4
66.4

5.5
6.4
6.0
5.8
3.0
2.5
4.2
7.3
5.5
6.6
7.0
5.8
6.1

64.6
59.9
60.3
67.1
66.1
67.7
68.1
60.8
60.7
63.7
64.3
56.3
54.5

North and West Moreton
Wide Bay-Burnett
Darling Downs-South West
Mackay-Fitzroy-Central West
Northern-North West
Far North
Gold Coast City Parts A and B
South Australia
Adelaide MSR
Northern Adelaide
Western Adelaide
Eastern Adelaide
Southern Adelaide

4.6
6.9
4.1
3.7
4.5
6.0
3.7
5.0
5.3
5.9
6.0
3.7
5.4

61.2
59.6
65.0
69.7
67.9
67.6
66.1
63.3
63.4
64.9
57.6
63.3
65.6

6.2

58.5

Balance of South Australia

4.2

62.9

AUSTRALIANew South Wales

Wollongong
Richmond-Tweed and Mid-North
Coast
Northern, Far West-North
Western and Central West
Murray-Murrumbidgee
Victoria

5.9

52.2

Southern and Eastern SA

3.6

66.6

5.2
3.0
4.6

64.0
73.9
65.3

Northern and Western SA
Western Australia
Perth MSR

5.4
3.2
3.1

57.1
68.4
68.6

Melbourne MSR Region
Outer Western Melbourne
North Western Melbourne
Inner Melbourne
North Eastern Melbourne

4.6
4.9
5.6
3.1
5.2

66.1
64.4
63.3
74.3
65.2

Central Metropolitan
East Metropolitan
North Metropolitan
South West Metropolitan
South East Metropolitan

3.7
1.8
3.0
3.5
3.7

68.2
67.9
69.5
68.4
68.1

Inner Eastern Melbourne
Southern Melbourne
Outer Eastern Melbourne
South Eastern Melbourne
Mornington Peninsula
Balance of Victoria
Barwon-Western District
Central Highlands-Wimmera
Loddon-Mallee

3.4
4.9
3.4
6.9
4.9
4.7
3.0
8.1
5.2

62.7
69.7
68.7
66.9
62.4
63.3
67.1
67.0
61.7

Balance of Western Australia
3.2 67.8
Lower Western WA
3.8 64.7
Remainder-Balance WA
2.7 71.4
5.6 60.6
Tasmania
Greater Hobart-Southern
4.3 61.7
Greater Hobart
4.6 62.6
Northern
6.3 59.9
Mersey-Lyell
7.7 59.0
5.5 71.0
Northern Territory
Australian Capital Territory and
Goulburn-Ovens-Murray
3.3 59.4
3.8 67.9
South Eastern Statistical Region
All Gippsland
5.8 60.9
Australian Capital Territory
3.2 72.6
Source: Labour Force, Australia, Detailed - Electronic Delivery, 6291.0.55.001, Feb 2008. MSR is the Major
Statistical Region defined in the ABS Australian Standard Geographical Classification.

61

3.6

Conclusion

This chapter has critically assessed the dominance of the NAIRU supply-side approach thathas led to replacement of the goal of full employment with the diminished goal of full
employability. Ingrained in the Jobs Study approach is that the cause of unemployment lies inindividual behaviour reflecting motivations, attitudes and endeavour. Thus the approach isunderpinned by orthodox microeconomic principles.
Under the Full Employment framework, social policy was designed to provide income
support when the economy temporarily deviated from full employment. The role ofmacroeconomic policy was to ensure that the economy stayed as close to full capacity as was
possible. Under the Full Employability framework, the role of social policy becomes one ofhelping individuals to position themselves in the labour market to maximise their chances ofgaining work, yet no complementary policies were implemented to ensure that there wereenough jobs available to match the preferences of the labour force.
By promoting inflation as the policy priority, rather than unemployment, neo-liberal policy
makers were able to locate the supply-side microeconomic policy emphasis at centre stage
and downgrade the importance of an active, counter-cyclical macroeconomic policy stance(see Blinder, 1987; Solow, 1998). Panić (2006: 17) provides an interesting comparison of theeconomic performance of France, Germany, the Netherlands, Norway, Sweden, the UK and
the US and concludes:
In summary, two important conclusions emerge from the experience of the seveneconomies since the end of the 1980s. First, whatever the model of capitalism,
economic growth slows down and unemployment rises if a country adopts theclassical approach to macroeconomic management advocated by neoliberals. In
contrast, whatever the model of capitalism, the Keynesian approach to macroeconomic
management … will improve economic performance. Second, those models ofcapitalism that give high priority to social well-being, solidarity and trust have an
important advantage in minimising the impact of a stagnant environment on economic
welfare, not least by being able to respond more rapidly and adequately to thechallenges of globalisation.
These observations illustrate the importance of engendering social well-being, solidarity andtrust as fundamental building blocks for achieving better economic performance. It is in thisspirit that our emphasis on full employment should be understood.
The simultaneous existence of labour underutilisation and a broad range of unmet needssuggests that these two societal problems could be addressed through public sector expansion
by means of a Job Guarantee policy which would simultaneously enhance service provision,building communities and achieving social justice outcomes, while satisfying employment
aspirations and counteracting the negative consequences of unemployment.
Most importantly, implementation of the JG means that societal problems would not be
displaced, as has often been the case with contemporary neo-liberal policies. Communities
would instead be supplied with a set of tools to remediate issues that are specific to theirlocale, and would also be provided with an enabling, complementary means for(re)constructing and (re)developing their own strategies for generating regional prosperity.
One of the advantages of the current financial crisis is that it has provoked a major paradigm
shift in economic thinking away from the free market deregulation era that has dominatedsince the 1970s and underpinned the full employability framework.

62

All the logic that justified government cut backs in the last three decades; the run down of
public infrastructure; the harsh treatment of welfare recipients; the wasteful privatisations, andthe rest of the neo-liberal litany that served to transfer wealth from poor to rich and create adisadvantaged underclass has been destroyed by these events.
The crisis has once again exposed the fallacy of the notion that free markets can regulate andgenerate sustained growth and prosperity. It has been categorically re-affirmed that “freemarkets” do not work effectively. We learned this lesson during the Great Depression but
then, in recent times, under sustained pressure from the free market lobby, society has beenbullied into giving market players freedom to pursue their own interests free of significant
regulation. Governments around the world forgot that markets need strong regulation and that
the Government has to play a strong role as an employer and a spender. The policy folly of
the last few decades which has culminated in this disaster shows that governments need tofirmly steer the ship.
It has also exposed the weaknesses on a reliance on monetary policy (lowering interest rates;changing conditions under which central banks will lend to private banks etc…) to stabilise
economic activity. This strategy is flawed because it doesn’t address the nature of the problem
facing world economies. There is plenty of liquidity in banking systems around the globe.
Missing is the confidence to make it available. Lowering the price of credit does not tell
prospective borrowers that they will be able to sell what they produce.
The advantage of fiscal policy is that it directly stimulates spending and signals to firms anincreasing demand for their goods and services. It instils confidence that economic growth
will continue.

63

Part 2Current Policy Framework

64

4
4.1

Active labour market
policies

Introduction

In the period following the Second World War public employment services (hereafter PES)
were established and expanded in OECD countries in tandem with provision of financial
assistance to the unemployed in the form of unemployment benefits. Government
expenditure on labour market policies to address unemployment can be divided into 2
categories, active and passive. Payment of unemployment benefits in the form ofunemployment insurance or social assistance is denoted as ‘passive’. Active labour market
policies (hereafter ALMP) include a range of programmes intended to ‘activate’ theunemployed to enhance employability. Active programmes can be broadly divided into 4types.
1. Job search assistance may be provided in the form of labour market intermediation
through PES, individualised counselling and case management, or job search training
courses designed to increase matching efficiency;
2. Job creation schemes may be initiated to provide work for the unemployed, usually inthe public or non-profit sector. Job creation schemes are usually temporary
programmes that fund entire projects including wages for participants andsupervisors, administration and materials. Historically, job creation programmes haveassumed greater importance during economic downturns;
3. Wage subsidies paid to private or public sector employers to enhance the employment
prospects of particular groups such as the long-term unemployed, youth, sole parents,
people with disabilities, and ethnic minorities. Generosity and duration of subsidies
have varied considerably both between countries and within countries over different
time periods and depending on target groups;
4. Investing in human capital formation through formal training programmes provided
free to participants is designed to assist skill formation and increase productivity.
ALMP have been used extensively, with the relative importance of different types of
ALMP changing frequently in response to labour market and political circumstances.
The theoretical justification for ALMP is that they increase labour market efficiency,
productivity, employment outcomes and earnings for the unemployed. The benefits whichwere outlined by (Calmfors, 1994) can be summarised as:Facilitating matching efficiency in the labour market through more active job search;

Maintaining labour force participation by maximising the effective labour supply
which applies downward pressure on wages and increases employment;

Reducing welfare losses from unemployment by increasing the probability of
employment, guarding against future unemployment and producing a higher wage
than would otherwise be obtained;

Increasing labour productivity through skill formation due to formal training or
counteracting skills atrophy through job creation programmes; and65



Speeding up job search due to the ‘work test’ effect of ALMP that makes
unemployment less attractive.

ALMP have several potential disadvantages that reduce employment creation programme
effects and must be weighed against the advantages outlined above (see Fay, 1996). Most
programmes are vulnerable to deadweight loss which occurs when some of the employment
gains associated with the ALMP programmes would have occurred anyway. In addition,
employer subsidies are prone to displacement and substitution effects. Displacement occurs
when cost advantages enjoyed by the subsidised firm allow it to increase its market share at
the expense of competitors. Even if these effects are found, ALMP can be justified on equity
grounds.
All ALMP are susceptible to attachment effects where participants reduce job search efforts
in order to concentrate on programme completion. A particular concern with targeted public
sector job creation schemes is the possibility of stigmatisation of participants (Fay, 1996).
These programmes also have the potential to crowd out private sector jobs if additionality
conditions are not imposed effectively. For this reason job creation schemes are usually
restricted to jobs yielding social benefit that are not currently being performed. However, thenet impact of ALMP cannot be inferred from economic theory since there are countervailing
effects (Calmfors, 1994; Fay, 1996).
This Chapter examines the use of ALMP in OECD countries in recent decades. A more
complete account of this history is provided in Cook (2008a). Consequent to theabandonment of full employment policies internationally, and in line with recommendationsof the OECD Jobs Study (see Chapter 3), active labour market policies have been adopted
that require the unemployed to undertake intensive job search, training, or participation in
unpaid work, whilst surveillance, sanctions and conditionality conditions for receipt of social
security benefits have become more draconian.
The emphasis in ALMP shifted from direct provision of employment to strategies designed toincrease the employability of the unemployed and to increase labour supply regardless of
persistent demand deficiencies.
Moreover, attempts to ‘make work pay’ have married measures to ensure financial gains
from working, such as reduced withdrawal rates, tax credits or in-work benefits with cuts in
replacement rates and duration. While these developments have been more pronounced inliberal welfare states such as the United States and Australia, they have also been prominent
in conservative and social democratic regimes.
4.2

International experience with ALMP

ALMP have existed for centuries as evidenced by the poor laws throughout Europe.
Extensive public works (job creation) programmes were used during recessions in the 19th
century and during the depression in the 1930s. Throughout the post war period until theearly 1970s, when most Western economies were mainly at or close to full employment, job
creation programmes were used as a counter-cyclical response to unemployment that wasrecognised as a consequence of demand deficiency. This section will provide a brief history
of ALMP, especially in relation to the period after the demise of full employment from themid-1970s. In the post-war period the commitment to full employment, included the use of
fiscal and monetary policy to stimulate aggregate demand and job growth in response to
demand deficiency.
As outlined in Chapter 3, the retreat from Keynesianism resulted in acceptance of the viewthat unemployment was a supply-side phenomenon that reflected deficiencies in the66

education, skills or attitudes of the unemployed. Beginning in the 1980s the neo-liberal
ascendancy coupled restrictive macroeconomic policies and a preference for market
mechanisms in all spheres of life with an ideological campaign that sought to blame theunemployed for their predicament. More recently the failure of neo-liberal policies has
resulted in the rise of the Third Way which is promoted as plotting a middle path between the
post-war social democratic policies and neo-liberalism. The Third Way concern for social
inclusion is largely limited to inclusion in the paid workforce. Workforce participation isprescribed for all working age people as an obligation to society and the best strategy to lift
themselves out of poverty despite the fact that there are not enough jobs in the prevailingenvironment of fiscal restraint.
The initial response of OECD governments to the advent of mass unemployment which
resulted from the economic crisis of the mid 1970s was the introduction of job creation
programmes to provide temporary employment in either the public or non-profit sector. Overthe past 30 years the government commitment to full employment has been abandoned withaggregate demand management policies being largely discarded in favour of activation
policies designed to enhance employability. Demand side policies have been largely confinedto the subsidisation of private sector employment.
The shift to supply side policies in the 1980s ushered in a period of vocational training
programs. Courses were provided to increase the skills of the unemployed and enable them tocompete in the labour market with a view to reducing the insider/outsider effect thatprevented the unemployed being effective substitutes for the employed. However, thepassage of time saw training programmes transformed in many countries so that by the 1990s
they focussed increasingly upon delivering employability through minimal training in job
search techniques. Lafer claims that employability programmes are no longer designed ‘toprovide the skills or education that might enable participants to gain greater leverage in thelabour market. Instead they are intended to lower the sights and aspirations of participants,
producing a disciplined class of low-wage worker’ (Lafer, 1999: 123-124).
Accompanying ‘activation’ policies were institutional changes in the administration of
employment and ALMP policy and benefit payment systems. Gradually OECD countries
introduced additional conditionality on the receipt of income support. New requirements
were often applied to unemployed youth in the first instance and then extended to older
groups of the unemployed. More recently, conditionality has been increasingly applied toother workless groups who were previously regarded as being outside the labour market.
Some of the strategies that have sought to increase the monitoring of the activities of income
support recipients have reversed previous reforms. In the postwar period, employment
services were deliberately separated from unemployment benefit administration to remove
potential impediments to the achievement of employment outcomes and also to minimise
adverse impacts on relationships with clients (see Price, 2000 for developments in the UK).
Institutional changes have varied between countries but have included amalgamation of theemployment and benefit administration functions and an active role for PES staff inmonitoring the activities of job seekers and applying sanctions for non-compliance. In
addition, many services that were previously performed by the PES have been outsourced tothe private sector. For example, the creation of the Job Network in Australia in 1998
established a competitive framework where the public, private and non-profit sectors would
compete for contracts for delivery of employment services. Subsequently, these contracts
have been allocated to the for-profit and non-profit private sector.
In addition to these general trends there are significant differences between countries in the
resources devoted to ALMP and the composition of expenditure between programmes. The

67

proportion of GDP devoted to ALMP increased for most OECD countries over the period
1975 to 2005. Expenditure generally peaked in the mid 1990s when countries struggled todeal with the high unemployment levels that persisted after the recession of the early 1990s.
Expenditure declined in tandem with unemployment levels over the following decade. Thereis no simple relationship between the unemployment rate and ALMP expenditure. The
countries with the highest ALMP expenditure, Denmark and the Netherlands, are equal 22ndin the OECD in terms of the unemployment rate. In 2005 both Korea and the US spent 0.13
per cent of GDP on ALMP and had the 25th and 18th highest unemployment rate in theOECD.
In general, the share of ALMP expenditure increased as a proportion of total labour market
expenditure between 1990 and 2005 (see Table 2 in Cook, 2008a). There was an increase inactivation policies as a consequence of the policy shift described above and the massive
increase in unemployment following the recession in the early 1990s which motivatedgovernments to attempt to address unemployment by the introduction of new programmes orthe extension of existing programmes. These programmes were subsequently wound back insome countries as unemployment rates dropped. Therefore, between 2000 and 2005 there
have been reductions in the proportion of ALMP in several countries.
The most dramatic increase in the proportion of ALMP expenditure between 1990 and 2005
occurred in Australia, where the ALMP share increased from 19.6 per cent to 42.5 per cent,an increase of 117 per cent. In the UK the rise from 39.1 per cent to 72.1 per cent represented
an increase of 84 per cent. Other countries to record significant increases in the proportion of
ALMP expenditure included Denmark (83 per cent), and Canada and New Zealand (55 percent). Thus the liberal welfare states, with the exception of the US, were at the forefront of
the transformation from passive to active policies.
Conversely, countries with the highest ALMP share of expenditure in 1990, Sweden,
Switzerland, Portugal, Germany and Finland, had all recorded a significant decline in theshare by 2005. The largest decline was in Portugal, where the ALMP share fell from 60 per
cent to 34.8 per cent over this period. Despite the large fall in the ALMP share of
expenditure, both Sweden and Switzerland remained among the top 5 countries in terms of
the proportion of ALMP expenditure; Sweden ranked second after the UK and Switzerlandranked fifth.
4.3

Public sector job creation programmes: from job creation to workfare

Several reasons have been advanced for the use of job creation programmes. In periods ofhigh unemployment they can be speedily phased in to provide an effective counter-cyclicalstimulus to the economy by increasing labour demand and creating jobs for the unemployed(Balkenhol, 1981; Jackson and Hanby, 1982; Roy and Wong, 2000). In the past, politicalnecessity has dictated that governments faced with electorate expectations of full
employment are seen to be actively attempting to eliminate unemployment (Jackson and
Hanby, 1982). This changed with the Thatcher Government being re-elected in 1983, despitea record unemployment rate of nearly 13 per cent.
Job creation has a smaller impact on inflation than a general expansion in aggregate demand,
because it directly targets the unemployed (Jackson and Hanby, 1982; Calmfors, 1994;
Belchamber, 2004). The Job Guarantee (JG) advocated by Mitchell (1998) proposes that abuffer stock of public sector jobs be available to all those seeking work. The number of JG
jobs would expand/contract as unemployment increased/decreased. The JG environment
offers a mechanism to control inflation (see Allen et al., 2007; Mitchell and Muysken, 200868for a detailed explanation). In essence, when many workers are employed in JG jobs, real
wage demands will be lower.
In addition to macroeconomic objectives, job creation programmes address structural
imbalances among industry sectors and regions and assist disadvantaged groups in the labour
market (Balkenhol, 1981; Jackson and Hanby, 1982; Roy and Wong, 2000). Belchamber(2004) asserts that governments have a responsibility to address unemployment, including
regional disparities, which have persisted despite a prolonged period of economic growth. In
addition, Brodsky (2000: 31) stresses that public sector job creation ‘may be the only
effective way to aid those among the long-term unemployed who are less skilled and lesswell educated.’ Finally, public sector job creation is also a means of addressing unmet needs
for environmental protection and community development.
As with other ALMP, there are potential unintended adverse consequences of job creation
programmes. At the macro level, the provision of jobs could fail to meet the objective of net
job creation due to displacement, substitution or deadweight loss. However, public sector
programmes designed to meet needs that are currently not being met, reduce the probabilityof substitution or displacement. O’Connell (2002: 67) notes that an OECD review of ALMPin 1993 found that ‘direct job creation schemes were less likely to suffer from highdeadweight than employment subsidies – since most participants would have few alternative
employment opportunities – and that programmes can be designed to minimize substitution
and displacement.’
Programmes may be considered worthwhile on equity grounds in the absence of net job
creation if employment outcomes of disadvantaged groups are enhanced. However, at theindividual level, participants may not achieve improved employment outcomes, or improved
employment outcomes may dissipate rapidly after completion of the programme. In addition,such programmes potentially suffer from lock-in effects whereby participants become
attached to the programme and reduce job search efforts so that employment outcomes do not
improve. Programme evaluation is difficult in the absence of random assignment because thetreatment and control groups are likely to have differences in unobservable characteristics
that impact on outcomes.
As a proportion of GDP, the highest expenditure on job creation in the OECD in 2005
occurred in Belgium (0.36 per cent), Ireland (0.21 per cent), France (0.18 per cent) and theNetherlands (0.15 per cent) (see Table 3 in Cook, 2008a). Over the period 1990 to 2005, job
creation expenditure declined significantly in the Scandinavian countries of Finland, Norway
and Sweden where such programmes had previously been an important component of thesuite of ALMP. These 3 countries used job creation programmes extensively following the
1990s recession as indicated by the higher levels of expenditure in 1995.
Job creation schemes are relatively more important in Belgium and Ireland, with one-third of
ALMP expenditure devoted to job creation in 2005, although the share in Belgium fell fromjust over 50 per cent in 1990. Similarly, job creation accounted for 25 per cent of ALMP
expenditure in Luxembourg, and 20 per cent in both France and Hungary. The Australian
figure of almost 18 per cent is attributable to 2 factors. First, expenditure on the CDEP
scheme for the Aboriginal and Torres Strait Islander (ATSI) population is included although
the programme is more akin to a work for the dole scheme than job creation. Second, theincreasing proportion also reflects the reduction in total ALMP expenditure due to theelimination of most other programmes by the incoming Howard government in 1996.
Between 1990 and 2005, job creation increased its share in ALMP expenditure in France,
Hungary, Ireland, Luxembourg and the Netherlands. On the other hand, the job creation sharedeclined in Belgium, Finland, Norway, Sweden and Switzerland.

69

An international overview of the use of public sector job creation and workfare programmes
in the OECD demonstrates that as the right to welfare has declined over the past few decades
there has been a shift from job creation to workfare programmes (Cook, 2008a, provides
more detail). Job creation refers to paid employment where participants are classified as
employees and receive at least the minimum wage. In contrast, workfare programmes
encompass the requirement that benefit recipients work in return for welfare payments, that is‘work-for-benefit’ without receiving further services (Lødemel and Trickey, 2001; OECD,2005). Workfare programmes are generally considered as work experience, not employment.
They are stigmatising and constitute a reduction in entitlement (Lødemel, 2001).
4.4

Wage subsidies and other recruitment incentives

Recruitment incentives constitute the second major ALMP which are designed to increaselabour demand. In recent years governments have generally increased the emphasis on wage
subsidies to private sector employers relative to public sector job creation in the belief thatprovision of jobs that closely resemble mainstream employment produce superior
employment outcomes. This section reviews current wage subsidy schemes in OECD
countries.
A major issue with wage subsidies in the private sector is whether additionality can beensured. Consequently many countries attempt to design programmes that minimise
displacement and substitution. For example, the employer application for Targeted Wage
Subsidies in Canada asks if there are currently any employees who are laid off, whether thesubsidy will displace existing employees or volunteers and whether the subsidised employee
is likely to be retained at the end of the subsidised period of employment (Service Canada,2007).
Cook (2008a, Table 4) shows the expenditure on subsidies to the private sector as aproportion of GDP and total ALMP expenditure, between 1990 and 2005 in OECD countries.
In general, wage subsidies increased over the period with countries recording increased
expenditure outnumbering those recording reductions. The only countries recording
significant reduction in subsidies as a proportion of GDP were Greece, New Zealand andJapan. The countries devoting the largest share of national income to private sector subsidies
in 2005 were Sweden, Denmark, Italy, Luxembourg and Belgium. With the exception of Italy
where expenditure declined from 0.68 per cent of GDP in 1995 to 0.2 percent in 2005, thesecountries increased their expenditure as a share of GDP.
Turning to the relative importance of wage subsidies in relation to total ALMP expenditure,
Spain, Italy, Luxembourg, Hungary, Sweden and Denmark devoted over a quarter of their
total ALMP expenditure to subsidies in 2005. The relative importance of subsidies increased
between 1990 and 2005 in Sweden (from 1.2 to 34.1 per cent of ALMP), Portugal (3.2 to23.2), Ireland (1.3 to 7.9), and Belgium (3.7 to 15.7). The ALMP share of wage subsidies
declined between 1990 and 2005 in Greece, Japan, Australia, the Netherlands, New Zealand,
the UK, Italy and Germany. The remainder of the corresponding section in Cook (2008a)
sketches various wage subsidy programmes available in OECD countries.
In addition to direct wage subsidies, several countries have schemes to make work pay thatgenerally take the form of tax credits for earned income including the UK, USA, Canada,
Ireland, New Zealand, Finland, Belgium, France, the Netherlands and Denmark.
4.5

Self employment

The third component of the suite of ALMP is the promotion of self-employment which isfound in most OECD countries. Business start-ups are often encouraged through the payment70

of the equivalent of unemployment benefits for a period of time which can either be in theform of a lump sum or regular payments. Other supports include the provision of training insmall business operations, preparation of business plans and assistance with obtaining
finance. The rationale for this type of assistance is that successful business ventures generate
employment for both participants and others as the business grows (Kelly et al., 2001). In
addition, such programmes constitute an attempt to overcome imperfections in financial
markets because potentially viable businesses are frequently prevented from commencing
due to the inability of unemployed people to obtain finance (Perry, 2006). Potential problems
with self-employment programmes include the high probability that they will suffer fromdeadweight loss since many participants would have started a business in the absence of the
programmes; there could be displacement effects; and small businesses in general have a low
survival rates and often provide low incomes (Kelly et al., 2001; Perry, 2006). Cook (2008a)
outlines the types of programmes that currently exist in OECD countries in more detail. In
1999 participation in self-employment programmes was between 0.4 and 4 per cent of theunemployed (Carling and Gustafson, 1999).
Business start-up programmes have been peripheral in the suite of ALMP, with expenditure
generally reaching less than 0.1 per cent of GDP and less than 10 per cent of total ALMP
expenditure (see Table 5 in Cook, 2008a). Spain recorded the largest self-employment
expenditure of 0.19 per cent of GDP (over 25 per cent of total ALMP spending) in 1990 but
by 2005 this had declined to 0.06 per cent. In 2005 Germany recorded the largest expenditure
on self-employment programmes in OECD countries, at 0.09 per cent of GDP but thisrepresented less than 10 per cent of ALMP expenditure.
4.6

Training programmes

In contrast to other programmes there is a large variation in training programmes. Training
programmes have been a major supply side intervention for several decades and usuallycomprise a combination of vocational and general education courses in an attempt to improve
the skills and equip the unemployed for existing or future job vacancies. Several countries
have also initiated training programmes and incentives to increase the skills of existing
employees. The corresponding section to this one in Cook (2008a) reviews recent trends in
expenditure on training programmes and programmes for the unemployed that have been
implemented by various countries. In line with the convention of treating apprenticeships aspart of the vocational education system (EC, 2006d) they are excluded from this analysis.
Expenditure on training programmes is higher in Scandinavian countries that other OECD
countries (see Cook, 2008a; Table 6). In 2005 Denmark had the highest expenditure at 0.51
per cent of GDP, followed by Finland and Norway (0.37 per cent), Sweden (0.34 per cent)and Austria (0.33 per cent). In several countries, training programmes had expenditure levels
below 0.05 per cent of GDP. These included Australia, the Czech Republic, Hungary, Japan,
Korea, Mexico, and the Slovak Republic. Between 1998 and 2005, in line with the shift awayfrom training associated with the ‘work first’ approach, expenditure declined significantly in
Sweden (from 0.96 to 0.34 per cent of GDP), Denmark (0.74 to 0.51 per cent), Finland (0.53
to 0.3 per cent), Germany (0.44 to 0.25 per cent) and France (0.41 to 0.29 per cent).
In 2005, training accounted for over one third of all ALMP expenditure in Austria, Norway,
New Zealand, Portugal, Finland, the US, Switzerland, Ireland and Italy. The traditional
importance given to training in Sweden has weakened in recent years. In 1998, 42.1 per centof ALMP expenditure was devoted to training. By 2005 this had declined to only 25.8 percent. Countries where little priority is currently given to training programmes included theCzech Republic (4.0 per cent of ALMP expenditure), Australia (8.9 per cent) and theNetherlands (9.8 per cent).
71

In conjunction with changes to the administration of unemployment benefit systems and the‘activation’ policies pursued throughout OECD countries, many countries have madecommitments to provide training places as a last resort for the unemployed who are
unsuccessful in obtaining either subsidised or unsubsidised employment. This is often
expressed as a duty to undertake training.
4.7

Findings of ALMP evaluations - who do they help and why?

This Section briefly outlines ALMP evaluation methods, discusses issues that impact on theveracity of evaluations and reviews the international evaluation literature to ascertain which
programmes have proven to be effective in assisting the unemployed to return to work either
by stimulating the demand side of the economy or by increasing employability througheducation and training. See Cook (2008a) for a fuller discussion and review.
ALMP seek to address several, and sometimes conflicting, objectives. Therefore evaluations
have studied a variety of issues including: costs, effectiveness, efficacy, net impact,
efficiency, sustainability and issues of programme implementation (Dar and Tzannatos,
1999). In general there are 2 main programme effects of interest to researchers.
Macroeconomic evaluations provide a superior measure of the general equilibrium effects(EC, 2006d). Macroeconomic evaluations seek to determine whether programmes provide a
net social benefit by increasing aggregate output, stimulating job creation, reducing theunemployment rate or increasing the employment to population ratio. In addition, they may
produce estimates of displacement, substitution and deadweight losses that reduce the net
social benefit. As mentioned previously, deadweight loss occurs when participants gain jobs
that they would have obtained without programme assistance, while substitution refers toparticipants being employed at the expense of others. However, there are a number of
impediments to macroeconomic assessments. Data restrictions mean that there are often onlya small number of observations (EC, 2006d). In addition there are technical problems such as
multicollinearity of explanatory variables and simultaneity bias due to the endogeneity ofsome variables (EC, 2006d).
Microeconomic effects compare programme participants with non-participants with similar
characteristics to identify whether programme participation increases earnings, employment
rates and speed of transition out of unemployment, or reduces reliance on social welfare
programmes (Heckman, Lalonde and Smith, 1999). While this may result in findings ofsignificant positive impacts which may not translate to the macroeconomic level,
nevertheless, as Webster (1998) points out, positive macroeconomic effects are unlikely inthe absence of positive microeconomic effects.
There are several issues that must be addressed in the process of evaluating the performanceof ALMP. These relate to the characteristics of the programme under investigation,
objectives, selection process, and the timeframe for evaluation. Evaluation methods may beeither scientific or non-scientific. Experimental scientific evaluations involve random
assignment to treatment or non-treatment groups. Alternatively, and more frequently,
evaluations are non-experimental since participants are not randomly selected (Dar andTzannatos, 1999). Non-scientific evaluations rely on administrative data rather than random
assignment to control groups to assess programme effectiveness and are therefore more
limited. A major difficulty arising from non-experimental design is the likelihood of selection
bias since the most motivated, and therefore more employable, may self-select to many
programmes or be selected by providers seeking to maximise positive outcomes rather thanto provide assistance to those who would derive the most benefit from participation (Webster,1997).

72

There are a number of other difficulties relating to ALMP evaluations that may affectoutcomes. First, many evaluations are conducted by the government department responsible
for programme implementation rather than independent researchers, and the data is not
publicly available. Second, evaluations that rely on surveys may be adversely affected byresponse bias. Lack of comprehensive administrative data is a third factor that may impact on
the ability to select matched control groups. Heckman, Lalonde and Smith (1999) also
caution that decentralisation may mean that programmes differ between regions, and from thenational programme specifications. Another important issue relates to the tendency forevaluations to estimate mean effects that do not provide comprehensive information on theimpact of individuals with different personal characteristics or those living in different labour
markets. Thus, regional effectiveness may be disguised because outcomes by region are notreported. Finally, evaluations do not take into account other social benefits of effective
programmes such as reductions in crime, substance abuse, or child welfare services, nor dothey account for social costs associated with reduced leisure time, especially for womenwhere the ‘cost associated with their time away from home may be significant’ (Heckman,
Lalonde and Smith, 1999: 2044-45).
The evidence on the efficacy of ALMP as a tool for reducing unemployment or increasing
earnings is often contradictory, confusing or inconclusive. This section attempts to bring
together some of the evidence from evaluation studies acknowledging that ‘[t]here are also
severe problems of interpretation with much of the empirical macroeconomic research and a
lot of conflicting evidence from the microeconomic studies’ (Calmfors, 1994: 36).
Evaluations have included a range of dependent variables, commonly employment andearnings, and the coverage of studies has ranged from a single programme in one country tocomparisons between the efficacy of various types of programmes within or between
countries. It is important to note that programmes have differential impacts on different
demographic groups, between different locations and over time (Heckman, Lalonde andSmith, 1999), and the design of programmes is a critical ingredient for determining net
impact (Fretwell, Benus and O'Leary, 1999; OECD, 2006). In addition, evaluations areaffected by the econometric techniques used and the particular characteristics of programmes.
These factors make generalisations about the efficacy of individual programmes difficult andresults in contradictory findings and a situation where there ‘seem to be as large differencesin results within programme categories as between them’ (Calmfors, 1994: 32). Moreover,the small scale of programmes in most countries demonstrated by the generally low
expenditure and small number of programme places, and targeting of the most disadvantaged
job seekers means that programmes are able to deliver only modest gains at best (Heckman,
Lalonde and Smith, 1999).
Cook (2008a) reports on the international programme evaluation literature, presenting
assessments of various programmes over recent decades. Job search programmes have beenfound to assist disadvantaged job seekers, particularly women and sole parents, but are notgenerally successful for youth. Evaluations of Public Sector Job Creation programmes haveobtained mixed results. However, several analysts have found that they assist long-term
unemployed and disadvantaged job seekers. Wage subsidies have been found to be one of themost effective labour market programmes in terms of increasing employment outcomes but
have been associated with large deadweight and substitution effects (Fay, 1996; Gerfin,
Lechner and Steiger, 2002). They are generally effective for disadvantaged job seekers, thelong-term unemployed and women re-entering the labour market. Self employment
programmes are effective for a small group of job seekers, usually relatively well educatedprime age adults. However there is a high rate of business failure. In general, training courses
are more successful for women, particularly those returning to the labour market. Training73

programmes are less successful for men and youth, particularly those with low levels of
educational achievement.
4.8

Conclusion

In general there has been an increased concentration on ALMP in the past few decades in linewith the recommendations of international organisations such as the OECD and EU. During
this time the trajectory of ALMP has shifted from an initial concern with job creation as the
traditional post war response to unemployment that was seen to emanate from demand
deficiency. Over time public sector job creation programmes became relatively less importantin the suite of ALMP as the diagnosis of the cause of unemployment shifted from recognitionof inadequate demand to the proposition that unemployment was rooted in supply
deficiencies. In particular, the unemployed were viewed as lacking the necessary skills andabilities to obtain employment, or were labelled welfare dependent and unwilling to work.
In many countries job creation in the public sector has been replaced with punitive workfare
schemes where the unemployed are expected to work in return for the equivalent of welfare
payments. As public sector job creation lost ground there has been a greater reliance on theuse of wage subsidies to generate additional employment, reflecting programme evaluation
findings that the most successful schemes are those that are closely linked to private sector
workplaces.
In the 1980s training programmes assumed increased importance as governments sought totrain the unemployed to ensure that they acquired skills and remained part of the effective
labour supply. Maintaining job readiness of the unemployed was expected to exert amoderating influence on inflation when economic activity increased since the unemployed
could compete for new employment opportunities. As the emphasis of training courses
changed, the proportion of vocational courses declined in favour of shorter and cheaper
courses that focus on job search and employability skills. Since the ascendancy of the “workfirst” approach that prescribes getting people back to work as quickly as possible, theproportion of resources devoted to training courses has declined. The contractual relationshipbetween the PES and the unemployed has shifted the responsibility for finding work more
firmly onto the unemployed by including a growing list of ‘activities’ and ‘responsibilities’
into contracts with the threat of withdrawal of financial assistance in the event of noncompliance.
Training covers a wide variety of programmes; hence results are likely to vary by the type ofcourse, content, duration, target group and labour market conditions. Unsurprisingly largescale training programmes during periods of recession have generally not produced highemployment outcomes because of a dearth of job opportunities when training is completed
and the fact that participant’s skills and confidence levels ebb as the length of unemployment
increases.
The evidence on the efficacy of various programmes for different target groups is mixed. Job
search assistance usually helps most groups of unemployed. Public sector job creation
programmes assist the most disadvantaged job seekers and may be the only effective
assistance available. Employment subsidies have been found to be effective for women
returning to the workforce and the long-term unemployed. Women are also assisted byformal and on the job training, provided they have strong relevance for the local labour
market. However, these programmes are less effective for men. Self-employment schemes
are valuable for only a small sub-set of the unemployed. In general, ALMP are of limited
assistance to youth. Heckman, Lalonde and Smith (1999) conclude that ALMP have had

74modest positive benefits at best and both the individual and social gains are small because theprogrammes are of insufficient scale.
Evaluations are fraught with many difficulties, particularly in non-experimental programmes
when there is no guarantee that control groups are comparable to participants, or in situations
where programmes are universally implemented. Many evaluations have concluded that
programmes that more closely mimic actual work situations are the most effective. For thisreason employment subsidies to private sector employers have been seen in a morefavourable light than public sector job creation as a demand strategy even though such
schemes are associated with substantial problems with dead-weight loss and substitution
effects. However, attempts to generate large numbers of wage subsidy positions during
periods of recession have often failed as was the case with the Job Compact in Australia in
the 1990s. Moreover, simple comparisons between programme results can be misleading
because the target groups differ substantially so that programmes are not necessarily
substitutes.
Over the past 3 decades the issue of insufficient labour demand has not been emphasised in
ALMP evaluations. One of the most important lessons from the experience with ALMP in
OECD countries is that supply-side interventions in isolation are inadequate to address
unemployment. There is evidence of poor employment outcomes for a variety of programmes
in times of high unemployment. In addition, the persistence of regions of high unemployment
indicates that there is an urgent need to develop more effective spatial policies.

75

5
5.1

Regional and local employment
policies

Introduction

The previous chapter provided an overview of the use of ALMP; the primary weapon in an
attempt to combat unemployment since the economic crisis of the 1970s. The major
conclusion that can be drawn from this international experience is that ALMP has been unable
to restore full employment in a constrained macroeconomic environment. Despite a prolonged
period of economic growth internationally, full employment has not been restored. Even incountries reporting unemployment rates at their lowest levels in decades, particulargeographical areas have experienced persistently high unemployment.
One of the problems encountered in the examination of regional disparities in GDP,
employment or unemployment rates, is determining the appropriate ‘region’. While it isgenerally agreed that the relevant territory should relate to functional labour markets, much of
the economic data is gathered at an administrative level such as states, provinces or counties
that have little relationship to functional areas. In Europe, regions are defined using theNomenclature of Territorial Units for Statistics (NUTS) while, in the US and Australia, states
are the main basis for determining regions. Thus, regions include large geographical areas
with considerable variations in internal economic and labour market conditions and it ishardly surprising that significant intra- as well as inter-regional disparities exist.
The OECD (2005a) reports that GDP, unemployment and labour market participation exhibit
a high degree of geographical concentration. In 2001, 10 per cent of regions in the OECD
produced 38 per cent of GDP, and accounted for 37 per cent of unemployment and 33 percent of the national labour force. The degree of concentration varied significantly between
countries. Australia recorded high concentration levels for all three indicators and also
exhibited large differences in growth rates. Performance in reducing unemployment displayed
similar tendencies: between 1996 and 2001, 10 per cent of regions in Australia accounted forthe entire reduction in unemployment (OECD, 2005a).
In addition, there is a high degree of persistence. Between 1993 and 2003, 3 out of 4 of theEuropean regions with very low unemployment rates remained in that position as did regionswith high unemployment rates (OECD, 2005a). Most of the changes in position were recordedby regions with unemployment rates in the intermediate range. The OECD (2005a) points outthat if the unemployment rate in the regions with the highest unemployment rate in Australia
fell by 1 per cent, it would reduce the national unemployment rate by 0.7 percentage points.
The OECD concludes that the uneven spatial distribution of unemployment provides ajustification for specific policies targeted to regions with high unemployment.
Importantly, the OECD stresses the primacy of labour demand by concluding that “All in all,demand-side factors thus seem to play an important role in accounting for regional disparities
in employment rates” (2005: 83). The OECD has provided data on the variations in regional
unemployment rates in OECD countries in 2003 (see Cook, 2008b for further details).
According to this data, Italy has the largest variation in regional unemployment rates. In theregion with the lowest unemployment rate, unemployment stood at just 15 per cent of thenational average, while in the region with the highest unemployment rate, unemployment was76

almost 3.25 times the national average. Unemployment in the lowest unemployment region
was only 21 per cent of the national average in Iceland and 27 per cent in Finland. High
unemployment regions in Germany and Canada recorded unemployment rates two and one
third, and two and two thirds higher than the national rate. In Australia the lowest
unemployment region had an unemployment rate just over half the national rate while theunemployment rate in the region with the highest unemployment was 1.71 times the national
average. The OECD analysis defines Australian regions by state and this disguises significant
intra-state variations in unemployment rates.
This Chapter examines the trajectory of regional employment and development policies in thepost welfare state period which has been marked by a retreat from demand oriented policies
designed to promote balanced growth and an increased focus on assisting lagging regions
toward the implementation of ‘new regionalism’ that emphasises the development of global
competitiveness at a regional level.
5.2

What is new regionalism?

In recent years a range of strategies and institutional arrangements have emerged whichhighlight the importance of regional and local economic development and fit broadly under
the rubric of ‘new regionalism’. While there is no universal definition of ‘new regionalism’ it
includes a number of features (Haughton and Counsell, 2004; Rainnie and Grant, 2004). The
overriding principle is that space is important and that aggregate economic development is aninsufficient condition to assure regional development and employment outcomes. Rather,coordinated regional policies pursued through a variety of institutional and funding
arrangements are essential to promote balanced growth. Within the new regionalism literature
concepts such as clusters, networks, partnerships, the knowledge economy, co-operatives,social entrepreneurship and social inclusion are prominent and intertwined.
According to Jessop (2004) the role of the state has fundamentally changed due to the adventof globalisation. His theory of the ‘hollowing out’ of the state posits that the Keynesian
welfare state has been transformed into the Schumpeterian workfare state as a consequence of
the internationalisation of production and financial markets. The regulatory control of nation
states has been lost and state facilitation of the accumulation process has changed. Under thewelfare state, national capital was geographically tied to the nation state and had an interest in
the availability of a healthy, educated workforce. However, unfettered capital flows after thedemise of Bretton Woods meant that production could be shifted to areas offering reduced
costs due to lower labour, infrastructure or regulatory costs, or proximity to markets. Jessop
points to the shifting of some nation-state responsibilities to supra-national organisations suchas the EU, while other functions have been devolved to sub-national spheres such as regional
levels.
The latter development is consistent with the view that the traditional welfare state functions
have been retrenched through the implementation of neo-liberal policies by the nation-statethat include abandonment of the commitment to full employment and a withdrawal fromfunctions such as provision of infrastructure. In this new scenario, the state focuses on theattraction and retention of mobile international capital and increasing international
competitiveness at the expense of coordinated policies to promote balanced growth. Jessop’s
theory identifies common interests at a regional level as regions compete in the global market.
As noted, the emergence of new regionalism is closely associated with globalisation. The
coexistence of regions that have been successful in the global economy and regions that failed
to prosper, motivated an examination of factors contributing to successful adaptation to the
new conditions and focussed attention on several ‘successful’ international regions such as

77

Silicon Valley in the US, Baden-Württemberg and Emilia Romagna in Europe. Proponents of
new regionalism claim that:…the nation state has been (or should be) displaced by regions both as a source and alocus for policies aimed at promoting institutional collaboration, organizational
learning: policies facilitated by political devolution of authority for management andcoordination to local governments. Accordingly, macroeconomic policies are deemed
to be irrelevant for regions that can increasingly rely on inward flowing foreign direct
investment, on the one hand, and the international export of goods and services, on theother (Juniper, 2006: 6).
Thus globalisation is credited with decoupling regions from national macroeconomic settings.
Clusters are viewed as the drivers of economic growth through networking activities thatfacilitate provision and sharing of market information, research and development and skills
and knowledge transfers within a region (Goodwin et al., 2002).
In a related development, there is a shift from government to governance along the lines
advocated by Osborne and Gaebler (1993) of ‘steering not rowing’. Regional delivery oflabour market policies and service delivery are viewed as superior to national policies thatwere the norm during previous time periods. New policies include the withdrawal of national
governments from service provision in favour of devolution to lower tiers of government,
place management approaches managed by local branches of government departments inpartnership with business and non profit agencies, or contracting out to the private sector.
Within this model, community development is to be achieved by the promotion of social
enterprises, self-employment and small business development, training and work experience(Beer, Maude and Pritchard, 2003).
5.3

Clusters

5.3.1 Overview
In the forefront of the new regionalism phenomenon is the concept of industry clusters thathave been promoted as the driving force for economic and employment growth through adynamic process of competitiveness, productivity and innovation. Clusters came toprominence due to Porter’s ‘diamond of competitiveness’ comprising: firm strategy andrivalry; demand conditions; related and supporting industries; and factor conditions (Porter,
1998a, 1998b). Competitiveness is determined by the degree of development and intensity of
the interaction of these four components, and is enhanced when firms are clustered. Porter
proposed that clusters occurred in locations that provided superior competitive opportunities
in relation to these four components. Clusters vary in size and composition; they can comprise
predominantly small to medium firms, a mixture of large and smaller firms, specialise inhigh-tech or traditional industries, or have a mixture of high and low technology
manufacturing and service companies.
Porter defined a cluster as:a geographically proximate group of interconnected companies and associatedinstitutions in a particular field, linked by commonalities and complementarities. The
geographic scope of a cluster can range from a single city or state to a country or evena network of neighboring countries (Porter, 1998b: 199).
Clusters include a range of industries that are important to competition including suppliers of
raw materials, capital equipment, financial and business services, educational and research
institutions. The two core elements of clusters are geographical proximity and that firms must78

be linked in some way (Martin and Sunley, 2003; Malmberg and Power, 2006; Simmie,
2006).
Arnould and Mohr (2005) list the characteristics of clusters:

Forward, backward and horizontal economic and social linkages;



Geographic circumspection;

Innovative products;



The capacity to generate new firms within the cluster;Active and passive efficiencies in the flow of information, ideas, and technology; andShared behavioural norms.

The process of cluster development is explained by Belussi (2006). Locations with favourable
conditions of competitiveness initiate growth and attract new business to the area attaining
critical mass. The initial cluster is then reinforced by the institutional system that is conducive
to growth and the extensive co-operation between firms produces network benefits thatenforce further growth.
According to Rosenfeld (1997), access to raw materials, capital equipment, education andtraining facilities, a skilled labour force, specialised services and finance are essential factors
for successful operation of clusters. In addition, he emphasises the importance of:entrepreneurial activity in the form of business start-ups and attraction of needed firms;
innovation to develop and adopt new technology; social infrastructure such as businessassociations, to facilitate effective networking; and a shared vision and strategy for
maintaining competitiveness.
5.3.2 Benefits of clusters
Proponents claim clusters can raise productivity, innovation, competitiveness, profitability
and job creation of participating firms, regions and the national economy (Martin and Sunley,2003), as well as increase wages and the rate of firm formation (Henry, Pollard andBenneworth, 2006). Porter (1998b) states that clusters enhance productivity through access to
specialised inputs and employees, access to information, complementarities between productsof firms within the cluster, access to institutions and public goods and rivalry. Clusters arealso credited with assisting firms to understand new consumer needs and management
practices, concentrate knowledge and information, thereby facilitating assimilation of newtechnology, and foster ongoing relationships with institutions such as universities (Simmie,
2006).
Beneficial effects of clusters include reductions in transaction costs, transmission ofcontextual and tacit knowledge (Wolter, 2004), and are delivered through both passive andactive processes. However, the major avenue for positive cluster effects is active participation
through networks and relationships with other firms in the cluster to enhance innovation. It isalso claimed that networks enhance opportunities for interactive learning through face-to-facecontact by providing opportunities for direct observation of competitors and exploitation ofcollective knowledge (Bell, 2005; Malmberg and Power, 2006). For elaboration of thesebenefits, see Cook (2008b).
5.3.3 Towards a typology of clusters
Martin and Sunley (2003) argue that the diversity of the size and composition of clusters,
combined with differences in organisation, dynamics and development paths are at odds withPorter’s attempt to fit the theory to all clusters. This has important policy implications since79Porter proposes that cluster theory provides governments with effective policies to secure
economic development.
Asheim, Cooke and Martin (2006: 4) contend that Porter’s cluster theory is only one ofseveral perspectives on the role of localisation as a source of increasing returns, with ‘eachhaving different theoretical foundations and employing different terminology’. Cook (2008b;
Table 1) lists five different cluster theory perspectives described by different authors, whereby
each perspective consists of a number of varying types.
Martin and Sunley (2003: 13) contend that typologies should ‘be based on in-depth
comparative analyses of cluster profiles and processes.’ Paniccia (2006) contends that atypology must have predictive and explanatory power and the types must have internal
coherence and be self-reproducing.
5.3.4 Identifying clusters and evaluating performance
A difficulty flowing from the absence of a universal definition of clusters is that
identification, and therefore evaluation, becomes problematic. In addition to the lack of clear
boundaries, both industrial and geographic, the threshold for the strength of relationships is
not specified (Martin and Sunley, 2003). Simmie (2006) contends that cluster theory provides
no a priori criteria that can identify cluster boundaries. Porter (1998b) suggests that theconstituent parts of clusters can be identified by starting with an individual firm or aconcentration of similar firms and then identifying vertical and horizontal linkages with otherfirms, institutions, that provide specialised services, and regulatory bodies.
Two major evaluation strategies have been employed; a macro approach that defines clusters
using data relating to industry share, relative wages and growth rates, and a micro approachthat starts with individual firms and examines their relationships with other firms in thegeographical area. Martin and Sunley (2003) explain that top-down identification of clusters
can be approached by selecting internationally competitive industries and constructing inputoutput tables to determine the trading linkages, or by focussing on a sub-set of industries
regardless of whether they are internationally competitive. Analytical frameworks including
top-down (Henry, Pollard and Benneworth, 2006) and bottom-up (Anderson, 1994; Mayer,2005) approaches (see Cook, 2008b: Table 2).
Using the top-down approach Henry, Pollard and Benneworth use location quotients andinput-output analysis to identify possible clusters. They then investigate a range of conditions
and systems operating in the area: socio-economic characteristics, labour market conditions,knowledge systems and institutions, to confirm the existence of a cluster. Competitiveness ofthe cluster is then measured by comparing the performance of firms within and outside thecluster.
Martin and Sunley (2003) caution that the top-down approach contains several potential
problems. The use of standard industrial classifications and geographical boundaries rarely
coincide with the reality of the clustered activity. Over-identification of clusters occurs if thegeographical area is too small, while cluster activity may be obscured if the area examined is
too large. Further, they comment that there is no agreement on the degree of spatialconcentration that constitutes a cluster and the top-down approach provides a shallow view
with little insight into the ‘nature and extent of inter-firm linkages (traded and untraded),knowledge spillovers, social networks and institutional support structures argued to be thedefining and distinctive features of clusters’ (Martin and Sunley, 2003: 21).
The bottom-up approach involves identifying the geographical area where economic activity
takes place. Mayer (2005) then identifies the key industry partners such as industry and trade80

associations, research institutions, developers, venture capitalists and other service providers.
The next step involves quantitative analysis to identify potential clusters based on thetheoretical attributes of clusters. Locational quotients identify the proportion of industry
employment in the region compared to the national employment share in that industry.
Clusters should exhibit a locational quotient greater than 1. Similarly, if a cluster exists,
wages and the growth rate would be expected to be higher than the national average. A
comparison of location quotients and employment growth rates provide an insight regarding
the type of agglomeration under investigation. Mayer (2005) explains that areas with highlocation quotients and high employment growth rates, are clusters that enjoy competitive
advantage and are likely to export their products to other regions. In contrast, areas with highlocation quotients but low employment growth rates exhibit a dominant position but are notexperiencing significant growth. A combination of low location quotients and highemployment growth rates indicates that the products of the region are in demand and may
signify potential emerging clusters. Finally, those areas with low locational quotients and low
employment growth rates are not clusters.
Quantitative analysis does not capture all the firms that are part of the cluster, especially firms
providing professional services (Mayer, 2005). Therefore, qualitative analysis in the form ofinterviews to elaborate relationships is required to provide richer data to validate and refineclusters. After identification, the performance of clusters relative to other areas can beevaluated by examining economic and wage growth, knowledge creation, venture capital
investments, new firm formation and labour market skills and education levels. Mayer (2005)
suggests that polices or actions to improve performance may be developed in collaboration
with the key partners in the cluster and national, state and local governments. This proposal
accords with Porter’s assessment that cluster theory provides a policy tool for managers andgovernments (Porter, 1998b). However, it is necessary to examine inherent problems andlimitations of clusters.
5.3.5

Problems and limitations of clusters

Any assessment of clusters needs to counterbalance the proposed benefits outlined previouslywith potential risks. The major negative consequences of successful clusters are congestion,
escalating prices for land, labour and services (Martin and Sunley, 2003; Henry, Pollard andBenneworth, 2006; Maskell and Kebir, 2006; Swann, 2006). The attraction of firms andworkers to the geographical area puts pressure on transport systems, resulting in congestion
and the necessity to increase infrastructure investment. Competition among firms bids up
prices for inputs, property, and services, increases wages and housing costs. Benefits accruingto the cluster should be balanced against negative distributional consequences since certain
individuals or industries within the area as well as rural and regional areas may be excluded
from the benefits (Asheim, Cooke and Martin, 2006; Henry, Pollard and Benneworth, 2006;
Swann, 2006).
Some claim that several other issues arise as clusters mature. For example, some claim thatclusters have a life cycle; economies of agglomeration erode over time; waning
competitiveness leads to decline so that it is difficult to arrest; firms may shift to low cost
countries or regions; or that clusters may be adversely affected by external shocks such astechnological change. Again, Cook (2008b) discusses these issues in greater detail.
5.3.6 Critiques of cluster theory
Porter claimed that the major function of clusters is to contribute to national competitivenessand subsequently asserted that export-oriented clusters drive regional prosperity (Simmie,
2006). Porter (1998a) proposes that national, state and local governments develop policies to81reinforce existing or nascent clusters by investing in the creation of specialised factors such as
education and training centres and specialised infrastructure. In particular, he recommends
that regional development policies for disadvantaged regions adopt this approach rather thanpolicies that attempt to lure firms to an area by offering subsidies which are generally
ineffective in creating competitive advantage. Similarly, Nooteboom (2006: 160) endorses
facilitation of cluster development by ‘giving a nudge here and there’ but warns that policies
that may be appropriate at one stage of cluster development may be counter-productive atanother.
Other potential problems to be confronted include developing a strategy to integrate clusters
into national and international networks, maintaining the benefits accruing from co-operation
without becoming bureaucratic, and the difficulty of sustaining growth in fledgling clusters(Asheim, Cooke and Martin, 2006).
Cluster theory has been the subject of critiques on several grounds. Some accept that clusters
make a valuable contribution to economic growth but contend they have been oversold andshould be considered as ‘a’ policy option rather than ‘the’ policy (Martin and Sunley, 2003;
Henry, Pollard and Benneworth, 2006). Several other authors also provide critiques.
More substantial challenges exist to the proposition that cluster promotion constitutes aneffective policy instrument for stimulating regional economic and employment growth.
Importantly, cluster theory ignores the importance of aggregate demand and conforms to
supply-side prescriptions emanating from neo-liberal economic policy. Mitchell and Juniper(2005: 20) point out that by ignoring the macro-economy, new regionalism accepts andreinforces neo-liberalism.
Other issues arise such as significant confusion being generated by the lack of clarity anddefinition in cluster theory and that cluster theory assumes causation runs from clusters to
productivity, competition and economic growth. We refer the reader to Cook (2008b) for
further elaboration.
5.4

Regional and local development strategies

An integral component of the ‘hollowing out of the state’ thesis is the decentralisation or
devolution of regional development and employment policies to lower levels or government,
non-government organisations or individuals. These measures have involved the transfer of
responsibility for provision to lower levels of government or newly created regional agencies
with or without the transfer of resources to perform the task. As a consequence there is adanger that national governments may absolve themselves of responsibility and jeopardise
service delivery by state or local governments that are financially constrained. There has also
been a large degree of supra-national involvement in regional development, particularly
through the EU structural funds.
According to Beer, Maude and Pritchard (2003), regional development strategies can beclassified as institutional, supply-side, or demand-side. Supply-side strategies primarily aim toenhance the business environment. Provision of physical infrastructure such as road, rail,
ports, and telecommunications are important for business efficiency. In addition, humancapital development can supply a skilled workforce and enhance profitability, while
improvements to local services may attract skilled workers.
Economic efficiency may be enhanced through business advice, mentoring and networking(Beer, Maude and Pritchard, 2003). Governments have attempted to entice businesses toparticular regions or countries through the controversial strategy of ‘corporate welfare’
through the provision of tax exemptions, subsidies or reduced infrastructure charges. Beer,82

Maude and Pritchard (2003) argue that this industrial recruitment strategy has failed, but
persists due to political expediency; the chances of succeeding in attracting business are low,
but the kudos for success is high.
Demand-side policies focus on marketing the region through initiatives such as advertising
campaigns, the development of a regional website, attendance at trade fairs, hosting events, or‘Main Street’ programs to encourage patronage of local businesses (Beer, Maude andPritchard, 2003). Another strategy is to foster the development of new value-adding industries
to process the region’s products, contribute to economic diversification and skill formation.
As mentioned previously, full employment policies were abandoned following the economiccrisis of the mid 1970s. Subsequently there was widespread adoption of neo-liberal policies:
fiscal restraint, inflation targeting, labour market deregulation and the opening up of profitmaking opportunities in areas previously outside the ambit of the market. The latter included
essential services, in particular education, health and social services. The promised ‘trickledown effect’, whereby neo-liberal policies were supposed to deliver economic growth andinternational competitiveness, with the benefits flowing to those displaced from the labour
market or disadvantaged by economic restructuring, failed to materialise.
Decades of entrenched high levels of unemployment and underemployment, combined withretrenchment of income support and social service provision, resulted in high levels of social
exclusion. As the legitimacy of neo-liberal policies was increasingly threatened, social
democratic parties developed the Third Way to ‘transcend both old-style social democracy
and neo-liberalism’ (Giddens, 1998: 148).
Third Way advocates accept the necessity for neo-liberal economic polices and use theexistence of social exclusion and disadvantage to argue for the adoption of supply-side
policies of inclusion, primarily in the form of workfare and local initiatives to generate
employment.
The OECD defines local development as a:bottom-up attempt by local actors to improve incomes, employment opportunities andquality of life in their localities in response to the failure of markets and national
government policies to provide what is required, particularly in underdeveloped areas
and areas undergoing structural adjustment (OECD, 2001c: 22).
Local development is viewed as a complement to national and supra-national programmesthat can “significantly reduce unemployment and inequality” (European Commission, 2004b:1). Local employment strategies have been promoted and supported by direct EU funding or
participation in pilot projects with other international partners through initiatives such as the
Local Employment Development Action Programme, Territorial Employment Pacts, and theThird Sector and Employment Programmes (European Commission, 2004a).
There are four major objectives of local employment strategies (European Commission,
2004a).
1. Local policies aim to create new jobs by promoting the location to inward investors,
encouraging new business creation including self-employment and social enterprises,
and identifying employment opportunities in adjoining areas that could be accessedby local job seekers;
2. Policies to address the employability of the labour force. Strategies may include
training the unemployed to meet the skill needs of local industry or identifying futureskill needs and implementing training programmes to ensure the adequate supply ofskilled labour. Other initiatives include recognition of skills and abilities, creation of83‘intermediate’ labour market positions to assist disadvantaged groups in the transition
to work, or encouraging inward commuters;
3. Assisting people to return to work by providing ancillary services such as child care,better labour market information, transport or forums for employers and job seekers;and
4. Assistance to the most disadvantaged will reduce inequality. These can be achieved
by designing jobs that are suitable for disadvantaged job seekers, intensive job search
assistance and encouraging employers to consider these job seekers by breaking down
skill or attitudinal barriers.
The OECD examination of local development stressed that it is not possible to identify a‘single model of best practic’ due to the range of initiatives that have been adopted at different
times across diverse areas (OECD, 2001c: 29). Table 5.1 summarises the OECD outline of theessential components of best practice in local development, including the motivation behind
local development, strategies, operational structures, evaluation methods and theconsideration of transferability of local development initiatives to other areas (OECD, 2001c).
Table 5.1 corresponds to Table 3 in Cook (2008b) which provides a detailed description of thecomponents.
5.5

Social entrepreneurshipSocial entrepreneurship (SE) is promoted as the solution to regional development andentrenched unemployment. The concept of social entrepreneurship emerged in the 1990s andhas been promoted as a means of addressing regional disadvantage but has also been widely
criticised or given qualified approval. It embraces a myriad of activities by innovative
organisations (Austin, 2006; Mair and Noboa, 2006; Perrini and Vurro, 2006), who use
business techniques to attain social goals (Latham, 2001: 23; Haugh, 2006).
In order to understand social entrepreneurship it is necessary to examine why it happened,
what it is, and whether it represents an adequate response to the employment and social needsof communities. The literature identifies two related causes for the development of SE:


Response to the retrenchment of state welfare provision in a period of increasing needdue to persistently high levels of unemployment and significant demographic change(Cook, Dodds and Mitchell, 2003; Roper and Cheney, 2005). In addition, Wallace(1999) comments that provision of some products and services by social entrepreneurs
is the result of withdrawal of the private sector.

Reaction to the increased competition in the non-profit sector for limited funding
opportunities, combined with moves away from untied funding to financing tied toperformance of government-identified functions (Eikenberry and Kluver, 2004),
especially with the advent of contracting out of services previously provided by the
public sector. The development of for-profit activities by the non-profit sector has
blurred the division between the private and third sectors.

A social enterprise has been defined as:
any business venture created for a social purpose–mitigating/reducing a social
problem or a market failure–and to generate social value while operating with thefinancial discipline, innovation and determination of a private sector business (Alter,
2006: 5).

84

Table 5.1 Best practice in regional, local and community development
Motivation

Strategies and actions

Stimulation of economic
development and restructuring Creating jobs, raisingincomes and encouraging
structural change

Development of strategy
 Shared vision
 Territory and timetable Resource commitment
 Development agency
 Strategic audit
 Develop action plan Set goals Capacity building Include niche strategies

Encouraging social progress
and improving quality of life Improving community
facilities and services andcombating social
exclusion
Conserving and enhancing theenvironment
Improving governance Strengthening institutions
 Community involvement

Evolution of strategy
 Foundation stage
 Using the know-how
 Self-sustaining
development
Identification of actions
 Job creation
 Training
 Flagship initiative

Operational Structure andmethods
Partnership Community support
 Roles for each actor
 Results orientated Maintain autonomy
 Communication
 No one model ofpartnership-vary withlocal conditions
Professional management
and local development
workers
 Manage funds
 Local workers topromote strategies
Visible and autonomous
structure
Leadership

Evaluation

Transferability

Statement of rationale

Challenges and issues
 Identify best practice Bottom-up policy makes
policy transfer difficult
 Resistance to change Weak institutional
structures.

Statement of objectives
Monitoring expenditure,
activities and output
Procedures
Assessment of impacts
 Quantitative
 Qualitative
Assessment of processes
Consider Alternatives
Establish feedback
mechanism

What is transferable?
 Methods, techniques,
know-how and operating
rules
Conditions for exchange Enterprising andinnovative people Viable activities
 Adapt programmes tolocal conditions
 Local development
networks
 Identify recipients

Mobilisation of local
population
Source: OECD, 2001c; European Commission, 2004b.

85

Dees (2001) defined social entrepreneurs as change agents in the social sector who: create andsustain social value; pursue opportunities to serve their mission; engage in continuous
innovation, adaptation and learning; act boldly; and have a heightened sense of accountability
to their constituents. Martin and Osberg (2007) characterise entrepreneurs as individuals whoare inspired to alter an unpleasant equilibrium, and demonstrate courage and tenacity inimplementing innovative and risky strategies.
In addition, Botsman (2001) defines direct community participation and attacking thefundamental causes of problems as an essential component of social entrepreneurship. Martin
and Osberg (2007: 31) insist that any definition of social entrepreneurship must start with aclear conception of ‘entrepreneurship’ and then determine how the ‘social’ component
moderates this. They state:
Entrepreneurship describes the combination of a context in which an opportunity issituated, a set of personal characteristics required to identify and pursue thisopportunity, and the creation of a particular outcome.
Most commentators agree that the primacy of social benefit is what differentiates social
entrepreneurs from other entrepreneurs; they seek profit-making opportunities as a means ofachieving their social mission (Dees, 2001; Alter, 2006; Perrini and Vurro, 2006; Martin andOsberg, 2007). Cook (2008b) provides and discusses a typology of social enterprises.
There are significant benefits that accrue from SE. The major advantage is the additional
funds that are available to achieve the objectives of the organisation. In addition to thesebenefits, the quality of services to the community may be enhanced because social
entrepreneurs may be trusted and welcomed into disadvantaged communities and because
they can design more flexible services than government departments. The introduction of abusiness culture and management techniques is claimed to increase innovation, efficiency andcost effectiveness (Eikenberry and Kluver, 2004; Roper and Cheney, 2005; Alter, 2006).
However, Eikenberry and Kluver (2004: 135) caution that these benefits are ‘at the expense of
the nonprofit sector’s role in creating and maintaining a strong civil society – as value
guardians, service providers and advocates, and builders of social capital – may well be toohigh a price to pay.’
Nevertheless there are fundamental issues that must be discussed in relation to social
entrepreneurship. At the very least business risk taking and the non-profit model thatconcentrates on social values, community participation and advocacy for disadvantaged
groups, make odd bedfellows (Cook, Dodds and Mitchell, 2003; Eikenberry and Kluver,
2004; Roper and Cheney, 2005; Cho, 2006). The first issue that must be considered is theeffect of entrepreneurial activities on the organisation’s mission. Engaging in SE runs the riskof prioritising the bottom line rather than social objectives. In addition, the demands ofrunning a business may force organisations to divert resources from service delivery or
advocacy. A more insidious consequence could be the gradual erosion of the culture of theorganisation as a result of the adoption of business methods. On the one hand, staff may lose
confidence in the organisation’s commitment to service delivery and leave the organisation.
On the other hand, over time staff inculcated with the necessity to generate revenue may
change their attitude to the organisation’s original ideals. The use of business methods may
erode the very characteristics that made these organisations effective in achieving outcomes.
Second, involvement with contracted services previously delivered by the public sector
endangers autonomy of the social enterprise (Cook, Dodds and Mitchell, 2003; Eikenberry
and Kluver, 2004). Organisations entering into these arrangements are obliged to comply withstrict contract requirements. In an environment where disadvantaged groups are blamed for
not being self-sufficient due to inherent personal failings, the potential exists for the86transformation of organisations with long histories of assisting disadvantaged groups; into
enforcers of repressive policies detrimental to the very clients they seek to assist. For
organisations engaged in service subsidisation, and particularly organisational support, it isconceivable that staff from different sections of the same organisation could be engaged
simultaneously in assisting and punishing the same client. Moreover, reliance on contracts forfinancial resources undermines the ability or willingness of social entrepreneurs to act aseffective advocates or criticise government policy. Another threat to autonomy comes frompartnerships with the private sector where social entrepreneurs promote business using theirrelationship with the community (Cook, Dodds and Mitchell, 2003).
Thirdly, social entrepreneurship is overwhelmingly presented as an unmitigated good in
relation to employment outcomes. Small programmes with employment outcomes are
frequently portrayed as a blueprint for significant employment creation through duplication.
This approach neglects the fact that these projects are not necessarily generalisable. In
addition, the possibility of a negative impact on private sector employment is usually ignored.
A major issue rarely broached in the social entrepreneurship literature is the transformation of
the relationship between the state and individual citizens (see Cook, Dodds and Mitchell,2003). The welfare state ensured delivery of certain services as a right of citizenship or
acknowledging societal responsibility to citizens wellbeing (Jamrozik, 2001). Advocates ofsocial entrepreneurship promote initiatives designed and implemented at the community level,
according to priorities developed at the community level. This approach presupposes that
determining ‘society’s’ interest is uncontentious; the potential for ‘discord between sectionsof the community with divergent priorities, including intolerance of minorities’ (Cook, Dodds
and Mitchell, 2003: 66) is ignored. Everingham (2001) points out that transferring
responsibility for social provision to communities absolves government of responsibility.
SE is based on two false premises (Cook, Dodds and Mitchell, 2003). The first is the failure tounderstand causes of unemployment. Acceptance of the non accelerating inflation rate ofunemployment (NAIRU) proposition, that attempts to stimulate employment above thenatural rate, generates inflation but has no long-term impact on employment levels, results inabandonment of expansionary macroeconomic policies to combat unemployment andprovides support for supply-side policies that attribute unemployment to inherent deficiencies
in the unemployed or labour market rigidities. The modern monetary framework summarisedin Chapter 3 provides the conceptual structure for understanding the deficiencies of SE in thisregard (see also Mitchell and Muysken, 2008). The second misconception is that
expansionary Keynesian policies are no longer possible because of ‘what has become known
as the fiscal crisis of the welfare sate – that is, the gap between the revenue raising capacity of
an internationally competitive taxation regime and the public outlays required to fund social
democratic programmes and the local costs of economic adjustment’ (Latham, 1998: 31).
As mentioned previously, the rise of SE is attributed to the decline in welfare state provisionand social entrepreneurs are portrayed as proactive, innovative individuals (organisations)who (which) seek to mobilise the resources necessary to fill the void and overcome
disadvantage in communities. Advocates of SE claim that it gets to the root causes ofproblems (Botsman, 2001; Dees, 2001). In reality, SE becomes an activity that provides theillusion that problems are being adequately addressed while governments continue with neoliberal policies.
SE provides opportunities for expanding social services through the use of entrepreneurial
methods. However, it does not compensate for the retrenchment of services previously
provided by the public sector and is not capable of creating enough jobs to deliver full
employment. One major problem with the promotion of SE is that it becomes a vehicle for87assisting governments intention on retrenchment to cover over the withdrawal of services andshift responsibility to the community and individuals. For the social entrepreneur, there is thedanger that the adoption of business techniques may divert resources from their central
mission and bring about a change in the organisational culture that causes services todeteriorate. In short, social entrepreneurship cannot be distinguished from neo-liberalism anddoes not represent a viable solution to the problem of unemployment which is caused bysystemic failure rather than the failings of individuals.
5.6International regional policies

5.6.1 Overview
Regional policies are predicated on the belief that interventions are necessary to deliver
acceptable outcomes in terms of convergence in economic and employment growth between
regions. This section considers the major thrust of regional policy in the United States andEurope. In the United States the emphasis is firmly on improving regional competitiveness. In
Europe these objectives are moderated by a concern for addressing regional disparities as animportant component of regional economic and social development (SGS Economics andPlanning, 2002).
5.6.2 Regional Policy in the United States
Governments in the United States have traditionally played a minimalist role in regional
development with the exception of attempting to address market failures, although there havebeen interventions to address persistent unemployment, poverty and regional disparities(Bureau of Transport and Regional Economics, 2003). During the depression in the 1930s thegovernment provided extensive job creation schemes centred around provision of
infrastructure to sustain the large unemployed population. Since the 1960s there have been
several phases of regional policies. Economic Development Districts were established in themid 1960s to provide infrastructure funding and community development loans due topersistent regional disparities (Bureau of Transport and Regional Economics, 2003). The
Districts operate through partnerships of local officials, business and community
representatives in cooperation with state and federal government departments.
The roles of state and local governments in regional development have changed over time.
The emphasis has moved from provision of infrastructure to a wider range of activities toencourage the establishment and expansion of business in the region. Initiatives have included‘pro-business tax systems, state sponsored enterprise or development zones, assisted loans,and direct grants for business training and community partnerships’ (Bureau of Transport andRegional Economics, 2003: 43). Government have fostered the development of industry
clusters to promote regional development. Strategies to improve competitiveness include:transport and infrastructure provision; research and technology incentives; trade promotion
and market development; tax and regulatory incentives; education and workforce
development; financing assistance; economic and community revitalisation; and, businessdevelopment and attraction initiatives.
Promotion of industry clusters
Important industry clusters have been identified in San Francisco, Phoenix, North Virginia,
San Diego, Seattle, Salt Lake City, Denver, Austin, Atlanta and Boston. While there is nofederal cluster development programme in the US, several federal departments became
involved in cluster activities. Economic Development Administration research had identified
the importance of clusters in innovation and economic development and initiated programmes
to encourage innovation and entrepreneurship in depressed regions. It has also realigned
88funding to concentrate on developing economic regions and improving regional
competitiveness through collaboration and innovation (OECD, 2007). The American
Competitive Initiative seeks to increase R&D investment from US$10 billion to US$20
billion over a 10 year period and a Research and Experimentation tax credit will encourage
private sector expenditure (OECD, 2007). In addition, the Workforce Innovation in Regional
Economic Development (WIRED) programme will provide US$195 million over 3 years toassist lagging regions affected by global trade to develop strategies involving public, private
and community partnerships. The Small Business Innovation Research (SBIR) and Small
Business Technology Transfer (SBTT) programmes also enable SMEs in high technology
clusters to access funding.
Cluster initiatives are supported at the state level. OECD (2007) details developments in
Georgia. Georgia has a number of programmes that support cluster development. The Georgia
Research Alliance (GRA) is a private-sector organisation that commenced in 1990 and
distributes state R&D funds to collaborative research projects in science and technology. It
includes academics, research centres, business incubators and centres of innovation. There are
six partner universities and hundreds of firms involved with the GRA. The alliance supports
Technology Development Centers that assist emerging companies to access R&D resources ofuniversities and refine the commercial potential of technology being developed. GRA
supports development of technology through VentureLab which has pre-incubator services to
identify the commercial potential of technology developments. In addition, the GRA
Innovation Fund provides grants for projects in advanced computing and communications,bioscience and nanotechnology (OECD, 2007). In addition to the GRA programmes, Georgia
also runs the Centers of Innovation programme to support innovation in industries outside theambit of GRA such as aerospace, agriculture, life sciences and maritime logistics. The
Intellectual Capital Partnership Programme provides linkages between the academic andbusiness communities to ensure access to the latest research and business advice.
Local employment development policies
Deprived urban areas have been a major focus of place-based policies since the mid 1960s
Community Development Block Grants (Bureau of Transport and Regional Economics,
2003). During the 1980s most states initiated enterprise zones to attract business investment inspecified areas by offering tax advantages in return for job creation (Krupka and Noonan,
2008). There were over 1500 enterprise zones operating in 35 states by the late 1980s (Oakley
and Tsao, 2007).
In 1994 the Clinton Administration announced a similar federal programme, with the creationof Empowerment Zones / Enterprise Community Sites for depressed urban and rural areas(Krupka and Noonan, 2008). Empowerment Zones were designed to stimulate employment,
encourage economic self-sufficiency and revitalise economically distressed areas byproviding financial incentives to firms and federal funds for community development.
Empowerment Zones have operated in the era of welfare reform emanating from the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 and the number of
Empowerment Zones has increased over time.
Empowerment Zones received a block grant of $100 million over a period of 10 years andwere also eligible for $150 million federal tax credits (Rich and Stoker, 2007). Employers in
Empowerment Zones are eligible for an annual tax credit of $3,000 for each employee wholives and works within the Empowerment Zone. An additional credit of $2,400 is available forthe first year of employment of each 18-39 year old employee who lives in the Empowerment
Zone. Businesses are eligible for deductions of up to $35,000 for equipment purchases. Other
incentives include low interest bonds issued by local and state government for construction89

projects and no interest bonds for public school programmes. See Cook (2008b) for details of
specific empowerment zones.
Several reasons have been put forward as possible explanations for the limited success of suchpolicies. Some have commented that tax incentives have not been generous enough toovercome other perceived locational disadvantages for business while others have suggested
that positive benefits for new firms have been counter-balanced by negative effects forexisting firms (Krupka and Noonan, 2008). In addition, the fact that most job growth inenterprise zones is attributable to existing business, suggests that new business development
may require initiatives such as business incubators, technology transfer programmes orassistance with obtaining finance (Bureau of Transport and Regional Economics, 2003).
Another major finding of evaluations is that improvements in Empowerment Zones are notnecessarily attributable to the programme (Rich and Stoker, 2007).
Social entrepreneurship in the United States
The US was a pioneer of the use of the non-profit sector as a delivery mechanism forgovernment programmes dating back to the 1970s (Young, 2003). The turn to neo-liberalism
by the Reagan government in the 1980s severely restricted funding of non-profit organisations
and initiated a search for financial security through self-funding, a process that was to become
known as social entrepreneurship, as earned income became the main source of revenue,
outstripping government grants and donations (Young, 2003). The non-profit sector currently
has involvement in a wide range of industries.
The sector currently employs 8.4 million workers and accounts for 5.2 per cent of GDP(Wolk, 2007). Advocates of social entrepreneurship acknowledge that its impact on meetingneed is ‘limited by its ability to sustain or scale initiatives’ and suggest a closer relationshipwith governments and the private sector to obtain the financial resources necessary to solve
the serious social problems confronting the US (Wolk, 2007: 13). Governments currently
support social entrepreneurs by: encouraging social innovation by providing seed funding;creating an enabling environment by removing barriers and supporting collaboration;
rewarding performance through financial support; scaling initiatives’ success by funding
programmes at other sites; and producing knowledge about problems and solutions thatenhance social entrepreneurs’ efforts (Wolk, 2007).
More recently the non-profit sector has been in direct competition with the for-profit sector ina range of services such as child care, family services and job training, including competition
for government contracts. Non-profits have also formed associations with for-profit
businesses that have provided financial assistance such as grants and scholarships and in-kindresources such as employee volunteer programmes. KaBOOM provides quality playgroundequipment to underprivileged communities by partnering with major companies that provide
donations, service fees and employee volunteers in return for corporate team-building andsocial marketing by KaBOOM (Wolk, 2007).
There are dangers for the non-profit sector as organisations increasingly resemble for-profit
organisations. Dedication to making profits from commercial activities, and the increasingly
corporatised management model, risk the loss of the very attributes that set the non-profit
sector apart and endanger the primacy of the mission.
5.6.3 How successful has regional policy been in eliminating spatial disparities inunemployment rates in the US?
Beer (2004) claims that regional policy is more developed in the US than in Australia.
Dedicated local government tax revenues can be used for economic development with90

advantages of scale and a strong focus on meeting business needs. Regional policy is geared
to attracting business to the region and developing marketing opportunities in other regions of
the US (Beer, 2004).
Nevertheless, regional employment and development policies have not proven capable ofeliminating regional disparities in employment. An examination of demand shocks in the
United States over 40 years to 1990 found that most of the adjustment following an adverse
shock is due to out-migration, rather than job creation or attracting firms to the location(Blanchard et al., 1992).
In March 2007 unemployment rates in the US varied considerably from the national rate of
4.4 per cent. Unemployment was highest in Mississippi (6.9 per cent) and Michigan (6.5 percent) and lowest in Montana (2.0 per cent) and Utah (2.4 per cent).
5.6.4 Regional policy in the European Union
EU regional policy is premised on reducing disparities in economic growth and labour market
access as the way to address social exclusion, reduce bottlenecks and inflationary pressuresand maintain social cohesion (Commission of the European Communities, 2005a). Regional
employment policy is implemented through a combination of the European Employment
Strategy (EES) and nationally based policies. A local dimension was added to the EES in2001 and National Action Plans from member countries outlined national, regional and local
policies to support job creation (Employment and Social Affairs, 2004). The relaunched
Lisbon strategy in 2000 re-iterated the objective of reducing regional disparities in
employment and unemployment rates by ensuring that regional and national employment
programmes targeted less prosperous regions (Commission of the European Communities,
2005b). National Action Plans (NAPs) from member countries outline national, regional andlocal policies to support job creation.
Delivery of the EES is underpinned by the Structural Funds that support regional programmes
to combat unemployment and develop human resources to ensure a high level of employment.
For the period 2000-06 there were 3 major priorities for the Structural Funds (European
Commission, 2004a). Objective 1 funding promoted development and structural adjustment
for lagging regions (regions with per capita GDP less than 75 per cent of the Community
average). Financial support for infrastructure, investment, human resource development, andindustry restructuring was provided to enhance productivity and competitiveness of thedesignated regions, and ultimately produce convergence. Objective 2 supported areas
experiencing structural difficulties in industrial or service sectors, declining rural areas,
depressed urban areas or areas reliant on fisheries. Modernisation of education and training,along with labour market integration of youth, the long-term unemployed and those at risk of
exclusion, constituted Objective 3. For the period 2000-2006 expenditure on Objective 1 of€150 billion accounted for 74 per cent of total Structural Fund expenditure, while Objective 2
expenditure amounted to €24 billion and Objective 3 spending was €26.5 billion (European
Commission, 2006c).
In addition, funding is provided under the Community Initiatives and Innovation Scheme andthe Cohesion Fund. Community Initiatives expenditure of €11.4 billion supported 4
programmes: cross-border, interregional and transnational cooperation (Interreg III); supportof innovative strategies in cities (URBAN II); rural development (Leader+); and EQUAL tocombat labour market discrimination. Cohesion Fund expenditure of almost €20 billion cofinanced major environmental and transportation projects in countries with GDP less than the
EU average.

91

The Cohesion Fund was established in 1993 to provide financial assistance to countries with
GDP per capita below the Community average (Boldrin and Canova, 2001; European
Commission, 2006a). Funds are used to assist poorer countries with development of
infrastructure and environmental programmes while complying with Maastricht Treaty
requirements. Major beneficiaries of Cohesion Fund assistance from 2000 to 2006 were
Greece, Ireland (until 2004), Portugal, Spain and the 10 new member states from 2004.
Priorities adopted in the Employment Guidelines in 2006 included:Preventing long-term unemployment and helping the unemployed and those not in thelabour force to find work;Creating more jobs and encouraging entrepreneurship;Addressing change and promoting adaptability;Promoting human capital development and lifelong learning;Ensuring adequate labour supply and promoting an active older workforce;Ensuring gender equality;Integrating the disadvantaged into the labour market;



Making work pay;

Reducing undeclared work;

Reducing regional employment and unemployment disparities.

For the current funding period, 2007-2013, the Structural Funds come under the reformed
Cohesion Policy which focuses on knowledge and the information society, entrepreneurship,
the environment and employment (European Commission, 2006b). Three priorities replaced
Objectives 1 to 3 and funding has been increased to €308 billion (1994 prices). The bulk of
the funding (82 per cent) is available to the poorest or ‘Convergence’ regions which aresimilar to Objective 1 regions and include most of the new Member States. The second
priority ‘Regional Competitiveness and Employment’ will receive 16 per cent of StructuralFunds. ‘Regional Competitiveness and Employment’ funding will: assist innovation andknowledge transfer; stimulate enterprise by promoting business clusters assisting with financeand incubators; promote social entrepreneurship, employment and public services; regenerate
deprived neighbourhoods; and contribute to sustainable development, and improveaccessibility to training projects (Third Sector European Network, 2007). The final priority
provides 2.5 per cent of total funding for ‘Employment and Territorial Cooperation’ or crossborder cooperation.
The EU has a number of programmes designed to support clusters and regional specialisation
to increase the international competitiveness of regions. Since the mid-1990s more than 100
regions have been assisted to develop regional innovation strategies while Innovation Relay
Centres have been established in 33 countries to assist innovation and transnational
technological co-operation by supporting SMEs (OECD, 2007). The ‘regions of knowledge
initiative’ facilitates transnational mutual learning and co-operation between research-driven
clusters through partnerships of regional authorities, industry, and research organisations(OECD, 2007). Similarly, the Europe INNOVA initiative encourages networking between
clusters to establish joint research projects and business initiatives (OECD, 2007). The‘mapping and analysis of innovation clusters in Europe’ project is developing a database on
European clusters to identify best practice and develop future policy. In recent years there has
been greater emphasis on developing effective local strategies (Section 5.4) and encouraging
social entrepreneurship (Section 5.5). Evaluations of the effectiveness of regional policies in92

achieving convergence in the EU is discussed in detail in Cook (2008b). Cook (2008c) uses
the case studies of Sweden and the UK in this evaluation.
5.7

Conclusion

Central to the development of regional policy in the past decade has been the view that in an
era of rapid globalisation regions are becoming more important and less dependent on thefortunes of the national economy. Consequently the traditional approach of concentrating
regional policies on assisting lagging regions has been diluted in favour of encouraging all
regions to concentrate on developing the innovative, knowledge intensive assets of the region
and effective linkages between businesses.
Porter’s contention that clusters are responsible for increased productivity and economic
growth has resulted in the promotion of clusters as the vehicle for economic development thatis appropriate to all regions. The major policy recommendation is that governments should
facilitate cluster development through a range of supply-side measures. Moreover, policy
prescriptions ignore the fact that clusters are a specific form of development that arise due toan often unique range of factors that are not easily replicated. The causal link between clusters
and productivity growth has not been conclusively proven. Even if the benefits of clusters
could be demonstrated, there are several impediments to their widespread use for economic
development. First, and most importantly, cluster theory ignores the critical importance ofmacroeconomic environment in stimulating growth. Second, as the preceding discussion has
demonstrated, transplanting strategies used by successful clusters is far from straightforward,
precisely because these clusters are the product of unique and spatially specific conditions.
These conditions, including dynamic networks and inter-firm relationships are not easily
reproduced. Some authors contend that clusters have been oversold and should be consideredas ‘a’ policy rather than ‘the’ policy (Martin and Sunley, 2003; Henry, Pollard andBenneworth, 2006). Thus, any positive impact of clusters should be considered as one ofseveral tools to promote economic and employment growth; used in isolation policies topromote clusters are unlikely to have significant impacts, especially in disadvantaged areas.
The turn to SE and other local development strategies is closely related to new regionalism
and government abrogation of responsibility for full employment and the desire to outsource
services previously delivered by the public sector. While social enterprise is eulogised as asolution to unemployment, particularly in deprived neighbourhoods, McCabe and Hahn
(2006: 396) point out that ‘there is a gap between the rhetoric attached to social enterprise andits capacity to deliver economic and social policy imperatives’. They conclude that it has only
a marginal impact at the macro level and is highly reliant on government support.
These strategies are inadequate for the task of restoring full employment in the presence ofmacroeconomic constraints and a situation where private sector job creation has proven to be
insufficient to provide jobs to all those willing and able to work. While development ofclusters may provide tangible employment and income benefits in particular regions, this may
be at the expense of other regions, and is not capable of producing the quantum of
employment necessary. Similarly, local strategies and social enterprises may increase the total
number of jobs or they may simply replace some of the jobs lost in the public sector. Even if
there is net job creation it is extremely doubtful that it will be on the scale required to restore
full employment. The fundamental point is that the various components of the new regional
approach to employment generation accept the tenets of neo-liberalism, concentrate on
supply-side interventions and ignore the primacy of aggregate demand in determining thelevel of employment in the economy.

93

6
6.1

Australian experience withnational, regional and local
employment policies

Introduction

This Chapter examines the Australian experience in tackling the problem of entrenched
unemployment and underutilisation in the past few decades. The persistence of regional
unemployment disparities is well documented (Webster, 2000; Mitchell and Carlson, 2003;
Trendle, 2004). Regional growth in Australia has been divergent and “there had been no trend
towards long-run equilibrium growth for all regions” (Garlick, Taylor and Plummer, 2007: 9).
Detailed case studies of the Swedish and British experience with national, regional and local
employment policies are provided by Cook (2008c).
The Chapter is organised as follows. Section 6.2 traces the development of ALMP in
Australia. Section 6.3 traces the transformation of the Commonwealth Employment Service(CES) to the Job Network. Section 6.4 reports the findings of focus groups conducted with
Job Network staff and assesses the effectiveness of the Job Network. Section 6.5 outlines
Australian regional policy developments in relation to the federal, state and territory
governments. Concluding remarks follow.
6.2

The Australian experience with ALMP

Australian expenditure on ALMP as a proportion of GDP has varied over time and remainedin the lower half of OECD countries in 2005. Expenditure increased to 0.84 per cent of GDP
in 1995 and then declined to reach 0.45 per cent in 2005 (Cook, 2008a: 5, Table 1). Over the
past 30 years job creation, wage subsidies, formal training and job search assistance haveassumed different levels of importance and have been supplemented with programmes toenhance employability, including jobsearch programmes and unpaid work.
6.2.1 The growth of labour market programmes
The job creation programme introduced by the McMahon Government in 1972 was replacedby the Whitlam Government’s Regional Employment Development Scheme (REDS) in 1974.
REDs providing grants to States, local government and community groups to generate
temporary, labour intensive jobs that were socially useful (Stretton and Chapman, 1990;
Howe, 2001). Originally the jobs targeted regions of high unemployment but targeting was
dropped as unemployment escalated in 1975.
The Fraser Coalition government eschewed public sector job creation schemes and shifted thefocus to tackling the problem of youth unemployment. Wage subsidies to private sector
employers were provided through the Special Youth Employment Training Program (SYETP)
from 1976. SYETP was initially targeted at youth under 18 who had been unemployed for 4
months, in the preceding 8 months (Stretton and Chapman, 1990). In addition to subsidies,skill formation for youth was addressed to improve school to work transitions. Trade training
was encouraged by the expansion of subsidies to employers of apprentices from 1977.
The Fraser government introduced programmes for disadvantaged job seekers, including the
National Employment Strategy for Aboriginals, which provided work experience, and the94Community Employment Development Program (CDEP) enabled Aboriginal communities toorganise work of community benefit in return for welfare payments.
Rapidly rising unemployment as a consequence of recession and drought in 1982, combinedwith growing desperation regarding the impending election in 1983, provoked areconsideration of job creation schemes with the introduction of the Wage Pause Program anda shift from youth to long-term unemployment as the policy priority. See Cook (2008d) for
further description of the above and other employment schemes.
6.2.2 ALMP under LaborIn March 1983 the Hawke government assumed office, pledging to tackling unemployment as
the ‘most important single goal of our fiscal policy’, and the delivery of sustainable economic
recovery, ‘fairly shared by the whole community’ (Hawke, 1983). The Community
Employment Program (CEP) provided temporary employment for 3 to 9 months for the longterm unemployed, indigenous Australians, migrants with non-English speaking backgrounds
and people with disabilities.
But the commitment to providing employment opportunities was short-lived as thegovernment embraced neo-liberal policies and two reviews resulted in a major transformationin ALMP in the late 1980s. The Kirby Inquiry into Labour Market Programs published in1985 criticised the existing suite of programmes as too numerous and complex and suggesteda shift in emphasis from Job Creation to training (Committee on Employment Opportunities,
1993). The Social Security Review dominated employment policy from the late 1980s,
focussing on supply side strategies to maximise employability and activation policies.
Following the reviews formal training programmes to enhance vocational skills assumed
greater importance. The centrepiece of the new ALMP regime was the Australian Traineeship
System (ATS) that provided combined work experience with accredited training opportunities
for youth at reduced training wages (Committee on Employment Opportunities, 1993). A
feature of the post Kirby period was the amalgamation of programmes and increased targetingof the LTU and disadvantaged. CEP was discontinued in 1987-88. The Jobstart wage subsidy
subsumed the SYETP and the AWSS.
The Adult Training Program (ATP) and Youth Training Program (YTP) were amalgamatedinto Jobtrain in 1988-89. Under Jobtrain, short formal training courses were provided for LTU
and disadvantaged jobseekers under contract with training providers including TAFE,
community organisations and private training operators (Stromback and Dockery, 2000).
The concept of reciprocal obligation for receipt of unemployment benefits decreed
compliance with an activity test including increasing participation through training andaccepting part-time and casual work (Cass, 1986).
The introduction of the Newstart programme in February 1989 was designed to overcome
long-term unemployment, which had grown from 28 to 37 per cent between 1983 and 1989,
despite the creation of 1.5 million jobs (Dawkins and Duncan, 1989: 36). The Newstart
strategy envisaged 40,000 joint CES / DSS interviews annually for LTU jobseekers aged
between 21 and 54, to identify employment barriers, training needs, develop jobseeking
strategies, and review benefit entitlement.
In the early 1990s the major ALMPs in Australia included: the wage subsidy programme
Jobstart; vocational training programmes Jobtrain and Skillshare; job creation programmes,
Jobskills and the Landcare and Environment Action Program (LEAP); and job search
assistance through the CES and programmes such as Job Clubs (Stromback and Dockery,2000). Jobskills was a job creation programme introduced in 1992 for LTU people aged 2195and over, that combined work experience with off-the-job training for approximately 40 per
cent of the time (DEET, 1995).
Working Nation initiatives in 1995 were underpinned by a massive funding injection for
ALMPs. Additional jobs for Job Compact clients, who were unemployed for more than 18
months, were provided through a revamped suite of ALMPs including Jobstart, Jobskills,
LEAP, New Work Opportunities (NWO), the Community Action Program (CAP), and the
National Training Wage (NTW) (DEET, 1997). The primary focus was to be private sector
employment, facilitated by subsidies for up to 39 weeks under Jobstart (Daniels, O'Neill andWinter, 1994). Jobstart placements were to be supplemented by existing and new
programmes. However, Jobstart placements constituted only one-third of JC placements
rather than the projected 70 per cent because of insufficient demand and employer reluctanceto employ the LTU (Vanstone, 1996). See Cook (2008d) for further detailed descriptions of
the above initiatives and other employment schemes under Labor.
6.2.3 After Working Nation
While employability and compliance objectives assumed increasing importance under ALP
governments, they became virtually the only policy of the Howard government after mostlabour market programmes were abolished in the 1996 budget. Expenditure on labour market
programmes declined from $1987 million in 1995-96 to $1177 million in 1996-97 and thenumber of programme participants fell from 703,700 to only 416,400 (O'Neill, 1998). NEIS
was retained and in 1998 the New Apprenticeship System was set up incorporating traditional
apprenticeships and traineeships (NCVER, 2007).
Mutual Obligation (MO) replaced reciprocal obligation ‘based on the principle thatparticipants supported financially by the community should actively improve their work skills
and give something back to the community that supports them’ (DEWR, 2006c). Work for the
Dole (WfD) became the primary means of satisfying mutual obligation.
WfD has similarities with the voluntary CAP programme but is a punitive Workfare
programme designed to further stigmatise and discipline the unemployed by mandating
participation in unpaid work experience. Initial MO and WfD requirements applied to youth
but progressively expanded to incorporate most unemployed groups. Commencing in
September 1997, WfD required 18 to 24 year olds, unemployed for 6 months or longer to‘work’ on community projects.
‘Welfare to Work’ commenced in July 2006. It restricted access to Parenting Payments andintroduced part-time work and MO requirements for some Parenting Payment recipients once
their youngest child turned 6. DSP applicants assessed as capable of working 15 to 29 hours
per week were also subject to MO. See Cook (2008d) for further detailed descriptions of theabove and other employment schemes after Working Nation.
6.2.4 State government labour market programmes
While the majority of labour market programmes in Australia are implemented by the
Commonwealth Government, these have been supplemented by a variety of state government
programmes to encourage employment. They have included wage subsidies, payroll tax
concessions and exemptions from workers compensation premiums for particular groups.
Many programmes attempt to lift apprenticeship and traineeship take up rates throughassistance to employers and apprentices. In NSW apprentices benefit from travel concessions,rebates on car registration and an allowance to purchase tools and clothing. Queensland
provides mentors to support Aboriginal apprentices, trainees and vocational students. The
South Australian government also assists indigenous youth to obtain apprenticeships in the96

private sector and supports them to complete training. The Northern Territory provides grants
for all apprentices and trainees for work gear (DEET, 2008).
NSW employers receive a workers compensation exemption for apprentices and payroll tax
exemptions for apprentices and trainees. In Queensland, employers are eligible for incentive
payments of $2,000 if they employ apprentices in trades suffering skill shortages, while Youth
Training Incentives provides wage subsidies of up to $4,000 for employers of school-based
apprentices and trainees in rural and remote areas. Traineeships are encouraged through theFirst Start Program that offers wage subsidies of $14,000 to the non-for-profit sector and up to$10,000 for local government and Aboriginal and Torres Strait Islander Councils (Queensland
Government Department of Employment and Industrial Relations, 2007).
Victoria provides subsidies of $9,000 for traineeships and $15,000 for apprenticeships to local
governments. The Northern Territory Employer Incentive Scheme provides wage subsidies of$4,000 for apprentices and trainees in areas of skill shortage and $2,000 for employing
disadvantaged job seekers (DEET, 2008). The Western Australian government provides
payroll tax exemptions for employers of apprentices and trainees and funds the vocational
training component (Department of Education and Training, 2007).
Several states operate training programmes to enhance skills of the unemployed or people
returning to the workforce. Victoria assists parents returning to the workforce through a grantof up to $1,000 for training under the Returning to Earning programme (Office of Training
and Tertiary Education, 2008). The Queensland government has provided training assistancethrough Training in Communities since 2005 (Department of Education Training and the Arts,
2008). Pre-employment training is provided to parents and carers returning to the workforce
through the Back to Work: Parents and Carers programme, while the Get Set for Workprogramme provides training and employment assistance to youth aged 15-17. In NSW the
Corporate Partners for Change partnership between the government, unions, employers andregistered training organisations provides free pre-vocational training for disadvantaged job
seekers from Western Sydney in child care, aged care, disability work, electrical trades,
hospitality, business administration, manufacturing and retail (Department of Premier andCabinet, 2008).
In South Australia regions prepare Employment and Skill Formation Plans and operate
training programmes in child care, aged care and pre-employment (Department of Further
Education Employment Science and Technology, 2008). ‘Abilities for All’ is a training
programme for people with disabilities in hospitality, viticulture, horticulture and officeadministration (Department of Further Education Employment Science and Technology,2008). Other training assistance includes provision of literacy and numeracy training andtraining credits of up to $1,200 to for parents returning to the labour market (Department ofFurther Education Employment Science and Technology, 2008). The Northern Territory
programme Build Skills assists people to up-skill or re-skill to overcome skill shortages.
There are also programmes to assist workers affected by major retrenchments in Victoria,
South Australia and Queensland. Cook (2008d) provides more detail on these programs andalso explains Queensland's 'Breaking the Unemployment Cycle’ programme.
6.3
The Public Employment Service in Australia: from the CES to Job
Network
This section traces the changing role of the CES in the years prior to its demise and examines
the extent to which its privatised replacement, the Job Network has delivered an efficient,effective employment and training service to improve labour market functioning and meet the97changing skill requirements of employers. This assessment incorporates evidence fromsecondary sources and findings from focus groups conducted with Job Network staff in 2007.
6.3.1 The demise of the CES
The Commonwealth Employment Service was established in 1946 and was responsible forthe provision of employment services until being disbanded in 1998. The functions of the
CES were then split between Centrelink and the privatised Job Network. This section outlines
important changes in the operation of the CES as they relate to the delivery of employment
services and the dramatic increase in the role of enforcing the conditionality of benefit receipt.
In addition to the provision of employment and training services, the CES administered the‘work test’ that required the unemployed to actively seek and be willing to accept suitablework. With the restructure of unemployment benefits in 1991 ‘the onus was placed clearly on
the job seeker to find work through active jobsearch backed by assistance to prevent longterm unemployment’ (Department of Families Community Services and Indigenous Affairs,2006). Unemployment benefit was replaced by 2 new benefits, Job Search Allowance andNewstart Allowance, and the introduction of the Activity Test brought a much greater
policing role for the CES. Unemployed persons over 18 who had been unemployed for 12months were required to apply for Newstart Allowance which entailed entering a Newstart
Activity Agreement, a contractual agreement that detailed activities that the unemployedperson would undertake to secure employment or enhance employability.
The Activity Test incorporated work test requirements and added new obligations toundertake additional work-related activities, including participation in vocational training or
labour market programmes which were intended to improve employment prospects, and toattend or contact the CES on request. Also, Newstart Allowance recipients were required totake ‘reasonable steps to comply with a Newstart Activity Agreement’ that included
requirements relating to job search, paid work experience, labour market programmes,‘measures designed to eliminate or reduce any disadvantage the person had in the labour
market (but not so as to compel the person to work in return for receiving payment)’, or an
activity such as unpaid voluntary work (Department of Families Community Services andIndigenous Affairs, 2006). Non-payment periods could be imposed for breaches of the
Activity Test with the CES assuming the decision-making function that previously resided
with the Department of Social Security.
Implementation of the Working Nation reforms from 1994 was accompanied by an ambitious
plan to introduce competition in employment services through contestable markets. Private
for-profit and non-profit organisations were contracted to provide some case management
services for the unemployed, with the share increasing from 10 per cent in 1994-95 to morethan half by 1996-97 (DEETYA, 1997).
Contemporaneous with the increase in private provision of case management was theelimination of most labour market programmes by the incoming Howard government in the
1996-97 budget (see Section 6.2.3). Over the decade of the 1990s integrated employment
services that delivered traditional labour market intermediation and assistance todisadvantaged groups through labour market programmes, were jettisoned in favour of
specialisation under the case management model that dedicated resources to theadministration, regulation and policing of the activities of the long-term unemployed anddisadvantaged jobseekers. The responsibility for securing employment shifted firmly in the
direction of individual jobseekers, irrespective of prevailing labour market conditions andwith a declining commitment on the part of government to provide meaningful assistance.

986.3.2 The Job Network
Privatisation was extended by the Howard government with the introduction of the Job
Network in 1998. The contestable market model for employment promised several benefits.
First, it would address structural weaknesses in the system by introducing a purchaserprovider split and restrict the government’s involvement to purchasing employment services
that were delivered on a competitive basis. Second, job seekers had the choice of providers intheir geographical area. Third, the competitive system would provide greater efficiency for
taxpayers. Finally, and most importantly, delivery of services tailored to the needs ofindividual job seekers would enhance effectiveness and efficiency and achieve sustainable
employment outcomes. This was to be facilitated by innovative and flexible approaches thatwere not possible under the previous bureaucratic system (DEWR, 2002). In 2005-06 there
were 113 Job Network organisations with around 10,000 staff at 1,154 sites across Australia
who received $1,250 million for employment services in 2005-06.
The initial Job Network contract included private and community providers along with
Employment National as the public sector provider and assistance consisted of Job Matching,
Job Search Training and Intensive Assistance (DEWR, 2002). Contrasting the universal
nature of CES, the Job Network initially restricted services to those on income support but
this restriction was later lifted by a contract variation. In addition to the aim of quality
improvements, the Job Network also assisted the government to contain expenditure on
labour market assistance and entry level training from $3.7 billion in each of the years 199495 and 1995-96, to $5.4 billion over the 4 years 1996-97 to 1999-2000 (DEWR, 2002).
In contrast to the promise of increased choice for job seekers, the first contract period wascharacterised by an automated referral process implemented by Centrelink that provided no
choice of Job Network agency in cases where job seekers nominated a provider that had noplaces available or if they failed to nominate a provider within 10 days. Choice was further
constrained by limitations on movement between providers and caps on the number of job
seekers that could be assisted by each Job Network provider during the contract period.
The Job Network has undergone several changes in the 10 years since its establishment as
successive contracts have attempted to rectify serious inadequacies in service delivery,transparency and accountability and to stamp out unacceptable practices. The government
introduced a major reform package in 1999, less than 12 months after Job Networkcommenced, to boost funding to struggling providers. Providers found that payments for job
matching were inadequate and many providers subsidised job matching by using Intensive
Assistance funds, thereby reducing services to disadvantaged job seekers (Dockery, 1999).
The second contract round modified the ‘black box’ approach of awarding contracts andpaying for outcomes without any specification of services to be provided to the unemployed(OECD, 2001b). DEWR attempted to ensure minimum service standards through the
Employment and Related Services Code of Practice that outlines how providers will deliver
services to clients. In addition, service guarantees provide clients with information on thetypes of services they can expect (DEWR, 2007).
Under the third employment services contract (ESC3) that commenced in July 2003 thegovernment introduced the Active Participation Model (APM) which included Job Search
Support, and Intensive Support that increases the intensity of activities required as the lengthof unemployment increases (ANAO, 2005b). In contrast to the earlier contracts, under ES3
job seekers would remain with the one Job Network provider for the entire period of
unemployment and assistance provided would be measured against minimum service
standards contained in the Service Guarantee and Employment Services Code of Practice. The

99

APM was an integral component of the implementation of the recommendations of the
McClure report, especially the extension of MO to parents and people with disabilities.
Evaluations of the Job Network prior to 2003 concluded that the Job Network did not provide
sufficient funds for services to assist job seekers (ANAO, 2007). In what amounted to an
admission of the failure of the earlier system of requiring providers to use general funds topay for training for job seekers, ESC3 introduced a dedicated Jobseeker Account that wascredited with an amount according to the job seeker classification when s/he was referred to
the Job Network. Accumulated monies in the notional account could be used by the Job
Network to pay for training or other assistance for the job seeker, but there was no guaranteethat any job seeker would be approved for assistance.
Over successive contract rounds the model has been significantly modified. In ESC1 contracts
were shared by public, private and non-profit organisations. In ESC2 the public sector lost the
majority of its business and contracts were divided between private and non-profit
organisations. In both rounds competition was based on price and quality. However, ESC3
marked a departure from the competitive model with only about 40 per cent of contracts open
to tender. In July 2006 ESC3 was extended. The government also fixed contract prices andlimited competition to quality of service as measured by the DEWR star ratings for providers.
6.4

View from the coalface: report on focus groups with Job Network staff

6.4.1 Overview
This Section discusses findings from focus groups conducted with staff from non-profit Job
Network agencies in late 2007 in conjunction with findings from other research and official
reviews of the Job Network. In total, 25 staff from DEWR Labour Market Regions
participated in 3 focus groups designed to cover a range of labour market conditions.
Melbourne was selected to represent major metropolitan areas, with participants drawn fromvarious parts of the city, including the Inner East, North West, West, Inner East and South
East. In NSW one focus group was conducted in the Hunter and North DEWR Labour Market
Region with participants from different locations throughout the Hunter and Lower Hunter.
The final focus group included participants from Keepit, North East and Orana regions ofWestern NSW. Below is a summary of findings that are reported in full in Cook (2008d).
6.4.2 Eliminating bureaucracy?
Focus group participants were aware of the need for contract supervision but stressed that itwas extremely time consuming and eroded the time to assist job seekers and market services
to employers. They identified the role of DEEWR as impacting negatively on theeffectiveness of the Job Network and the ability to deliver quality employment services to job
seekers. One focus group summed this up as ‘administrivia’ and ‘compliance lock’. This
assessment reinforced findings from the Job Network Frontline Staff survey where 80 per centof staff indicated that the administrative burden was excessive (A C Neilson, 2005). One
participant explained the impact administration and compliance procedures have on clientinteraction:
If I’m a Job Network person sitting down [with] my client … the first thing is I’ve got to
do is the administrivia…and next thing is… this whole compliance issue and every
decision that I make with [the client] is actually subject to review by compliance. And
then once I’ve done the administrivia, once I’ve got over the compliance, I can say to[the client] “How can I help you?”100

6.4.3 Policing the joblessThe second major issue relating to DEEWR expectations was the role of the Job Network as apolicing agency to ensure that job seekers complied with increasingly onerous activity
requirements. Job Network agencies have contractual obligations to monitor compliance andadvise Centrelink when job seekers fail to comply with their obligations. Serious breaches,
include voluntary unemployment, failing to accept a suitable job, or failing to participate
satisfactorily in Full-time Work for the Dole, incur an 8 week non-payment period.
Between 1997-98 and 2000-01 breach penalties increased from 12,718 to 346,078 annually(Commonwealth Ombudsman, 2002). Publicity surrounding the severe hardship endured bypeople who were breached and a major investigation by the Australian Council of Social
Service (2000) resulted in modifications that reduced the number of penalties imposed.
During the first 6 months of operation of ‘Welfare to Work’ that commenced in July 2006,
there were 86,761 participation failures including almost 6,000 cases where payments weresuspended for 8 weeks. However, the incidence of non-payment periods increased over time.
For the 2006-07 financial year a total of 19,217 people lost payments for 8 weeks, but for the
6 months to December 2007 non-payment periods were endured by 18,944 people. The rate of
imposition of 8 week penalties declined after the change of government in November 2007.
However, there were 32000 8-week penalties imposed during 2007-08 (O'Connor, 2008). See
Cook (2008d) for further details.
The dual role of providing employment assistance and policing activities of clients presents
significant issues regarding maintaining effective relationships with them. Several focus
group participants expressed internal conflict about enforcing all obligations and submitting
participation reports to Centrelink. One participant related an incident that demonstrated thatthe ‘system’ provided little room for discretionary action even in most extreme circumstances:Well we had one woman run out yesterday and said “I’m going home to kill myself”…
Her job capacity assessment says that she should not be in Job Network but the systemsays that she has to be referred for Work for the Dole. So her Work for the Dole
provider has breached her …and she’s beside herself.
Despite acknowledgement that the WfD requirement was incomprehensible and the outcome
extremely detrimental, the client nevertheless suffered a financial penalty and no action was
taken to reverse the decision. Many participants felt compelled to initiate participation reports,
indicating that they too were pawns of the system and powerless to act despite the fact thatthey sometimes felt that punishment was harsh, unjust and counterproductive. Sometimes
staff indicated that they had feelings of guilt after breaching clients:
And that impacts on our souls, can I say. Because like I said before most of the people
who join this industry…do it because they really care about people.
Participants indicated that they developed coping strategies to assuage feelings of guilt. One
strategy was to try to ensure that requirements were viewed as reasonable by the case manager
and the activities would be beneficial for the client. In these instances breaches could beconsidered justifiable because the client had not acted in their own best interest and there wasno reason why they were unable to fulfil their obligation. However, one participant stated:
The concern for me is, I’m happy to back up a solid plan where you’re asking a person
to do things that are genuinely going to help them get employment, but when you have ahigh turnover of staff in a compliance culture, you have people being asked to do
unrealistic things and not being able to do it.

101The depth of resentment about the prioritisation of compliance was shown in comments suchas:
We are no longer employment officers we are compliance. DEEWR wants us to makesure that we’re breaching, we’re doing this, they’re looking for jobs, they’re doing theirjob searching… A lot of us, like myself, joined the industry because I wanted to help
people get jobs. That’s not my job anymore. I don’t help people get jobs. It’s justmaking sure we’re complying with everything DEEWR wants us to do.
The pursuit of compliance caused the ongoing relationship with the client to deteriorate bycreating an ‘us and them’ environment which concerned Job Network staff. The Job Network
Frontline Staff Survey identified similar concerns, with 61 per cent of staff stating that they
were increasingly required to deal with angry or challenging clients (A C Neilson, 2005).
6.4.4 Providing effective, innovative services to job seekers?
In addition to favourable macroeconomic settings, delivery of effective employment services
requires staff competency and appropriate policy instruments to assist jobseekers to overcome
barriers to employment. The Frontline Staff Survey found that staff were generally satisfied
that the Job Network was effective in its role as a labour market intermediary but expressed
reservations about the ability to deliver effective services to disadvantaged jobseekers such as
parenting payment recipients, indigenous jobseekers, people with disabilities, mature aged job
seekers, and people from non English speaking backgrounds (A C Neilson, 2005).
Far from the dynamic, innovative, individually tailored service promised with the introductionof the Job Network, one focus group participant commented:
So Job Network now, if you go into a Job Network … they look the same, they smell
the same, they act the same.
Focus groups engaged in a wide-ranging discussion about the issues Job Network staff faced
in dealing with disadvantaged clients who made up a high and increasing proportion ofcaseloads. Several issues were identified including: insufficient labour demand, particularly inregional labour markets; lack of motivation; poor soft skills considered essential to successful
engagement in the workforce; transport problems; and the dearth of training options.
Participants were generally critical of the current suite of labour market programmes andsome were also critical of the dominant ‘work first’ approach.
There was a lively discussion in all focus groups about the attitude of job seekers to work andjob seeking and the reasons why people remained unemployed. A minority view articulatedthe ‘dole bludger’ stereotype with comments such as: ‘they don’t want to work but they want
their benefits.’ However, these views were vigorously challenged by other participants who
stressed the complexity of factors impacting on the unemployed:
So you’re looking at people who are 4 years or 10 years or 20 years [unemployed] andwe’re saying to them “we demand that you go into a full-time job”.… I think we’reunreasonable sometimes in our expectation and I don’t think there is enough allowancefor easing people back into a workforce.
All focus groups identified significant negative consequences for clients living incommunities with high and persistent levels of joblessness, whether these were isolated rural
areas or suburbs in major cities. One prominent issue was ‘inter-generational’ unemployment
when no members of the job seeker’s family or social network were working. It was claimed
that in some communities it was socially acceptable not to work. Moreover, jobseekers often
stated that the costs of employment, especially in precarious jobs, outweighed the advantages.

102Several barriers to employment were identified by focus group participants. In some instances
they indicated that most jobseekers left on their caseload were considered to be unemployablein the private sector because they lacked the vocational or soft skills necessary to sustain
employment. Participants were in general agreement that training options through the Job
Network were limited and that employers abrogated responsibility for training and expected askilled workforce to be delivered to them.
One participant commented:
When we were talking about training before the one thing different between now and10, 15 years ago is employers will not train their staff. The emphasis is on us to supply
this ready-made product to them and they won’t accept anything less.
A major topic of discussion in all focus groups related to people that Job Network staff
considered were unemployable due to illness or drug and alcohol addictions. In particular, thechanging role of the Job Network in relation to the Disability Support Pension (DSP) in the
post-Welfare to Work environment was recounted with exasperation:
We are now getting disability pensioners in and telling them they have a requirement tolook for certain hours of work. Two years ago we were actually assisting them to fill out
their applications for disability pension, telling them they weren’t fit to be in Job
Network.
The Personal Support Program provides an alternative to the Job Network for up to 2 years
for non-job ready clients such as the homeless or people with mental health, drug and alcoholor gambling problems (DEWR, 2007). However, focus group participants were disappointed
with the operationalisation of the programme due to capped places and inadequate resources
available to PSP workers. Restrictions on the number of places meant that clients went onto a
waiting list, were not offered effective assistance and could not access the Jobseeker Account.
The skills, knowledge, and dedication of staff have been acknowledged as critical to thedelivery of high quality employment services. However, DEWSBR (2001b: 8) noted:[W]hile Job Network members recognise that investment in ongoing staff training anddevelopment may impact on performance, these activities, generally, do not appear to
be a high priority.
In two focus groups there was general agreement that training and support for Job Network
staff was inadequate. Participants were particularly concerned that the increasing proportionof jobseekers with serious employment barriers required highly skilled employment
consultants and access to specialists such as psychologists but these were rarely available.
Some indicated that the restricted Job Network funding model precluded the types of services
that were provided nationally in the CES era, while high levels of staff turnover meant thatmany Job Network staff were relatively inexperienced and ill equipped to deal with
jobseekers with complex problems.
The third focus group was less homogeneous in their perceptions of the quality of theirtraining. While some indicated that there were training deficits others expressed a view that
their employer provided comprehensive training.
The majority view, that staff are ill equipped to deal with very disadvantaged job seekers,
echoes the findings of earlier research with staff of non-profit Job Network providers, where
staff expressed concern that job seekers were not able to access specialist assistance such assupport for people with disabilities, interpreters or culturally sensitive services when required(Eardley, Abello and Macdonald, 2001).

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The final factor raised by participants that impacted negatively on the quality and quantity ofservice provided to job seekers was the commercial and competitive nature of the Job
Network model. All participants were acutely aware of the fact that provision of employment
services to the unemployed is, first and foremost, a business and the most important client is
the government and DEEWR. This reality was explained with a great deal of feeling andjustified somewhat apologetically:
Job Networks haven’t effectively had any increase in our funding. For years the amountthat we get per client hasn’t gone up … and as the clients become more and moredifficult, requiring much more investment in time and effort from the consultant … But
there’s actually a disincentive to work with a number of these clients because we’re notpaid to do it.
Our survival depends on our outcomes and so we will take whatever outcomes that we
can grab. … So, you know, we’re driven a lot by what the government is asking us to do
and at the end of the day we’ve got to look after ourselves. I mean, as a manager, thelives and livelihoods of every person working under my directorship or whatever you
want to call it, depends on us getting those outcomes set by the government which quite
frankly are unreasonable and they’re not social outcomes they are economic outcomes
and they are not addressing the triple bottom line at all.
In total, the picture painted by participants was of an increasing percentage of job seekers
with severe employment barriers in need of extensive assistance that was not available in the
Job Network due to funding constraints. There are few labour market programmes to referclients to and the work first approach in combination with insufficient funding severely
restricts training opportunities for clients, consigning many to continuing unemployment ortransitions between short-term employment and unemployment.
6.4.5 Has the Job Network delivered?
While the contestable market model was supposed to deliver superior efficiency, innovationand choice, there were a priori concerns that received insufficient attention in the designphase. The Productivity Commission (2002c) noted that the delivery of complex services suchas employment assistance involves many essential components that cannot adequately bemeasured by outcomes. Importantly, the use of price competition is likely to have a
detrimental impact on the quality of service when providers are reliant on outcome payments
to maintain financial viability in an uncertain environment. In order to ensure adequate
service levels to the most disadvantaged the system must provide sufficient financial
incentives to ensure that businesses concerned with the bottom line are prepared to devoteresources to those for whom employment outcomes are the least likely. Moreover, theProductivity Commission (2002c) pointed out that client choice in the Job Network model
was severely constrained. This section demonstrates that these issues have not been addressed
comprehensively, either in the initial Job Network design, or through the subsequent
restructuring which was undertaken as major deficiencies became evident.
The primary objective of the Job Network was to ensure better quality services and achievesustainable employment outcomes. Pre- and post-Job Network comparisons are complicatedby differences in labour market conditions, client characteristics and programmes available tothose working in employment service delivery. The initial DEWRSB (2001a) net impact
study found that the Job Network produced off-benefit results that were comparable to thoseachieved by the Working Nation programmes but that the Job Network was significantly lessexpensive. The net impact of Intensive Assistance, defined as the proportion of people whowent off benefits, was 10 per cent which was comparable to the average net impact of thesuite of Working Nation programmes. However, there was considerable variation in the104performance of Working Nation. While some programmes produced lower outcomes than the
Job Network, outcomes for others were superior. Jobskills participants achieved a net impactof 14 per cent and Jobstart achieved a massive 31 per cent net impact.
In addition to consideration of the net impact of programmes it is necessary to acknowledge
the qualitative differences in the characteristics of jobseekers. While the report does notindicate the length of time people had been unemployed it provided duration of benefit receipt
which serves as a proxy measure. The proportion of long-term unemployed Intensive
Assistance participants was considerably lower (59.9 per cent) than for any of the Working
Nation programmes with the exception of Skillshare (57.9 per cent). Under Working Nation
almost all Jobskills and New Work Opportunities participants were long-term unemployed(95.8 and 92.3 per cent respectively). Moreover, only 41.8 per cent of Job Network Intensive
Assistance clients had been unemployed for 2 years or longer compared to over 60 per cent of
Jobskills participants and almost three-quarters of New Work Opportunities participants(DEETYA, 1996; DEWRSB, 2001a).
More recently, the net impact of the current suite of labour market programmes was comparedwith a matched control group 12 months after commencement (DEWR, 2006b). In February2005 the net impact of WfD was 7.3 per cent compared to 8.2 per cent for Mutual Obligation,
10.1 per cent for Customised Assistance and 11.2 for Job Search Training (DEWR, 2006b).
Sustainability of outcomes was a major justification for abandoning the Working Nation
programmes that were accused of churning the unemployed between programme participationand periods of unemployment. Within the Job Network long-term outcomes are defined asplacements of Intensive Support clients, disadvantaged job seekers and those registered formore than 3 months in jobs that last at least 13 weeks. Recent data suggests that employmentoutcomes are not being sustained.
Table 6.1 shows total placements and long-term placements for various groups of Intensive
Support clients in 2006-07. The fact that less than one-third of placements for these groups
lasts for 3 months indicates that the Job Network is not providing sustainable employment for
disadvantaged groups.
Table 6.1 Placements for disadvantaged groups, 2006-07
Total Placements

Long-term
Placements

Long-term placements(% of Total
Placements)

Indigenous

50,12914,591

29.1

Parenting Payment

53,014

20,68539.0

CALD

84,207

27,61432.8

Mature Aged (50+)

78,24025,82533.0

PWD

49,01814,495

29.6

Source: (DEWR, 2007)

The focus groups’ perception of the inability of the Job Network to provide effective services
to disadvantaged job seekers is borne out by the fact that the proportion of long-term
unemployed and disadvantaged clients has increased under the Job Network. The proportion
on benefits for 5 years or more increased from 18 per cent in 2004 to 29 per cent in 2008
(DEEWR, 2008b). Despite the fall in the unemployment rate in recent years, the number onbenefits for 5 years or more increased from 74,000 in 1999 to 110,000 (O'Connor, 2008).

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Similarly, the proportion of highly disadvantaged job seekers increased from under 20 per
cent in 2003 to 29 per cent in 2008 (DEEWR, 2008b).
Client choice of provider was promoted as a major advance for job seekers who would be able
to make informed choices and therefore drive innovation and excellence as providers vied forcustomers. It is important to note at the outset that, as consumers, job seekers are severely
constrained due to Mutual Obligation requirements and the fact that the government is theprimary client of the Job Network. In the first contract round automated referral processes
severely limited the choice of provider (PC, 2002a). The Australian National Audit Office(ANAO,2005a) concluded that job seekers could not make an informed choice of provider
because they were given inadequate information at Centrelink seminars, or were required tomake their choice prior to attending the seminar or were not invited to attend a seminar.
The quality of services provided by Job Network members has been found to be deficient innumerous ways. Perverse financial incentives have been blamed for ‘creaming’ and ‘parking’so that providers concentrate on providing services to those considered most likely to gain
employment, while failing to provide services to the most disadvantaged.
The Productivity Commission (2002c: xxxii-xxxiii) commented:
The providers often then direct their services to job seekers who are likely to be
responsive to their interventions. They may park those with either insurmountable orhigh barriers to work who have low likelihoods of achieving payable outcomes….
Parking may mean that the net effect of participating in Intensive Assistance isnegative for some job seekers.
ANAO (2005a) found that there was reason to believe that Intensive Support services were
inadequate and that DEEWR could not ensure service delivery. The Job Network designmeans that members make decisions regarding assistance for individuals, subject to the
Employment Services Code of Practice and the Job Network Service Guarantee. The ANAO
found that levels of contact with clients rarely conformed to service standards, echoing an
earlier DEWRSB survey of Intensive Assistance clients in 1999 that found that around onequarter had met with their case manager only once or twice and only 38 per cent had everbeen referred to a job (OECD, 2001b; ANAO, 2005a). Similarly, there was limited
documentation of employment barriers (ANAO, 2005a) and few providers were addressing
underlying barriers to employment by referring clients to counselling, training or otherassistance (OECD, 2001b). Despite the fact that individualised assistance was one of the main
justifications for the Job Network, the report found that there was very limited customisationof services. Moreover, variations in the use of the Jobseeker Account meant that some job
seekers received ‘considerably less assistance than others’ (ANAO, 2005a: 139).
6.5

Regional and local policies in Australia

6.5.1 Overview
This Section outlines regional policies in Australia. The federal structure of governance inAustralia has impacted on regional economic development policies. Vertical fiscal imbalance,
whereby the Commonwealth Government has primary responsibility for raising taxes whilestate governments shoulder responsibility for programme delivery, has affected the provisionof services such as health and education, along with the facilitation of regional economic
development. Historically state governments played an active role in promoting economic
development and provision of infrastructure while the attitude of Commonwealthgovernments has vacillated from abrogation of responsibility to active participation in topdown decentralisation policies and more recently policies that stress bottom-up, self106

development approaches. Local governments are financially constrained in undertaking local
economic development, are very small in terms of geographical area and / or population andare not politically autonomous. In contrast to local authorities in other countries, Australian
local governments are responsible for a smaller range of services that have traditionallycentred around development of physical infrastructure and waste services. However, in recent
years local government has expanded its role to include a broader range of community
services (Worthington and Dollery, 2000).
6.5.2 Commonwealth regional policies
In the post-war period it was it was not until the election of the Whitlam government in 1972
that the Commonwealth Government took an active role in regional development through theestablishment of the Department of Urban and Regional Development and the Cities
Commission. Decentralisation policies concentrated on establishing regional growth centres
such as Albury-Wodonga, Bathurst-Orange, Macarthur, and Eden-Monaro (Bureau ofIndustry Economics, 1985). To ameliorate the impact of the 25 per cent tariff reduction in1974 the government introduced the Special Assistance to Non-metropolitan Areas scheme.
According to Rainnie and Grant (2004) Commonwealth governments adopted a minimalist
approach to regional policy from the mid 1970s. The Fraser government reduced funding toAlbury-Wodonga. The Hawke government limited active regional policy to the Country
Centres Project (CCP) that commenced in 1986-87 in areas suffering from structural change
in rural and other industries. CCP funded community consultation and feasibility studies forsmall-scale self-help projects in partnership with the private sector in a small number oflocations (Wilkinson, 2003). Taylor and Garlick (1989) claim that the CCP demonstrated that
local committees worked best and outcomes were longer-lasting when there were multiple
representatives such as business, community groups, education institutions, unions and local
agencies of government departments. Subsequently, the bottom-up approach to economic
development was continued through the Regional Organisations of Councils.
Commonwealth involvement in regional development increased in the 1990s. Area
Consultative Committees were established to advise the Department of Employment
Education and Training on local training needs and to develop local employment strategies(Rainnie and Grant, 2004). In the aftermath of the recession, the Keating government
announced a local capital works programme, providing grants to local governments for
economic and social infrastructure programmes in areas with above average unemployment
rates. The 1994 Working Nation white paper on employment expanded regional development
policies. Job creation schemes such as Jobskills and New Work Opportunities provided
temporary employment and a stimulus to depressed regional areas.
Adopting a New Regionalism approach, the government also committed $150 million over 4
years to the Regional Development Program in 1994, designed to facilitate export-oriented
regional development by addressing obstacles to competitiveness through Regional
Development Organisations consisting of local partnerships of business, unions, local
government, and education and training representatives (Wilkinson, 2003; Rainnie and Grant,
2004; Beer et al., 2005).
The incoming Howard Coalition government scrapped the Regional Development Program in1996 declaring that regional development was the province of state governments. However,
the government subsequently introduced the Regional Australia Strategy in 1999, which has
been interpreted as a political response to discontent in regional areas and the electoral
success of Pauline Hansen’s One Nation Party in the 1998 Queensland election, andindependents in the NSW election in 1999 (Wilkinson, 2003; Rainnie and Grant, 2004; Beer107

et al., 2005). The Commonwealth has attempted to address skill shortages in 14 industries
through the National Skills Shortages Strategy (formerly the National Skills Initiative). In
addition to strategies developed at the industry level, there have been regional pilots in
Townsville, the Hunter and the Illawarra conducted in partnership with industry, educational
institutions and local communities to examine existing and potential skill needs and develop
strategies to meet those needs (Department of Education Employment and Workplace
Relations, 2007).
The Regional Solutions Program was launched in 2000 to build stronger communities andincrease access to services by funding the employment of people to coordinate theimplementation of projects and improve the information flow from the government to thecommunity (Wilkinson, 2003). The programme was integrated into the Regional Partnerships
Programme in 2003, encompassing provision of opportunities for economic and social
participation, improved access to services, and assistance with structural adjustment. Area
Consultative Committees (ACCs) provided advice and assistance in the development ofRegional Partnership proposals.
Regional Partnerships also deliver the Textiles Clothing and Footwear Community
Adjustment Package and the Rural Medical Infrastructure Fund (RMIF) (DoTaRS2006b). The
programme has funded community and sport and recreation centres, construction ofaccommodation for medical staff, and entrepreneurial ventures. Between 2003-04 and 200607 Regional Partnerships expenditure was $327.9 million (The Auditor-General, 2007a). Of
the 1413 projects considered during the 3 years to June 2006, 981 (72 per cent) projects wereapproved and 389 (28 per cent) rejected. In addition 34 projects were funded by the
programme as a consequence of election promises by the Howard government in 2004 (The
Auditor-General, 2007a).
A report by the Australian National Audit Office found that programme administration ‘hadfallen short of an acceptable standard of public administration’ (The Auditor-General, 2007a:20). The Report noted that on 9 occasions, the Ministers had approved projects that had notbeen assessed by the department as required under the Programme Guidelines, and in somecases without an application having been lodged. The Report indicated that such practices
create ‘an elevated risk of funding being approved for projects that either do not proceed asplanned or which do not result in the anticipated outcomes and associated community
benefits’ (The Auditor-General, 2007b: 415).
In September 2007 the Minister for Transport and Regional Services announced the Growing
Regions Programme to complement Regional Partnerships by providing funding for major
projects requiring funding of $1 million to $3 million (The Auditor-General, 2007a). Regional
Partnerships will be restricted to projects requiring funding of less than $1 million and will beavailable for Enterprise Partnerships from private businesses and Community Partnerships forother applicants.
The Sustainable Regions Programme announced in 2001 is an example of local partnerships
designed to develop bottom-up solutions to address major issues identified by the community
in relation to social or economic change in depressed regions. A Sustainable Region Advisory
Committee was established in each of the regions and they could receive up to $12 million
funding for projects such as construction of tourist information centres, cultural centres andeducation, training and research centres (DoTaRS2006a).
The mid-term evaluation reported that in the 4 years to 2005, the programme had funded 202
projects valued at $244.6 million, comprised of $77.3 million government funding and $167.3
million of partnership contributions (Analysis and Evaluation Section, 2006). Projects were
designed to assist business capacity and competitiveness, improve community capacity, and108

service provision. Applicants included business, local government, community groups andregional organisations.
A number of programmes provide assistance at the individual or firm level in rural areas. The
Rural Industries Research and Development Corporation funds research and development inproduction, processing, transporting or marketing agricultural products. The Food Chain
Program provides matching funding for development and implementation of innovative
approaches to food chain management and uses these as industry role models.
Food Processing in Regional Australia grants of up to $200,000 to small and medium farmbusinesses and food processors are available on a matching basis for projects such as on-farmor regionally-based processing that value-add to food produced in rural and regional
Australia. The New Industries Development Program (NIDP) provides assistance tocommercialise agribusiness products, services and technologies. Also Higher Bandwidth
Incentive Scheme providers receive incentive payments to provide higher bandwidth inregional Australia that is comparable to metropolitan areas.
Labour market skill enhancement in rural and regional Australia is addressed through theYoung People in Rural Industries Program, and Rural and Regional New Apprenticeships,
whereby employers in non-metro areas who take on an apprentice or trainee in an occupationin demand qualify for an incentive payment of $1,100. In addition, the New Apprenticeships
Innovation Incentive provides $1,200 for New Apprenticeships in aeroskills,
telecommunications, laboratory operations, information technology and electro-echnology.
6.5.3 State policies
Historically the primary responsibility for regional development resided with state
governments. In the period prior to 1970 the major regional programmes were delivered bystate governments in the form of tax concessions and financial incentives to create growthcentres and facilitate decentralisation (Beer, Maude and Pritchard, 2003). In the postwar
period some state governments provided financial assistance to new or expanding industries,
provided loans or loan guarantees, established industrial estates outside metropolitan areasand housing assistance for workers.
However, state governments have moved away from decentralisation toward locally driven
economic development since the early 1990s, concentrating on support services to businessincluding providing advice, marketing regions, supporting community groups, establishing
Business Enterprise Centres, promoting Main Street programmes and providing labour market
training initiatives (Beer, Maude and Pritchard, 2003). Many firms have benefited frompayroll tax rebates, assistance for business planning and marketing, research anddevelopment, export development and trade missions. Most governments provide businesses
with support for networking and clustering initiatives, the uptake and diffusion of technology
and fostering innovation. Cook (2008d) describes the policies for each of the states.
State bidding wars
In Australia there is a long history of state competition to attract industry (Bureau of Industry
Economics, 1985; Banks, 2002), that accelerated during the 1990s to reach around $3.3
billion per annum by 2002 (Banks, 2002). Incentives offered included tax-breaks, tax holidays
or discounts on charges for services such as electricity. Competition has occurred in a numberof industries such as manufacturing and call centres and also major events such as the Grand
Prix. Governments cite major economic and employment benefits that will accrue to the state
as a result of attracting major companies but according to the Productivity Commission, thebenefits are often overstated, the costs understated or not understood, and the assistance is109peripheral to firms locational decisions which are influenced more by a range of other factors
so that the ‘provision of investment incentives might have little influence on a firm’s ultimate
decision, wasting taxpayers money on firms who would have located in the jurisdiction
without a subsidy’ (Banks, 2002: 6-7). Moreover, there is no guarantee that firms willcontinue to operate in a specific location or offer the same level of employment.
South Australia provided about $230 million in government assistance during the mid-1990s
including specific assistance packages to lure firms to locate in South Australia. Assistancehas been provided to Motorola, Bankers Trust and JP Morgan Investor Services. The
combined assistance to Bankers Trust and Motorola for building premises was more than $20million. Motorola benefited from being named as the preferred supplier of the state
government mobile radio network. This commitment was valued at $60-million in 1996 butblew out to over $100 million when the network failed to meet expectations. In a global roundof job-cutting, Motorola cut about 120 jobs in South Australia. JP Morgan Investor Services
was the beneficiary of a $3.8 million financial assistance package and purpose-built premises
estimated to cost the Olsen government about $20 million, but has since announced that it
would close down its Adelaide operations, leading to the loss of about 170 jobs. In 2000, theSouth Australian Government provided undisclosed incentives to attract Email to relocatefrom Victoria.
There has been competition between Victoria and South Australia for car industry
developments. Over several years, South Australia has contributed to various Commonwealthinitiated packages to retain Mitsubishi car plants. However, Mitsubishi has since closed its
Australian operations. In 2000 Victoria was successful in a struggle against South Australia tosecure a new Holden engine plant which was also the recipient of Commonwealth assistance.
The Victorian government also outbid South Australia for the Grand Prix that had been heldin Adelaide from 1985 to 1995 and the event has been held in Melbourne since 1996. The cost
to taxpayers has escalated from $1.7 million in 1996 to an estimated $40 million in 2008.
Similarly the cost to the ACT government of staging the V8 supercar event in 2001 was $5
million which was more than double the benefit to the Territory (Banks, 2002).
Berri Fruit Juice used competition between the states to extract financial incentives torelocate. First the South Australian government persuaded Berri to relocate from Melbourne.
Then in 2001, the Queensland Government lured the company’s export production operations
from NSW and South Australia. In 1999, Queensland outbid other States to have Virgin Bluelocate its headquarters in Brisbane while, on a smaller scale, the ACT Government announced
that it had successfully attracted Impulse Airlines to base its (ill-fated) operations in Canberra.
The Commonwealth and Queensland governments also provided incentives of $300 million to
Comalco for an alumina project in Gladstone which equalled $750,000 per permanent job(Banks, 2002).
The growth of call centres in the 1990s also sparked fierce competition between states. In an
environment where certain regions exhibited persistently high rates of unemployment after the
1990s recession, attracting call centres was seen by some as an effective strategy for dealing
with pockets of high unemployment, particularly in regions with few other prospects. The
Tasmanian government seeks to attract future call centres by promoting the existence ofnational and international companies with established call centres and emphasising the lower
cost structure in Tasmania compared to the mainland, as well as lower business establishment
costs and labour costs. In many instances the government call centres were located in regional
areas. For example the Centrelink call centre in Launceston was expanded from 100 to 350 in2007 to compensate for the closure of the Telstra call centre that employed 250 people.

110

The Productivity Commission concluded that competition between states will, at best, tip thebalance in favour of one state but that, at the national level, benefits may be dissipated so thatthe only winners are foreign shareholders (Banks, 2002). Most importantly:
The bottom line is that governments expecting to reduce unemployment throughselective assistance are likely to be disappointed. Aggregate employment is related
principally to aggregate economic activity and regulation that affects the labour
market directly, not industry assistance (Banks, 2002: 8).
6.5.4 The role of local government
In contrast to the more comprehensive economic and social activities of local governmentsinternationally, Australian local governments have traditionally played a limited role due tothe division of responsibilities and revenue raising potential between the 3 levels ofgovernment in Australia. Local governments exhibit a high degree of diversity in terms of
size, population, revenue raising capacity and the range of services they provide. Local
government has traditionally been responsible for planning and building regulation andprovision of basic services such as roads, waste removal, recreation and social services. In
recent years responsibilities for community and social services have expanded in the areas ofaged care, youth and child care services, health services, community housing and emergency
accommodation, and a range of welfare services (PC, 2007).
The expansion of services provided by local government has been attributed to the devolutionof responsibility or withdrawal of provision by other levels of government, or increased
community expectations (PC, 2007). In an attempt to address cost shifting, an agreement was
negotiated in 2006 that governs the delivery and funding of services that local governments
provide on behalf of other levels of government (PC, 2007). Local governments attempt toincrease economic activity by promoting the area to prospective businesses. They are also
major employers or responsible for significant employment opportunities for companies thatprovide services to local governments on a contract basis.
Local government activities are funded through grants from the federal government in
combination with rates and charges administered by individual local governments but
regulated by state governments. During 2007-2008, local governments will receive a total of$1.76 billion in grants from the federal government under the Local Government (Financial
Assistance) Act 1995 (Department of Infrastructure Transport Regional Development andLocal Government, 2007). The grants have 2 components; the general purpose component ofover $1.2 billion is distributed on a per capita basis, while the local roads component of over$500 million is based on historical shares. Local governments also receive funding under theRoads to Recovery programme, and the Black Spot programme which are discussed in detailin Chapter 8.
6.5.5 Social entrepreneurship and other local employment strategies
The role of non-profit organisations has undergone significant change in the past few decades.
Once an auxiliary to market and public social service provision, non-profits are now anintegral component operating on a commercial basis and increasingly taking over provision ofsocial services on a contract basis for government. Much of this transformation has been
engineered by government decisions to reduce untied funding to non-profits and establish
tighter control over what services are delivered and how. The 31,764 non-profits in June 1996
employed 579,367 people or 6.9 per cent of total employment and contributed around $14.6
billion or 3 per cent to GDP (Novak, 2003). This sector provides a wide range of social
services such as assistance to the poor, education, health, accommodation and care services.

111

Much of the growth in the sector in recent years is a result of government decisions tocontract or outsource service provision in line with international trends towards a purchaserprovider split. The Job Network is an example of the shift from public sector employment
service provision to mixed private and non-profit provision. Several large non-profit
organisations are contracted to provide Job Network services including Mission Australia, theSalvation Army Employment Plus, Centacare Employment and Job Futures. Many non-profits
are also involved in delivering other employment related services such as Work for the Dole
and the Community Support Programme.
Another attempt by the Howard government to initiate social entrepreneurship initiatives was
the launch of the Community Business Partnerships in 1999 that brought together businessand community representatives to ‘develop and promote a culture of corporate and individual
social responsibility’ (The Prime Minister' Community Business Partnership, 2000: 2).
A recent innovation are ‘social enterprise hubs’ which are partnerships between local
government, Social Ventures Australia and a corporate partner (Social Ventures Australia,2007). The hubs facilitate development of social enterprises that provide employment by
providing a range of services and assistance such as mentoring, pro bono services, training inmanagement tools and business skills, promotion. The first social enterprise hub was
established in Brisbane in 2006 and consists of a partnership between Social Ventures
Australia, Brisbane City Council and PricewaterhouseCoopers. A second hub commenced in
Parramatta in 2007 with Social Ventures Australia, Parramatta City Council and Allco
Foundation as partners.
Place management initiatives have occurred in several public housing estates that areundergoing regeneration or demolition and rebuilding. The Redfern-Waterloo Authority wasestablished in 2005 to provide a whole of government approach to the area to focus on job
creation, delivery of community services, facilitate urban renewal, improve traffic
management and engage in community consultation.
The Built Environment Plan aims to create up to 18,000 jobs and includes development ofcommunity health centres, affordable housing for Aboriginal residents and improvements tothe town centre, railway station and pedestrian access. Major construction projects will
include a requirement that contractors incorporate an Aboriginal Participation Plan to ensurethat local residents have access to employment opportunities. One of the options considered tomaximise economic development was declaring the area an enterprise zone to provide payroll
tax concessions to SMEs (Redfern-Waterloo Authority, 2006). To facilitate access toemployment, training or educational opportunities, the plan includes provision of additionalchild care places. The Redfern-Waterloo Authority is also establishing partnerships withmajor industries to ensure training and employment opportunities for local residents in theconstruction, hospitality, commercial cleaning, facilities management and transport industries.
Major redevelopments are also occurring in other public housing areas including Bonnyrigg
in NSW; South-East Queensland, Townsville and Cairns in Queensland; Playford, Hawksbury
Park and Westward in South Australia; and Bridgewater-Gagebrook in Tasmania. In Victoria
neighbourhood renewal initiatives using a place management approach have been creditedwith creating 4,600 jobs since 2001 through employment programmes and fostering thedevelopment of 33 social enterprises in neighbourhood renewal areas (Department of Human
Services, 2007).
In conjunction with the Victorian Neighbourhood Renewal Strategy, the Brotherhood of St
Laurence implemented employment strategies for job seekers in the Fitzroy and Collingwood
areas. The programmes included intensive personal support, pre-vocational training and work
experience to enable on the job learning, placement in ongoing employment and a period of112

post-placement support to maximise job retention (Ziguras and Kleidon, 2005). Employment
opportunities were increased by new state government policies such as the requirement thaton-third of employees of cleaning contractors must be local residents.
Ziguras and Kleidon (2005) attribute the fact that around two-thirds of participants obtained
paid employment to a combination of factors. These include strong linkages between training
and job opportunities due to employment policies and the opportunity to participate in work
experience. Further, they stress the benefits of a human capital rather than a work first
approach, commenting that investments in training and experience that typically lasted
between 6 and 12 months greatly increased the skills and confidence of participants. The
gradual approach combined with post-placement support enabled participants to deal withmajor changes involved in moving from long-term unemployment into employment.
Moreover, intensive personal support in concert with training and employment assistanceenabled non-vocational barriers to be addressed progressively.
Another programme that was jointly operated by the Adult Multicultural Education centre(AMES) and the Brotherhood of St Laurence was an intermediate labour market approach
involving establishment of a commercial cleaning business to provide training andemployment for disadvantaged job seekers for 15 hours per week for 1 year. In addition to onthe-job training, participants completed the Certificate III in Asset Maintenance (Cleaning andOperations). The focus of the first 6 months is training and employment retention while thesecond 6 months focuses on placement in permanent employment in a similar fashion to the
Step-UP job creation programme in the UK (see Cook, 2008c). Of the initial group of 12
trainees, 11 completed the traineeship and obtained full-time employment.
Other initiatives have also contributed to community development through the provision of
information and advice. The NSW government ‘community builders’ website provides
information on how to access funding and strengthen communities through inclusion,
improving safety, encouraging economic and employment development through business /community partnerships and place management (NSW Government, 2005).
6.6

Conclusion

This chapter has provided an outline of employment and regional development policies inAustralia over the past few decades. This period is marked by the demise of full employmentthat was characteristic of the postwar period until the mid 1970s. In addition,deindustrialistion occurred as major manufacturing industries such as passenger motor
vehicles, and textiles, clothing and footwear were exposed to international competition in a
rapidly globalising economy. There have also been periods of prolonged drought that haveaffected the viability of rural industries as well as significant changes in relative prices forgoods. These major transformations have impacted unevenly over the Australian geography
producing pockets of high and entrenched unemployment and labour underutilisation. There
are a number of trends that are discernable in regard to the trajectory of Australian policies.
Developments in ALMPs in Australia have mirrored international developments. In the mid
1970s the emphasis was on reducing unemployment through the demand-side strategy ofdirect public sector job creation and this strategy resurfaced in periods of very highunemployment in the 1980s and 1990s but was short-lived. Over time employment conditions
attached to these jobs deteriorated. In contrast to earlier programmes such as REDS, WPP and
CEP that included payment of award wages, programmes in the 1990s such as Jobskills and
NWO paid a reduced ‘training’ wage. In retrospect, these programmes can be viewed as atransitional phase between genuine job creation and the current Workfare situation
characterised by Work for the Dole. From the late 1970s demand-side labour market policies

113

privileged wage subsidies to the private sector rather than public sector job creation. Subsidies
were also intended to impact on the supply-side of the labour market by enhancing
employability and improving equity by better employment outcomes for the long-term
unemployed and disadvantaged groups.
From the 1980s the abandonment of the government commitment to full employment wasevident in the shifting emphasis toward enhancing employability through an increased
commitment to vocational training programmes such as Jobtrain and Skillshare. With the shift
to the Active Employment Strategy other ‘inadequacies’ of the unemployed were addressed
through programmes to provide jobsearch skills, improve literacy and numeracy and provide
soft job skills. In the last decade ALMPs have been restricted to ‘employability’ strategies thatconcentrate on unpaid work experience in the form of voluntary work and WfD which isdesigned to discipline workers to accept any form of employment. There has been very
restricted access to training courses. Since the abandonment of Jobstart, wage subsidies havebeen at the discretion of Job Network providers, with the exception of the Wage Assist
programme that is restricted to the very long-term unemployed. The transformation of
ALMPs represents a transition from full employment to employability and then Workfare.
Regional and local policies to stimulate economic and employment growth are implemented
by all 3 levels of government to varying degrees, but Australian policies are notable for thelack of a coordinated national approach and attempts to shift responsibilities and costs. While
Commonwealth involvement in regional development has fluctuated over time, state
governments have provided the major impetus to regional policies. State governments have
implemented a range of programmes designed to attract business, stimulate new businessformation or expansion of existing businesses. Attempts to increase international
competitiveness have included assistance with international marketing and trade fairs. States
have also offered inducements to business including payroll deductions, discounts on charges,
or reductions in regulations. There is a long history of interstate rivalry, particularly inattempts at business attraction, that produced few results at the national level and, in manycases, only short-term gains at the state level.
There is widespread recognition that although local government is ideally placed to assess
community needs, councils are financially constrained due to limited revenue raising abilities
and the increasing burden of service provision due to reductions in services provided by othertiers of government.
Major themes in the regional literature in Australia are: Australia lags behind North America
and Europe in its commitment to regional development; regional Australia is vulnerable toeconomic shocks; and there is continued regional divergence of economic and employment
performance. In contrast to Europe and the US, where regional policy has a strong focus on
disadvantaged urban regions, regional policy in Australia has almost exclusively been
restricted to regions outside metropolitan areas.
The major impetus for the development of localised initiatives has been the failure of national
policies to address the major problems associated with unemployment over a prolonged
period of time. Compounding the ineffectiveness of employment policy that has concentrated
on supply-side solutions has been the preoccupation of governments with fiscal responsibility
that is interpreted to mean that deficit budgets cannot be tolerated. Hence, there have beensignificant cuts in the financial resources devoted to public services by both federal and state
governments and local government is financially constrained. Other policies, notably thecontraction of public housing and restricted eligibility has further entrenched areas composedlargely of people suffering extreme disadvantage and amplified social problems. In these114

circumstances the contribution of initiatives such as social enterprise to solving theunemployment problem can only be described as woefully inadequate.
In summary, regional policies implemented by the federal, state and local governments havegenerally been small scale and incapable of addressing the major problem of labour
underutilisation that has persisted over the past 3 decades.

115

Part 3
Local Government Survey

116

7
7.1

The Local Government Survey:
research methodology andresults

Purpose of the study

The underlying objective for undertaking this research was to investigate the feasibility of
implementing a Job Guarantee. A national local government JG survey was conducted withtwo major aims:
1. To compile an inventory of unmet need for infrastructure and services in communities
across Australia; and2. To identify both the type and quantity of socially meaningful work (contributing tocommunity development) that could be performed by low skilled workers employed
under the JG to meet these needs.
The topic of the study had not been investigated through survey methodology previously, andthus an original survey instrument and processes had to be developed.
7.2

Survey population

Local governments were identified as the survey population as they cover a defined
geographic area with clear non-overlapping boundaries. They are also a first point of contact
for communities and have detailed information about local needs. This is evidenced throughthe production of local government documents, such as ‘The State of the Environment
Report’, annual reports and ‘Social and Community Plans.’ The survey population consistedof 665 local governments throughout Australia (excluding Torres Strait Islands) of which 328
local governments, selected through a stratified random sampling technique were invited toparticipate in the study.
Other potential sources of information included organisations such as Conservation Australia,
Meals on Wheels among others because they had close association with environmental andcommunity activities. However, they were considered problematic due to their specialisedinterest areas and their ill-defined geographical coverage. Key informants from the Federal
Government’s Work for the Dole scheme were originally involved in the sample to enhance
the quality of the costing section of the survey. However, after conducting preliminaryinterviews and considering the extant research literature, it was decided that the survey would
produce unreliable costing information (see Beer et al, 2003 for in depth examination of
costing items in survey research). It was therefore decided that questions relating to costing
would be investigated at a later date through an alternative methodology and sample.
The framework and key functions of local governments is provided by state-based legislation,and therefore varies by state across the 701 local government bodies throughout Australia.
Table 7.1 outlines the scope of local government in Australia which extends well beyond thestereotype of “roads, rates and rubbish”. Australian local governments attend to planning,
regulation and community development issues, act as community advocates and engage insocial and capital infrastructure construction and maintenance activities. This is reflected intheir expenditure patterns. Council expenditure is dominated by general public services (17.8
per cent), provision of transport and communications (22.2 per cent) and community

117

amenities (23.8 per cent). Revenue is obtained through a variety of sources, and councils facestrict regulation regarding the amount of funds they are able to access through rate revenue.
Thirty nine per cent of council funds are raised through rate revenue, a further 30 per cent israised through sale of goods and services, and 9 per cent comes from grants and subsidies
from state and federal governments (DOTARS, 2007).
Table 7.1 A typology of local government functions in Australia
Function

ExampleEngineering

Local roads, footpaths and bicycle track construction and maintenance;
Management of waste, storm water drainage systems, water and sewerage.

Recreation and Management of sports facilities, recreation centres, community halls,
cultureswimming pools, community parks, libraries, galleries and museums
HealthManagement of public toilets; Inspection of meat; Food and water
sampling; Animal control services.

Community
welfareManagement of child care, aged care, refuge and respite facilities;
management of community welfare services such as Meals on Wheels andsome counselling services.

Built
environment

Site inspection; Project approvals; issuance of various licenses;
administration of cemeteries, parking stations and street parking

Source: Department of Transport and Regional Services (2007) 2005-06 Local Government National Report:
Report on the operation of the local government (financial assistance) Act 1995, Department of Transport andRegional Services, Canberra.

Social planners and community development officers in Local Government were targeted tocomplete the main survey. Their main function is to develop strategies to research and remedysocial problems and thus improve the social and economic environment of their local
communities. They are key players in the development of long term social and community
planning that culminates in the development of Social and Community Plans, which define
local government social aspirations for their communities.
7.3

Sampling strategy

The Department of Transport and Regional Services (2007) developed a comprehensive
regional classification that considers a local government’s remoteness from services andopportunity for social interaction as a basis for regional analysis. This system of classification
enables a more detailed understanding of the socio-economic experience of Australiancommunities and how this is defined through access. This classification scheme reveals thatsignificant differences exist across local government areas in terms of community
involvement, employment outcomes, industry composition, income levels and income sources(DOTARS, 2007). For example, major cities have a much higher share of the population
receiving the age pension (9.2 per cent) than do remote areas (5.7 per cent). Conversely,
remote areas have a higher share of Newstart recipients (7.8 per cent) than do major cities (4.8
per cent). The SEIFA index identifies rural remote communities as most disadvantaged (884),
while urban developed communities are the most advantaged (1059). Employment byindustry is also highly variable across space. In remote and very remote areas 31 and 27 percent of the population, respectively, are employed in agriculture or mining. In contrast,
opportunities in private services comprise 50 per cent of those employed in major cities.
Figure 7.1 shows that unemployment tends to be higher in urban regional areas, than in rural
agricultural, rural remote areas or urban developed areas.

118

Figure 7.1 Unemployment by Local Government, Australia, 2006
12

Unemployment Rate, (%)

10

8

6

4

2
Rural Agricultural

Rural Remote

Urban Developed

Urban Fringe

Urban Regional

Australian Classification of Local Government
Unemployment Rate 15-24, 2006

Unemployment Rate, 2006

Source: ABS (2006) Census of Population and Housing.

The composition of population by remoteness also reveals considerable diversity. For
example, indigenous persons make up over 40 per cent of the population share in very remoteareas. By contrast, 27.6 per cent of persons born overseas reside in a major city. Australia’s
cities, inner and outer regions have a larger proportion of the population aged over 65 years
than do remote and very remote areas.
The remoteness classification also reveals differences in community involvement and accessto infrastructure. Major cities in Australia are rich in capital and social infrastructure, as well
as opportunities for entertainment, in comparison to many of our rural and remote areas. The
community participation of remote communities reveals itself in higher rates of volunteering,with individuals residing in rural agricultural council areas volunteering at a rate of 25 per
cent, as opposed to 17.5 per cent of people living in urban developed areas (see below).
Involvement in community organisations is also higher in rural areas (43 per cent) as opposed
to urban developed areas (37 per cent). However, the isolation that rural areas face is evident
in reduced amounts of weekly contact with friends and family (50 per cent, as opposed to 60
per cent in inner regional areas) (DOTARS, 2007). These statistics mean that urban policy
makers face the challenge of enhancing community participation and community cohesion,
while rural communities have well established social networks, but face problems associatedwith proximity.
The Australian Classification of Local Government (ACLG) was used to identify anappropriate stratified sample that ensured equal sampling of local government characteristics.
The ACLG schema was initially developed by the Department of Transport and Regional
Services (DOTARS), and groups local government over 3 variables. The first step defines if
the local government is urban or rural, based on population size and density. The second step
considers proximity to an urban centre, industry and population growth. This groups local
governments into developed, regional, fringe, remotes, agricultural and significant growth.
The final step looks at population size and classifies local governments as small, medium,119

large and very large. Each step allocates a prefix to develop a three-letter identifier for eachclass of local government.
The national local government JG survey was conducted in 2006-07, after a pilot study was
conducted in 2005. Fifty per cent of local governments were selected. The survey applied an
open-ended, semi-structured approach, mediated through a telephone interview.
7.4

The Pilot and preliminary study

7.4.1 Overview
In order to ensure a quality research design, a comprehensive pre-testing and evaluation of theresearch objectives, processes and instruments was undertaken. This involved conducting aliterature review, which investigated best practice in survey design and implementation;
holding focus groups with fellow researchers; and the involvement of a sample from thesurvey population in a pre-testing and evaluation study. This comprised of a preliminaryinterview, the Pilot survey, and a post Pilot interview. Proximity to the University of
Newcastle was also a consideration. Nineteen local governments (in New South Wales),which broadly reflected the composition of the main survey population, were invited toparticipate in the study.
The sample frame involved a range of local government employees from different positions,
including economic development managers, human resource managers, community officers
and social planners, across councils.
The main questions were organised into 2 main categories of local need: (a) Environmental
protection; and (b) Community development. Respondents were asked to choose one of thesecategories which was then explored in more detail. Each main category was, in turn, divided
into 6 response categories. The response categories for environmental protection weredeveloped from the Local Government Environment and Natural Resources Survey conductedbiennially by the Australia Bureau of Statistics (ABS). The categories were: waste water
management, solid waste management, protection of soil and groundwater, conservation of
biodiversity and habitat, protection of cultural heritage and other environmental protection.
There was no standard community development classification system available to draw upon,
therefore response categories for the community development section were largely developed
from two resources; the ABS Australian System of Government Finance Statistics, Concepts,
Sources and Methods, and the New South Wales Department of Local Government’s Social /Community planning and reporting guidelines. The categories were: transport amenities,
recreation and culture, community amenities, welfare services, public health and safety andother community development. These categories and sub-categories were defined in an online glossary, available as part of the support resources which were developed.
Of the 15 local governments that were invited to participate, 13 attempted the survey. Twelveof these, chose the community development option.
The preliminary interview was conducted in a semi-structured format, and sought toinvestigate participant knowledge and response to concepts that were core to theinvestigation. Participants were first asked about their involvement with labour market
programmes, and about potential employment opportunities within their local governmentarea that could address unmet need within environmental protection and community
development. Finally, participants were asked about the administrative and managerial
capacity of local government to operate the JG programme. The interviews sought to identify
the appropriate survey population or position title that the study should be directed towards; todevelop a list of examples of JG jobs that could be used as examples throughout the survey
120

instrument; and to assess the capacity of human and material resources to facilitate theprogramme.
Eight respondents fully completed the survey, while the 5 remaining participants, including
the one participant who chose to develop JG employment opportunities in environmental
protection, only partially completed the survey. Respondents who had partial survey
completions did not attempt any of the open-ended response questions. During follow upinterviews it was revealed these participants felt they lacked the specific knowledge that they
considered was needed to respond to the questions. Thus, their partial completions could be
attributed to a coverage error arising from the fact that a range of local government
employees, holding different positions, were included as respondents.
Respondents consistently indicated that the most appropriate person to undertake thecommunity development option was the Social Planning or Community Liaison Officers.
These officers were considered to have more community interaction and be more involved indeveloping the organisation’s Social and Community Plans. As a consequence, they could
offer more insight into unmet community needs and be able to quantify the employment
resources needed to address these needs. Survey respondents also suggested thatenvironmental protection questions would be best addressed to Environmental Health Officers
or personnel who played key roles in the development of the compulsory State of theEnvironment report or the Survey titled Local Government Environment and Natural
Resources Survey conducted by the Australia Bureau of Statistics biennially.
The interview process revealed that the survey was too broad. The outcomes suggested that
two separate surveys would be necessary to fully document the unmet needs in community
development and environmental remediation. However, budgetary and time constraints meantthat only one target group was possible. The study also confirmed that a focus on community
development, rather than environmental remediation would be more effective. Finally, therespondents considered questions across 6 categories of community development to beburdensome and so a reduction was considered for the full study.
The pre-interview process had also revealed that respondents should develop a conceptual
understanding of the JG model to better allow them to answer the questions. To meet thisneed, an on-line survey resource page was developed which provided respondents with awealth of information about the JG model as well as standard ethics information. Further, tohelp respondents understand the scale that JG would need to operate at within their own area,
the on-line resources also provided information about the number of unemployed people andother relevant socio-economic indicators by local government area.
After evaluation of the information, gathering comments from the pre-testing processes, andmaking appropriate revisions to the proposed survey, a final version of the instrument was
submitted for ethics approval.
7.4.2 Potential for jobs to service unmet service needs in regional Australia
There are a myriad of community services provided through government, private andvolunteering sectors designed to enable the independent living of older people and people
with special needs. However, despite the services that are available for aged care and people
with special needs, the preliminary study identified considerable gaps in the provision ofservices for these people. The respondents also indicated that this unmet need was unlikely to
be serviced without additional funding.
The responses identified a significant unmet need in terms of welfare services andcorresponding potential for low skill employment. The study outcomes were consistent with121

other research which has identified gaps in service provision (for example, Bill et al., 2004;
ABS, 2003).
7.4.3 Funding constraints
The respondents observed that local governments and other community organisations face anincreasingly competitive yet unstable funding environment. Local governments report thatthese funding trends have led to the neglect of local and specialised needs, and thedevelopment of a funding bias towards larger organisations. This reality illustrates thatagencies are being rewarded for becoming more competitive and achieving cost reductions,but in the same instance are denied the funding, resources and ability to address fundamental
issues that are core to their organisation. As a result, local governments are under pressure
from the public to fill the gaps caused by the reduced capacity of other organisations todeliver community services (Newcastle City Council, 2005).
The funding squeeze (actual or perception thereof) appeared to constrain what jobs
respondents deemed possible. Local government and community organisations now frame
proposals and build outcomes to increase the likelihood of achieving funding success. The
process becomes guided by perceived possibility, which eventually adjusts into line with whatis deemed feasible and achievable, instead of actual need (Earl, 2005: 914).
7.4.4 The funding squeeze and bounded rationality among respondents
The preliminary study revealed that respondents generally signalled a conservative
understanding of the scale of need within their communities relative to the scale identified in
the extant research literature. In turn, this reduced the estimates of potential jobs that could be
generated to service the unmet need. For example, several respondents reported that unmet
need within their community could be satisfied by employing an extra 1 or 2 carer / aides.
Given the scale of need that the ABS described in Disability, Ageing and Carers (ABS,1998), it would seem most unlikely that the provision of another 1 or 2 carers would suffice.
Some respondents were much more unconstrained in their imagination of the scale of JG.
Interestingly, it was revealed in later interviews that these respondents had previously been
involved in job creation programmes in one form or another. This suggests that responses tothe study reflected respondents’ bounded perception of they considered to be feasible.
Bounded rationality explains that decision-making processes, and the information that people
use to aid them in this process, does not necessarily result in rational responses (Earl, 2005).
The bounds on human rationality are steered by the incompleteness of knowledge, theprevalence of norms and the costs involved with achieving perfection (see also Simon, 1993).
Bounded rationality becomes problematic when asked to consider possible alternatives thatare contrary to the way we understand the world.
The JG model clearly requires consideration of the possibility of an alternative way ofviewing the world and of concepts that are contrary to popularised understanding of how theeconomy works (Mitchell and Wray, 2004).
The preliminary study cleared reflected conservative responses. Given the type of needs
identified and the scale of need identified by the public statistics (which were compiled in theon-line resources supporting the survey), it is clear that many more potential low / unskilledemployment opportunities could have been identified by the respondents had they not beenbound in their perceptions.

122

7.5

Survey administration method

The survey comprised structured telephone interviews combining in-depth interviews with thecollection of information across the same variables. The nature of the research question did
not allow researchers to apply a straight forward questionnaire style survey, however, themethod of data collection did allow for formation of a case data grid (de Vaus, 2002).
Potential survey respondents were invited by letter to participate. The letter outlined theresearch purpose and costs and benefits of participation. The letter was followed up by atelephone call a week later to determine the person’s willingness to participate in the survey.
For those who consented, the subsequent telephone interview commenced by giving each
respondent an opportunity to clarify any aspects of the survey. The interviewer then provided
an overview of the survey:
I’d just like to give you a brief overview of the survey format before we begin.
You will be asked to comment on need for community development within your local
government area under five subcategories including public health and safety,
recreation and culture, transport amenities, community welfare services and an others
category.

The first part of the survey will ask you to identify need within your local government
area.



The second part of the survey will investigate further details of the needs that you
have identified and identify tasks that could be undertaken by low and unskilledworkers.



You will then be asked to estimate the number of workers that could be employed tomeet the outlined needs.

For each section of the survey the interviewer provided a definition of the category. For
example, the section on transport amenity was introduced:
The definition of transport amenity includes the rehabilitation, maintenance, andconstruction of road/rail/pipelines, provision of transport aides, and othertransportation services and affairs.
Interviewers then read a vignette to provide background information that could focus theattention of the participant in an attempt to broaden their conceptualisation of the topic area toreduce the problems of bounded rationality that were identified in the Pilot study. Participants
were then asked the survey questions:
Question 1: Given this information and what you already know about your local governmentarea could you identify NEED for transport amenities that is:

NOT currently being undertaken by public, private or other sectors; or

NOT being undertaken at a level which satisfies the community need within your
LGA.

Question 2: What tasks could be undertaken by LOW/UNSKILLED workers to meet thisneed?
Question 3: Would you be able to estimate the number of full-time equivalent permanent low
or unskilled workers that could be used to meet this need within your local government area
PER ANNUM.

123

These questions were repeated for each identified need in the category and then for each of
the other 3 categories in the survey: public health and safety; recreation and culture; andcommunity welfare services. Respondents were then asked if there were any other needs forcommunity development that had not been covered in the nominated categories. Definitions
supplied to survey participants for the other 3 categories of need were:

Public health and safety includes the support, provision and/or maintenance of healthpromotion services, fire prevention measures, disaster relief and development ofcommunity relations;

Recreation and culture includes the support, provision and/or maintenance of parks,
national parks and cultural facilities, and other recreation and culture affairs andservices;Community welfare services includes the support, provision and operation of
housing/accommodation, community sanitation services, and other community welfare
services and affairs, and services for groups with special needs.

7.6

Responses and non-responses

The survey population consisted of 665 local governments throughout Australia (excluding
the Torres Strait Islands). Table 7.2 shows the manner in which respondents who completed
the survey was distributed between states and ACLG regions.
Table 7.2 Survey participants by state and ACLG region
State

Number of Respondents

Percentage of Respondents (%)

New South Wales

52

34.4

Victoria
Queensland
South Australia
Western Australia
Tasmania

18
22
15
22
10

11.9
14.6
9.9
14.6
6.6

Northern Territory

12

7.9

Total
Urban developed

151
27

100.0
17.9

Urban regional

30

19.9

Urban fringe
Rural
Remote

9
66
19

6.0
43.7
12.6

Total

151

100.0

In the following discussion, references or aggregates reported under State and ACLG region
categories only refer to the location of local governments surveyed. For example,
unemployment figures provided for NSW (see Table 7.5) refer to the total official
unemployed (at March 2006) located in the surveyed NSW LGAs and not total NSW
unemployment.
Table 7.3 shows the response distribution from the 328 local governments, which wereinvited to participate in the study after being selected through a stratified random sampling124

technique from the 665 local governments in Australia. Forty six per cent of the sample (151)completed the entire survey. The rate of response is comparable to other contemporary
telephone survey response rates.
Table 7.3 Description of national survey response
StatusNumber

Percent

Completed survey in full

151

46

Partial completion

33

10Declined to participate

115

35

Unable to be contacted26

8Invalid council

3

1

Total

328

100

The rate of response varied across states and ACLG regions. Of the LGAs surveyed in eachstate, New South Wales and Tasmania had the highest response for full survey completion(68.4 and 71.4 per cent, respectively). Responses were lowest for Western Australia, theNorthern Territory and Queensland (between 30.1 and 38.7 per cent). The lower response rate
for these states can be largely attributed to the higher number of local governments classified
rural remote or rural agricultural small, where staffing is limited and populations are smalland sparse. Recent political reforms that occurred while the survey was being conducted(2005-2007), including the federal government’s Northern Territory Emergency Response
Indigenous community intervention and reforms resulting in the mass amalgamations of local
governments throughout Queensland also contributed to lower response rates in those states.
To ensure the sample remained representative of the overall population, the response data wasweighted to adjust for non-response (de Vaus, 2002: 85). Weighting involves statisticallyincreasing or decreasing the number of cases across particular population characteristics. The
data was weighted by state and remoteness using the ACLG.
7.7

Survey results

7.7.1 Potential for job creation
Table 7.4 reports on the inventory of potential JG jobs identified from the survey by jobclassification (type of job) and broad community development categories (Transport Amenity;
Community Welfare Services; Public Health and Safety; and Recreation and Culture). The
responses show that 8 types of jobs were consistently identified as being urgently required tomeet community needs with a number of other jobs considered to be less urgent.
The construction of public housing and public infrastructure; provision of additional teacher’s
aides; and community-based home care support for the elderly were considered the mostsuitable areas to generate socially meaningful jobs that were suitable for low and unskilledworkers. Problems with localised and specialist transport were also identified as being a
potential area to create low skill employment.
The socially meaningful work that respondents considered could be created nationallyaccounted for around 40 per cent of all unemployed people in local government areas thatparticipated in the survey (at March 2006) (DEWR, 2006a). 1

125

Table 7.4 Potential JG employment opportunities by job classification and category
Description of Labour Type

TA

CWS

PHS

RC

TotalsBuilder’s labourer
Personal care assistant/home support worker
Paving/surfacing labourers
Garden labourers
Teachers aide
Environmental remediation worker
Community development officer
Bus driverSports development assistantRefuge support worker
Rail track worker
Handyperson
Kitchen hand/food preparation assistantChild care worker
Fire prevention
General clerk
Cleaner
Gallery/museum attendant
Youth support worker
Health promotions officer
Community arts officer
Event organisation assistant/promotion
Family support worker/mentor
Interviewer
Trekking guide/bush walking guide
Tourist information
Security officer
Railway assistantInspector/regulatory officer
Indigenous education worker
Caretaker
Sales assistantLibrary assistantFencerTrapper
Coding clerk
Café/canteen assistant

404
300
4,983
61
226
11
41
1,805
0
0
1,047
18
0
0
0
179
54
0
0
0
0
1
0
30
0
0
132
131
4
0
2
13
0
0
0
0
0

15,376
5,010
14
320
2,948
0
1036
8
80
1,109
0
595
625
883
0
146
87
0
0
0
0
5
216
30
0
0
0
0
58
82
12
0
0
0
0
0
0

170
0
10
139
0
0
609
0
1,075
0
0
120
289
0
637
239
331
11
476
428
0
305
8
31
0
0
52
0
54
0
18
0
22
5
6
0
0

1,774
0
139
2855
0
2402
347
0
79
0
0
259
0
0
0
32
68
480
6
0
369
31
0
126
216
201
0
0
4
0
23
15
6
4
0
3
0

17,724
5,310
5,146
3,375
3,174
2,413
2,033
1,813
1,234
1,109
1,047
992
914
883
637
596
540
491
482
428
369
342
224
217
216
201
184
131
120
82
55
28
28
9
6
3
0

% of
total
jobs
33.7
10.1
9.8
6.4
6.0
4.6
3.9
3.4
2.3
2.1
2.0
1.9
1.7
1.7
1.2
1.1
1.0
0.9
0.9
0.8
0.7
0.7
0.4
0.4
0.4
0.4
0.4
0.2
0.2
0.2
0.1
0.1
0.1
0.0
0.0
0.0
0.0

Total

9,442

28,640

5,035

9,439

52,556100.0

Notes: TA is Transport Amenity; CWS is Community Welfare Services; PHS is Public Health and Safety; andRC is Recreation and Culture. Rounding to one decimal point means some of the small positive percentages areshown as 0.0.

126Variation across states
The results varied considerably across states and local government types as well as byindividual respondents. Table 7.5 shows the state by state breakdown of the total number of
unemployed at March 2006, the number of JG jobs identified by survey respondents and thepercentage of official regional unemployment that the identified JG jobs would eliminate.
The highest number of potential JG employment opportunities as a proportion of theunemployed population identified was in surveyed LGAs in South Australia (65 per cent),
followed by Queensland (57 per cent), and Victoria (50 per cent). The lowest proportions ofjobs identified were in surveyed LGAs in Western Australia (25 per cent) and New South
Wales (28 per cent), although respondents in New South Wales identified the highest numberof potential jobs (15,365).
Table 7.5 Unemployment and potential for Job Guarantee employment by state
Location of surveyed
Local Government(a)Number of
Number ofPercentage of Potential JG jobs
official
potential JG jobs total potential JG as a % of UN in
unemployedjobs(c)region(b)
March 2006

NSW

54,136

15,35629.2

28.4

Victoria

29,83914,875

28.3

49.9

Queensland

13,490

7,681

14.6

56.9

South Australia

10,568

6,907

13.1

65.4

Western Australia

11,920

3,199

6.1

26.8

Tasmania

3,763

1,781

3.4

47.3

Northern Territory

n/a

2,757

5.2

n/a

12371649799

Total(d)Total(c)

52556

40.3
100.0

Note: (a) Refers to the state where the surveyed LGA was located. The sums are then of the LGAs surveyed
rather than the overall state; (b) refers to the total unemployment in the LGAs surveyed rather than the wholestate; (c) Includes the Northern Territory; (d) Total excludes Northern Territory for which incomplete
unemployment data was available.

Variation across local government typeSpatial disparities are also evident when results are examined by the Australian Classificationof Local Governments (ACLG) as displayed in Table 7.6. The highest proportion of potential
JG jobs identified as a proportion of unemployment was in local governments in rural areas(57 per cent). This was significantly larger than in urban developed areas (40 per cent), urban
fringe areas (36 per cent) and urban regional areas (36 per cent).
7.7.2 Community welfare services
Table 7.7 provides the spatial distribution of the JG jobs identified by survey respondents incommunity welfare services and shows how the identified quantum compares to official
unemployment in the survey areas (as at March 2006). Victorian respondents identified thehighest number of potential jobs in this category although as a percentage of total
unemployment in the region, South Australian respondents estimated that community welfare
services could support extra employment of around 45 per cent of the total unemployment in127the LGAs surveyed in that State. Similarly, around 35 per cent of the unemployed in the
LGAs surveyed in Queensland and 30 per cent in Victoria could be employed in community
welfare services positions identified by survey respondents. In contrast, this proportion was
below 20 per cent in the LGAs surveyed in New South Wales (11 per cent), Western
Australia (17 per cent) and Tasmania (almost 19 per cent).
Table 7.6 Unemployment and potential for Job Guarantee employment by ACLG
ACLG status ofsurveyed Local
Government(a)Number of
Number ofPercentage of Potential JG jobs
official
potential JG jobs total potential JG as a % of UN in
unemployedjobs(c)region(b)
March 2006

Urban developed

48,804

19,59537.3

40.2

Urban regional

44,77015,59629.7

34.8

Urban fringe

12,008

4,436

8.4

36.9

Rural

17,862

10,238

19.5

57.3

Remote

n/a

2691

5.1

n/a

123,444

49,865(d)

Total

Total(c)52,55640.4
100.0

Note: (a) ACLG status of LGAs surveyed refers to the ACLG location of the LGA surveyed rather than all
LGAs in the ACLG regions. The sums are then of the LGAs surveyed rather than the overall ACLG region; (b)refers to the total unemployment in the LGAs surveyed rather than unemployment in the whole ACLG region;(c) Includes Remote LGAs. The percentages are based on this total. They may not add to 100 due to rounding
errors; (d) the Total excludes remote and very remote local councils classified by the ALGC which identified afurther 2691 potential JG jobs. The percentage gap is the number of potential JG jobs identified as a percentageof the number of official unemployed.

Variation across activity category
Table 7.7 builds on the information available in Table 7.4 by summarising the results for eachsurvey category: transport amenity, community welfare services, public health and safety, andrecreation and culture. Potential JG employment opportunities in community welfare services(27,194) are greater than the other categories in all states; with potential positions ranging
from 11 per cent of the official unemployed in New South Wales to 45 per cent in South
Australia. Transport amenity had the second greatest employment generating potential (9,151
jobs) followed by Recreation and Culture (8,680 jobs) and then Health and Safety (4,774
jobs). Table 7.7 reports the extent to which these jobs compare to official unemployment ineach state by category. Overall the 49,799 potential jobs (excluding Northern Territory)
account for about 40.3 per cent of the official unemployed in Australia in March 2006.
Table 7.8 decomposes the potential JG employment opportunities identified by category and
ACLG classification (urban developed, urban regional, urban fringe, rural and remote). The
results show that potential JG employment is not concentrated in urban centres. Thirty sevenper cent of the potential opportunities would be available across categories in rural areas.

128

Table 7.7 Potential JG employment opportunities by community development survey category and location of LGAs surveyed
Location ofsurveyed Local
Government (a)

UN(b)

NSW

Transport Amenity

Community Welfare
Services

Public Health and
SafetyJG Jobs%UN

JG Jobs%UN

JG Jobs%UN

JG Jobs%UN

JG Jobs

%UN

54136

4207

7.8

6021

11.1

2134

3.9

2994

5.5

15356

28.4

Victoria

29839

1932

6.5

8854

29.7

1536

5.1

2553

8.6

14875

49.9

Queensland

13490

1026

7.6

4816

35.7

363

2.7

1476

10.9

7681

56.9

South Australia

10568

1151

10.9

4720

44.7

378

3.6

658

6.2

6907

65.4

Western Australia

11920

420

3.5

2077

17.4

231

1.9

471

4.0

3199

26.8

Tasmania

3763

415

11.0

706

18.8

132

3.5

528

14.0

1781

47.3

Northern Territory

n/a

291

1237169151

Total(c)Total(d)

9442

1446
7.4

27194
28640

261
22.0

4774
5035

Recreation andCulture

759
3.9

8680
9439

Total

2757
7.0

49799

40.3

52556

Note: (a) Refers to the state where the surveyed LGA was located. The sums are then of the LGAs surveyed rather than the overall state; (b) refers to the total unemployment
in the LGAs surveyed rather than the whole state; (c) Total excludes Northern Territory for which incomplete unemployment data was available; (d) Includes the Northern
Territory.

129

Table 7.8 Potential JG employment opportunities by community development survey category and ACLG regions
ACLG status ofsurveyed local
government (a)UN(b)

Urban developed

Transport Amenity

Community Welfare
Services

Public Health and
SafetyJG Jobs%UN

JG Jobs%UN

JG Jobs%UN

JG Jobs%UN

JG Jobs

%UN

48804

3399

7.0

10713

22.0

2353

4.8

3130

6.4

19595

40.2

Urban regional

44770

2312

5.2

10590

23.7

1006

2.2

1688

3.8

15596

34.8

Urban fringe

12008

1044

8.7

1691

14.1

540

4.5

1161

9.7

4436

36.9

Rural

17862

2295

12.8

4510

25.2

836

4.7

2597

14.5

10238

57.3

RemoteTotal(c)Total(d)392
123444

9050
9442

1136
7.3

27504
28640

300
22.3

4735
5035

Recreation andCulture

863
3.8

8576
9439

Total

2691
6.9

49865

40.4

52556

Note: (a) ACLG status of LGAs surveyed refers to the ACLG location of the LGA surveyed rather than all LGAs in the ACLG regions. The sums are then of the LGAs
surveyed rather than the overall ACLG region; (b) refers to the total unemployment in the LGAs surveyed rather than unemployment in the whole ACLG region; (c) Total
excludes Remote LGAs for which incomplete unemployment data was available; (d) Includes Remote LGAs.

130

Table 7.8 reports the same data for the LGAs surveyed by the ACLG. The rural LGAs
identified the greatest proportion of community welfare services positions as a proportion ofunemployment with the potential to employ over one quarter of the overall unemployed if
these positions were created. All council types identified potential JG positions in community
welfare services which would absorb around 22 per cent of the unemployed.
Table 7.9 details the community welfare service needs identified by survey respondents in 4
broad categories (see also the detailed job types identified in Table 7.4). The results confirm
the perception of a serious lack of infrastructure investment in regional Australia (ABNAMRO, 2006; Allen Consulting Group, 2005). The potential number of jobs in community
welfare services was 15,254 for builder’s labourers reflecting the widely recognised national
crisis in housing and the long term neglect of public housing investment.
Table 7.9 Areas of need identified for the provision of community welfare services
Community Welfare Examples of areas of need
Service subcategory

Potential jobs for low/unskilledworkers

Housing andaccommodation

Expansion of public housing
Residential aged care facilities
Refuge facilities for various
groupsBuilder’s labour
Personal care assistantRefuge support worker

Services for children

Provision of teachers aides
Assistance to childcare services
Before and after school care

Teachers aides
Child care worker

Community support

Elderly social isolation
Hospital/nursing home visitation
Administrative support tocommunity groups

Personal care assistantCommunity development
assistantGeneral clerk

Independent living

Provision of domestic assistance
Garden maintenance services
Meal delivery services

Personal care assistantGardenerFood preparation

Investment in refuge facilities for victims of domestic violence, youth and homeless men werealso important community needs identified throughout the survey. Both investment areas havebeen shown to add substantial social value by increasing beneficiaries’ usage of auxiliary
health care and community services and decreasing involvement in crime (Rog, 2004).
The two remaining areas of community welfare services that were comparatively employment
intensive were associated with provision of aides to teachers and assistance for independent
living, which accounted for 5.7 per cent (3013) and 9 per cent (4743) respectively, of the total
jobs identified in this category.
Studies from the ABS (2003), various government inquiries, and a myriad of academics
across Australia, reveal a consistent story of inadequate funding of services supporting
independent living (Brotherhood of St Laurence, 2001; Austin, 2006; ABS, 2003; Community
Affairs References Committee, 2005). Indeed, the Disability, Ageing and Carers survey(ABS, 2003) shows that 1 in 5 Australians have a disability, of which 1 in 4 report that they
have unmet needs. These issues are explored in greater detail in Chapter 9.

1317.7.3 Transport amenity
There were significant State differences in the proportion of jobs that were identified bysurvey respondents in the category of transport amenity. Table 7.7 provides the distributions
for this category compared to official unemployment in each state. New South Wales
respondents identified the highest number of potential jobs in this category although
Tasmanian and South Australian respondents identified the greatest potential for job creation
as a percentage of total unemployment at around 11 per cent of total unemployment in thesurveyed LGAs.
Respondents from LGAs surveyed in New South Wales, Victoria and Queensland identified
potential positions in the transport amenity area for between 6 and 8 per cent of total
unemployment, while respondents from LGAs in Western Australia identified potential jobs
for less than 4 per cent.
Table 7.8 displays these same data according to ACLG categories. As was the situation with
community welfare services, respondents from rural LGAs identified the greatest proportionof transport amenity positions that could potentially be created as a proportion ofunemployment in those LGAs, at almost 13 per cent of unemployed. Again, all council types
identified potential positions in transport amenity which combined would be able to provide
jobs for over 7 per cent of the total unemployed.
Table 7.10 Areas of need identified for the provision of transport amenity
Transport Amenity Examples of areas of needsubcategory

Potential jobs for low/unskilledworkers

Transport
infrastructure

Bituminise roads
Up-scale light rails services
Manage road-side vegetation
Footpath / cycleway expansion
Upgrade bus stop/shelter
facilities

Paving/surfacing labourers
Gardeners
Builder’s labourers

Transport services

Dial-a-ride community transport
Increase inter-city service
frequency
Flexible community transport

Drivers
General clerks
Personal care assistant

Table 7.10 shows that community needs for improved transport amenity fell broadly into 2
categories: (a) transport services; and (b) transport infrastructure development. The survey
respondents echoed the research findings in ABS (2004) which revealed that the supply(frequency / timetabling) and quality of public transport alters usage of such services,
entailing need for up-scaling and investment in transport systems before usage will increase.
Beyond this, there is a complete absence of public transport in some local government areas,indicating an urgent need for a comprehensive transport strategy and employment investment.
Poor access to reliable transportation is one of the major constraints that low skilled workers
face in maintaining attachment to the labour market and being able to pursue new
employment opportunities (Mitchell and Bill, 2006).
Table 7.11 outlines a particular type of transport identified by survey respondents that
addresses the needs of the elderly and other marginalised groups in their regions. Survey

132respondents indicated that the most prominent need for employment investment related toprovision of “dial-a-ride” community transport services.
These services are largely involved in the transportation of elderly people to / from medical
appointments and may also take the elderly shopping or to community centres. In many local
government areas across Australia these essential services are undertaken by volunteer
workers, with little or no remuneration provided. These services represent ideal JG positions.
Table 7.11 Potential JG jobs in transportation services in surveyed LGAs
Transport function

Generalclerical

Personal
care

Driving

Total

Revision and expansion of public
transport systems to increaseconnectivity

36

81

574

691

Provision/expansion of flexible
community transport services

14

10

400

424

Provision of a community taxi
service/ dial-a-ride community
transport
Increase frequency of inter-citytransport services

105

139

686

930

16

10

86

112

Table 7.12 shows the potential JG jobs for paving / surfacing labourers in surveyed LGAs.
Survey respondents also identified transport infrastructure development in the areas of pavingand surfacing as being in need of significant employment investment.
A common theme reflected by the respondents was the need for further investment inalterative transport infrastructure, including footpaths and cycleways. The estimates provided
marginally out weighed the need for additional investment in road infrastructure.
Further, there were substantial differences relating to scale revealed by state and ACLG
region. Chapter 8 explores the range of issues relating to transport provision, unmet need andthe potential for JG jobs to meet those needs.
Table 7.12 Potential JG jobs for paving/surfacing labourers in surveyed LGAs
Location of local
government surveyed

Road maintenanceFootpaths andCycleways

Total

NSW

731

889

1620

Victoria

340

601

941

Queensland

466

342

808

South Australia

215

494

709

Western Australia

95

77

172

Tasmania

78

234

312

Northern Territory

157

17

174

133

7.7.4 Public health and safety
While the survey respondents identified significant unmet needs in the category of publichealth and safety, most of the jobs identified were typically not as employment intensive as
the other 3 categories of community development. For example, many participants expressed
need for provision of health promotion assistants or commercial cleaners, but indicated that
this need could be met by employing an extra 1 or 2 workers in their LGA.
Table 7.7 provides the spatial distribution of potential JG jobs in public health and safety
which were identified and shows the comparison with the official unemployment levels in thesurvey areas. Respondents from LGAs in New South Wales identified the highest number ofpotential jobs in this category, however, Victorian respondents identified the greatest
percentage (just over 5 per cent) of the total unemployed that could be absorbed by providing
JG jobs in public health and safety,. Respondents from New South Wales, South Australia
and Tasmania estimated that between 3.5 and 4 per cent of the unemployed in the LGAs
surveyed could be employed in public health and safety jobs. The corresponding figures were
2.7 and 1.9 per cent, respectively, for respondents from Queensland and Western Australia.
Many survey participants identified urgent needs for health professionals such as doctors,
nurses, dentists and other health professionals, but these positions were excluded from thesurvey results since these needs cannot be addressed by employment of low skilled workers.
Table 7.13 Areas of need identified for the provision of public health and safety
Public Health and
Safety subcategory

Examples of areas of need

Potential jobs for low / unskilledworkers

Community
infrastructure

Graffiti removal/ street mural
Septic tank inspection
Clearing of derelict land

Cleaner
Caretaker
Inspectors

Community safety

Support of alcohol free zones
Community patrols

Community development
assistant
Youth development assistantCommunity cohesion

Youth café/youth drop-in centre
Support civic engagement: street
festivals, block BBQs
community newsletter/community radio station

Community development
assistant
Youth development assistant
Event assistant/promotion
Kitchen hand

Community healthCommunity fruit/vegetablegardenCommunity group exercise
Assistance to sporting groups
public health promotions

Gardener
Sport development assistant
Administration
Health promotion assistant

Disaster prevention

Hazard reduction
Bushfire prevention

Fire worker
Environmental remediation
worker

The representation of these data for potential public health and safety jobs in the ACLG
categories is shown in Table 7.8. LGAs surveyed from urban developed, urban fringe, and134

rural areas all identified potential JG positions for between 4.5 and 5 per cent of unemployed,
while urban regional areas identified potential jobs for over 2 per cent of the unemployed.
Table 7.13 shows that the needs identified by survey respondents in public health and safety
fell into 5 broad categories. Most opportunities for low skilled job creation in public healthand safety were in the promotion of community health with roles being identified forcommunity walking groups, health promotion assistants, and assistance to sporting groups.
The perceptions of the survey respondents in public health and safety are in line with
Australian public health research. ABS (2005) shows that Australia is becoming an
increasingly overweight population with an increasing need for preventative strategies tocontain escalating future health care costs.
7.7.5 Recreation and culture
Table 7.7 provides the results for potential jobs identified in the area of recreation and culture
by the respondent LGAs and the percentage of total unemployed which would be absorbed bythese jobs. While again respondents from New South Wales identified the most number ofjobs, Tasmanian respondents estimated that the recreation and culture area could support extra
employment of 14 per cent of the unemployed in the LGAs surveyed in that State. Similarly,
almost 11 per cent of the unemployed in the LGAs surveyed in Queensland could be
employed in recreation and culture positions identified by survey respondents. Victorian
respondents identified almost 9 per cent, while respondents from South Australia (6 per cent),
New South Wales (5.5 per cent) and Western Australia (4 per cent) also identified potential
JG jobs in this area.
Table 7.14 Areas of need identified for the provision of recreation and culture
Recreation andculture subcategory

Examples of areas of need

Potential jobs for low/unskilledworkers

Community facilities Community hall/centre
Builder’s labour
maintenanceHandyperson
Skate park construction/up-grade Paving/surfacing labourers
Provision of an aquatic centre
Cultural Activities

Admin support to cultural
centres
Linguistic/cultural heritage
recordPublic arts spaces
Information brokerage services
and maintain parks

General clerk
Interviewer
Community arts assistant
Guide
Tourist information

Environmental
rehabilitation

Waterway rehabilitation
Upgrade parks and gardens
Removal of alien species

Gardener
Environmental protection
workerHandyperson

The representation of these data distributed into ACLG classifications can be seen in Table
7.8. Again, rural LGAs surveyed identified the great est proportion of positions in therecreation and culture area as a proportion of unemployment, with the potential to create
employment for almost 15 per cent of the unemployed in these regions. All council types

135

identified JG positions that could be created in the recreation and culture area with thepotential to absorb almost 10 per cent of the unemployed in urban fringe, 6.4 per cent in urban
developed and 3.8 per cent in urban regional areas.
Many facilities and organisations that support the recreation of their community, including
botanic gardens, galleries and museums, are largely supported by volunteers (ABS, 2006).
The survey respondents identified several areas where employment investment could be madeto improve recreation and cultural assets in their LGAs. Table 7.14 summarises the main areas
identified under three broad categories.
The largest potential for JG employment was identified as labouring work in theenvironmental remediation of reserve areas (including national parks, crown lands and local
government reserve land).
7.8

Limitations of survey

The data gathered from this study offer considerable insight into the nature of need forcommunity development and indications of where service provision is inadequate throughout
Australia. The study also effectively identifies the types of activities that could be usefully
undertaken to reduce deficiencies in service provision. It was found that substantial needs
exist that could be filled by the employment of low / unskilled workers, confirming thepotential for job creation in the public sector in the form of a JG.
However, the number of potential jobs accounted for around 40 per cent of the official
unemployment in the LGAs that participated in the survey as at March 2006 (DEWR, 2006a).
Moreover, the Community Development survey did not specifically collect data on thepotential for job creation in environmental protection. In total, 2413 potential jobs (4.6 percent of total JG jobs) for environmental remediation workers were identified by respondents.
There is vast scope for the creation of JG jobs in environmental protection and remediation toprovide socially valuable employment opportunities for the unemployed. These include but
are not limited to:

Waste water and recycling management activities such as sewerage operations, waste
water reuse, landfill operations, recycling operations and the implementation ofprogrammes to reduce the amount of materials entering the solid waste stream;Conservation of biodiversity and habitat programmes relating to the protection andreintroduction of native flora and fauna, protection of habitats and the construction of
barriers to prevent damage for developments entering areas specified as having value
for diversity;Protection of soil and groundwater through remediation of contaminated soils,
protection of existing soil and groundwater areas from contamination by wastes anddegradation, and remediation of degraded soils in crown land and national parks; andProtection of natural and cultural heritage by establishing and maintaining natural andcultural heritage sites and programmes to encourage the implementation of cultural
heritage preservation by business and households.

If the potential JG employment identified by the respondents defined a realistic inventory ofjobs that would satisfy unmet need in regional Australia, then a JG targeted at youth and thelong-term unemployed could be effective. As at July 2008, unemployment in Australia stands
at 4.3 per cent of the labour force, and this means that 481,100 are officially jobless. Youthunemployment currently comprises 19.7 per cent (94,600) of total unemployment, and longterm unemployment constitutes 14.8 per cent (71,200) of all unemployed (ABS, 2008).

136However, it is likely that the survey respondents adopted extremely conservative estimates of
the quantum of available job opportunities in their regions and failed to fully appreciate boththe scale of unmet need and how this would map into labour requirements necessary to
alleviate the need.
Respondents were influenced by several factors when framing their estimates of potential JG
employment in their regions, including:The uncertain and increasingly competitive funding environment that local
governments face (negative factor);Previous involvement with public sector job creation programmes (positively
influenced);A limited opportunity to fully consider all options (negative factor); andLack of breadth of knowledge of all aspects of the local government enterprise(negative factor). A change in methodological approach, development of information
databases and refocusing of the target respondents was implemented between the Pilot
and main survey to overcome the issues arising from the lack of corporate knowledge.
Despite improvement in the quality of responses, there were still notable problems.

The data analysis reveals that, while participants effectively identified areas of need within
their local government area, the comprehensiveness and coverage of individual responses was
related to area of expertise. Participants found estimation of the number of jobs that could
effectively address documented needs challenging. Further, the scale of need described by the
sample was frequently contrary to the scale of need that other research and various
parliamentary inquiries have identified. For example, when asked about need for community
care services, responses ranged from the need to employ 1 or 2 more personal care assistants,
through to the need to employ hundreds. Obviously the size, demographic composition andlocation of local government will play a major role in need for such services, and some local
governments will be better serviced than others. However, given the scale of need identified
in Disability, Ageing and Carers (ABS, 2003), it would seem that provision for another 1 or 2
carers would hardly suffice, in the context of an ageing population. Further, qualitative
feedback from interviewers reconfirms this conclusion. The interviewers reported the need for
frequent reference to the local government demographic profile to ensure that scale of statedneed reflected population composition.
The issue of scale in part reflects the nature of contemporary funding, which is increasingly
prescriptive, competitive and non-committal. These characteristics subsequently reinforce theerroneous notion of a government budget constraint, and foster a mismatch between
community need and funding allocation (Mitchell and Muysken, 2008).
An associated issue relates to the recent upsurge in volunteering as a community asset. It is
now common to view activities that were previously considered worthy of wage remuneration(that is, were considered to be paid work) as being the tasks better suited to volunteer efforts.
This shift in perception has reduced the range of activities which we identify as being suitablefor paid employment. Many of these activities are at the local level and as such thisperception shift has a direct impact on our survey responses – biasing the estimated job
potential downward.
The respondents regularly suggested the need for additional volunteers in a particular area of
need, but saw a limited role for paid workers. This view was especially prominent in foodpreparation and delivery services, assistance to sporting groups and cultural facilities, and in
non-traditional areas of work.

137

In the Pilot study, one source of downward bias in job estimates was associated with bounded
rationality among respondents (see Section 7.4.4). The data analysis of the main survey
confirms this conclusion, that decision-making processes, and the information that people use
to aid them in this process, is very much grounded in one’s own prior knowledge (Earl, 2005).
Access to information helps to enhance and augment knowledge (and thus survey responses),
however, gaps in information continued to be influenced by prevalent norms and perceptions.
When faced with proposals that challenge our norms and perceptions, such as the concept of a
JG, the processes that typically guide rationality can be limited.
There was a general view that community needs could be better served through the creation of
thousands of low skilled jobs under a JG-type policy. However, it remains that the datacollected through this survey, while extremely useful in setting out the type of unmet needs
that persist in regional communities, definitely under-reports the scale of employment
investment that is needed to service these community needs.
7.9

Conclusion

The national local government JG survey confirmed that there exists in Australia a large
amount of unmet need for infrastructure and services to enable full economic and social
participation. Survey respondents outlined strategies that could be used to address these needs
through provision of employment opportunities to members of the community seeking workor additional work. There was a general view that community needs would be better served
through the creation of thousands of low skilled jobs under a JG-type policy. They were able
to provide rough estimates of the numbers of people who could be employed, the duties to be
performed, and the types of training opportunities that could be included to enhance the skillsof the workforce and labour force productivity.
In total jobs identified could potentially create employment opportunities for 40 per cent of
the unemployed and cover a wide range of occupations. The highest number of jobs identified
was for builder’s labourers (34 per cent of all jobs), personal carers and garden labours /handypersons (10 per cent), and teacher’s aides and child care assistance (8 per cent). Other
needs included environmental remediation workers, community and youth workers, healthand fitness workers, food preparation assistants and rail workers.
The limitations of data collected from this survey relate to both time constraints that limited
participants’ responses, breadth of participant knowledge and the competitive and noncommittal character of contemporary funding regimes that are applied to local governments
and many other community development initiatives in Australia.
As such, the data generated from this study should be augmented with additional sources of
information to ensure that the policy process is better informed of the extent of unmet
community needs and the quantum of JG jobs that would be required to service the needs.
Therefore, in addition to the presentation of survey results in this chapter, we undertook
further analysis in relation to two of the survey categories, transport amenity (Chapter 8) andcommunity welfare services (Chapter 9). Survey results are compared with various sets ofdata documenting information on expressed or ‘demand’ need, such as the Socio-Economic
Indexes for Areas (SEIFA) index and unemployment rates, to further investigate issues
associated with regional development. Data are examined both nationally, by state and byremoteness indicators, with results revealing substantially different needs across space.
1

Measures of unemployment for some Northern Territory Municipalities, Community Governments,
Incorporated Associations and/or Special purpose towns were not available and so the percentage figure refers to
the total jobs potential minus the employment identified in the Northern Territory.
138

8
8.1

Transport amenity

Transport amenity and social need

Effective transport systems are important for access and equity. They impact on wellbeing
and the ability to participate in economic and social activities. Lack of sufficient access totransport can lead to a ‘poverty of access’ situation, which means that social exclusion isintensified through reduced opportunity to engage with society (Farrington and Farrington,2005).
There is evidence of the need for extensive investment in transport systems to upgrade or
replace and extend ageing transport infrastructure (see Chapter 11 for details on infrastructure
requirements). The state of transport amenity in Australia has been critiqued extensively bypeak engineering bodies, business councils and government departments.
The Howard Government responded to concerns regarding the adequacy of transport
infrastructure by launching a new policy and transport amenity reform agenda in 2004 known
as Auslink. Auslink acknowledged that both road and rail infrastructure, which is efficient,reliable and safe in character, is essential to the nation’s prosperity, and also acknowledged
deficiencies in current infrastructure. Inefficiencies as a consequence of the short-term
outlook and insufficient scale of government investment resulted in the conclusion that:
The existing planning and decision-making framework is short-term, ad-hoc andfragmented across transport modes and jurisdictional boundaries. The development
and implementation of a national vision for critical land transport links is vital(Department of Transport and Regional Services, 2004: viii).
Auslink’s new vision for transport amenity in Australia aimed to create synergies acrossgovernment bodies in order to transcend political and ideological boundaries to meet thetransport and infrastructure needs of local communities. However, the white paper noted that
‘only projects of high national priority that meet Australian Government funding
requirements will be considered’ (Department of Transport and Regional Services, 2004: x),
and the additional funds constituted only 8 per cent of the shortfall in infrastructure
investment identified by the Australian Council for Infrastructure Development (2001, citedin AFTF, 2007: 153).
The Rudd Labor Government has nominated infrastructure investment as one of its toppriorities and has set aside $20 billion for a Building Australia fund. The Infrastructure
Australia Act 2008 established a taskforce, known as Infrastructure Australia that will be
responsible for: auditing the nation’s infrastructure; developing an infrastructure priority list;
identifying policy, pricing and regulation that may impact on the utilisation of infrastructure;
and advising on reforms to encourage greater private investment in public infrastructure.
Infrastructure Australia’s scope extends to transport, energy, communication and water
related infrastructure.
As part of its strategic direction, the Department of Infrastructure, Transport, Regional
Development and Local Government, is developing a National Transport Policy, a National
Aviation Policy and further public-private-partnerships.
139This Chapter considers communities’ needs for transport amenity and associatedinfrastructure investment. This research is framed in part by deficiencies identified by the
National Local Government JG Survey, which was outlined in Chapter 7. Clear themes haveemerged through this analysis; namely that unmet needs for capital infrastructure, social
infrastructure and environmental investment have imposed significant social and economic
costs over time.
This Chapter initially provides an overview of transport and information on the need forfurther investment in road and rail infrastructure, footpaths, cycle-ways and walking trails.
The latter part of the chapter considers the transport services needs and provides acomprehensive review of the state of transport services in urban, regional and ruralcommunities throughout Australia.
8.2

Transport Infrastructure investment

State and territory governments have been responsible for arterial roads, public transportsystems, urban design and the planning of transport systems. Local government authorities
have been responsible for maintaining local low volume road systems and other infrastructure
including footpaths and bicycle tracks. The federal government, through the Department ofInfrastructure, Transport, Regional Development and Local Government (previously the
Department of Transport and Regional Services) is responsible for national highways andhighway link roads, which account for 18,500 kilometres of road throughout the nation. The
department also provides funding for local and state governments through Auslink
programmes that include the Strategic Regional Programme, the Roads to Recovery
programme and the Black Spot programme (see Section 8.3.1 for details).
The federally owned rail network, Australia National Railways was sold in 1997. National rail
projects will receive $138 million between 2005-09 to maintain and upgrade tracks andbridges to allow higher mass to be transported. Some state governments have also privatised
or corporatised sections of their networks.
Public transport in Australia includes: taxis provided by private providers; community
transport which is provided by a combination of local governments, health authorities andcommunity based organisations; buses provided by both public and private organisations; andrail transport (including trams, heavy and light rail) which was traditionally publicly provided,
but in some instances has been privatised in recent years.
Both public bus and rail transport systems are generally only available in highly urbanised
areas throughout Australia. Many public transport services in rural and regional areas havenot been commercially viable for the private sector. Children of school age have been entitledto subsidised public transport services between home and school although, some isolated
communities have faced the cancellation of these services. The 2008 NSW mini-budget
introduced a parental co-payment of $45 per primary school student and $90 for high school
students, capped at $180 per family. Pensioners and others receiving social grants are able touse the public transport system at a discount.
Towards the end of the 1950s a model of urban development was adopted that favoured
expansion of new residential areas that were based on private vehicle usage (Dodson, 2007).
The shift to construction of highways competed with other modes of transport and graduallydrew passengers away from public transport services and community hubs. Dodson (2007:11.3) notes that from the 1990s onwards, increases in public transport usage have been linked
to population growth, rather than any structural overhaul of the transport system. The
inconsistency in appraisal methods concerning rail and road infrastructure investment has also
seen a bias towards road and subsequent disinvestment in rail infrastructure.
140

The financial resources for the majority of transport facilities are provided through state andlocal governments, and significant transfers from the federal government are required. Local
rate revenue and state related taxes also provide sources of funding. The distribution of funds
from the Commonwealth is formulated to ensure distributional equity across states, rather
than on a per capita basis (Allen Consulting Group, 2005: 9).
Several reports have identified the need for significant investment injections for infrastructure
including roads and public transport in Australia (see Chapter 11 for further details). An
estimated $14 billion shortfall in local government expenditure on infrastructure has been
attributed to insufficient growth in revenues (AFTF, 2007: 160).
Many respondents to the national local government JG Survey acknowledged the need for
major funding to construct, improve and extend major highways, rail and light rail systems as
discussed in Chapter 7. Although the survey asked for information on needs that extended
beyond the boundaries of local government responsibility, this chapter focuses mainly on
roads and other infrastructure that the local government is responsible for maintaining.
8.3

Local roads and local governments

8.3.1 Overview of local roads
Local government authorities are responsible for maintaining local low volume road systems
and other infrastructure including footpaths and bicycle tracks. The purpose of these roads isto provide enhanced access to the local economy and residential areas. The maintenance of
local roads accounts for a large portion of local government expenditure and they have beenvalued at $75 billion (DOTARS and ALGA, 2003: 8). In 2005-06 local governments were
responsible for maintaining 647,000 kilometres of local roads which represented an averageof 923 kilometres of road for each local government (DOTARS, 2007). Funds to maintainlocal roads are primarily derived from local rate revenue and federal government grants, butalso limited funding is available from State governments, for example, following natural
disasters. Also, the NSW State government makes limited funds available for local roads withcertain bus routes. In some cases state government traffic facility block grants are put towards
both state and local roads. State governments also provide some support to local governmentsfor programmes that focus on road safety rather than works programmes. Road usage changes
over time, and if local roads attract sufficient traffic, they can be reclassified as state roads.
The major federally funded road programmes in Australia are:


The Federal Assistance Grant (FAG) commenced in 1972 and funds local
governments to maintain and enhance capital and social infrastructure. FAG has a 30
per cent general component distributed on a per capita basis to local councils, with theremaining 70 per cent being a grant which is allocated to states on an historical basis
and then distributed to local governments on the basis of road length and population.



The Roads to Recovery programme commenced in 2000 and provides funding forconstruction and maintenance of roads, bridges, tunnels, bicycle paths, and installationof traffic controls and street lighting. Roads to Recovery will provide $1.23 billion
between 2004 and 2009.

The Strategic Regional programme encourages the construction of infrastructure that
supports regional growth trajectories, job creation and development of industry
clusters within regions. The programme will provide funding of $250 million between
2006-07 and 2008-09.

141



The Black Spot programme commenced in 1990 and aims to reduce road trauma by
improving road conditions and traffic management on local roads with high numbersof accidents. Funds are allocated equally between urban and regional roads. Projects
include construction of roundabouts, traffic signals and sealing of road shoulders. It
was allocated $47.5 million in 2007-08.

The distribution of funds is highly contentious and local roads maintained by local
governments generally receive lower budgetary allocations than the roads maintained byFederal and State governments. This means that many local roads are inadequately
maintained. The method and distribution of funds also leaves roads in rural and remote
Australia in the worst condition, even though these areas contain 70 per cent of all local roads(Hardwicke, 2005). The framework for distribution of funds originally had its roots in the1947 Commonwealth Aid Roads and Works Act, which provided for a subsidiary grant to beallocated for construction and maintenance of local rural roads (Burke, 1977: 7). This grant
recognised that the condition of rural roads was comparatively poor and underdeveloped, andthat local government authorities had limited resources to invest in roads. The Act also
provided funding for strategic roads, roads accessing Commonwealth property and roadsafety.
Table 8.1 Australia Government funding to local governments for local roads, 2006-07($millions)
Federal Grant

FAG,
identified
road grant

NSW

Supplementary
funding

Roads toRecoveryStrategic
Black Spot Total
regional
programme

149.5

85

97

11.1

342.6

VIC

106.2

62.5

39.6

10.3

218.6

QLD

96.5

62.5

84.5

9.9

253.4

WA

78.8

45

31

4.9

159.7

SA

28.3

25

29.7

3.2

99.2

TAS

27.3

10

6.6

0.8

44.7

ACT

16.5

5

0

0.9

22.4

NT

12.1

5

1.7

0.6

19.4

Aust

515.2

300

290.3

41.7

1147.213

Source: Department of Infrastructure, Transport, Regional Development and Local Government (2008).

Table 8.1 displays federal government funding for local roads programmes for 2006-07 whichamounted to $1.15 billion. In general total grant funds are population based with the largest
allocation of $342.6 million going to NSW and the Northern Territory receiving the smallest
allocation of $19.4 million. The exception is Queensland which received higher funding than
Victoria although its population is lower. A likely explanation for this anomaly is that
Queensland covers a much larger land mass and has the most dispersed population whichtends to increase infrastructure costs (see Chapter 11 for a discussion of this phenomenon).
The relative need of local governments for road maintenance is extremely complex anddifficult to measure. For instance, the standard at which similar roads are maintained varies
across states, and maintenance needs increase with the age of the road. The allocation of142

funding requires an ordering of competing priorities. For example, decisions need to consider
whether priority should be established according to: the standard of roads; usage andpopulation density; local economic development potential of the region; or road safety.
8.3.2 Analysis of survey results
Analysis of data collected from Local Government Social Planners indicates that councils
typically have inadequate funding for road maintenance in the form of bituminising graveland dirt roads, widening of local roads to meet increased traffic and filling potholes andclearing invasive vegetation.
Most roads in rural and remote areas are unsealed and of low quality. For instance, in rural
remote Australia, less than 10 per cent of the roads are sealed, whilst in rural agricultural
regions only 20 per cent of roads are sealed. Local governments should be frequently
regrading local roads, while users are forced tolerate fluctuations in road quality. Respondents
from rural and remote Australia also referred to the impact of dirt roads on their communities
arising from the increased air borne particle matter, which led to the increased incidence of
respiratory disease. There are options that need to be further investigated. For instance, inSouth Africa, the International Labour Organisation’s Employment Intensive Investment
Programme has developed a road seal known as the ‘ottar road seal’. This represents aneconomically viable alternative to the frequent regrading of dirt roads, and can be applied
using capital or labour intensive techniques.
Older roads, particularly on the urban fringe, were built to prevailing construction standards,
which specified narrower road widths. LGAs, such as those on the Central Coast, north of
Sydney, were former holiday destinations, but are now home to many commuters and retirees.
Much of the road (and social) infrastructure in these communities has not kept pace withpopulation growth or community needs. Indeed over 90 per cent of Social Planners surveyed
in urban fringe councils reported high levels of unmet need for road maintenance which isconsistent with the findings of the Roads to Recovery study, which highlighted that funds
were mainly devoted to the upgrading of roads in high growth areas, such as urban fringe andrural growth areas (DOTARS and ALGA, 2003).
The state of NSW receives the highest funding allocation for local roads from federal grants(see section 8.3.1), which may explain why the percentage of local governments in NSW
reporting need for additional road maintenance funding was lower than the remaining states(see Table 8.2). The lower rates of reported need for local road maintenance in NSW may also
reflect the benefits of population size and density, which allow expenditure to be relatively
low per capita ($52.32). Conversely, Western Australia which is sparsely populated andQueensland received federal funding of $81.52 and $64.90 per capita, respectively, during
2006-07, but also had the highest rates of reported need for additional funding of local roads,
especially in rural and remote areas. While these areas receive the highest funding allocations
on a per capita basis, overall funding is comparatively lower.
Similarly Victoria and South Australia received less federal grant funding than NSW, and had
higher reported need for additional road maintenance funding than NSW. On the other hand,in spite of receiving the lowest allocation of funds for local roads, reported need in Tasmania
was also comparatively low. Respondents from Tasmania were more concerned withimproving public transport systems.
Thus the principles underpinning the allocation of (rationed) funds have important
implications for infrastructure investment across space, which, in turn, is strongly correlatedwith development and economic growth. The degree to which investment coincides with need
would impact on a region’s growth trajectory.
143

Closer examination of the road component of the FAG and data collected from the National
Local Government JG Survey also confirms that need for additional assistance increases
across the Australian Classification of Local Government ACLG remoteness index. Total
funding allocations decrease with remoteness while per capita funding increases. Rural andremote Australian local governments are responsible for maintaining a large number of local
roads that span vast distances. However, these roads are low volume roads, and thus do notreceive the same traffic flows that urban roads carry. As noted, population density is one of
the main factors that is taken into account when funds are allocated to local governments.
Table 8.2 Need for additional local road funding and federal grant allocation for local roads,
2006-07 ($m)
Variables

NSW

VIC

QLD

WA

SA

TAS

Need for additional roadmaintenance funding

41.67%

50.19%

83.76%

81.56%

60.95%

33.59%

Total Federal grant
allocation 2006-07 ($m)$342.6$218.6$253.4$159.7

$99.2

$44.7

Federal grant allocation percapita, 2006-07$52.32$44.32$64.90$81.52$65.51$93.81

Population, 2006

6549170 4932420 3904548 1959093 1514328 476481

Source: Department of Infrastructure, Transport, Regional Development and Local Government (2008); ABS(2006b) Census of population and housing; Author’s own data.

Table 8.3 displays the survey results for the percentage of councils reporting need for
additional road maintenance funding by ACLG, total funding and per capita funding.
Reported need increases in tandem with remoteness despite the higher per capita funding inrural and remote areas. Ninety eight per cent of respondents from remote areas indicated there
was unmet need for road maintenance compared to 75 per cent in rural areas and only 43 percent in urban areas. Examination of the data by the Australian Classification of Local
Government and the SEIFA advantage / disadvantage index (2001) reveals an inverse
relationship, with a higher percentage of respondents in areas that have low (relatively highdisadvantage) SEIFA scores indicating a need for additional road funding. The areas with thegreatest reported need for additional road maintenance funding (remote areas) are also theleast advantaged areas according to the SEIFA index. In the more economically advantaged
urban areas (those with the highest SEIFA score) the reported need is lower.
Table 8.3 Identified roads component of the FAG for 2007-08 and need for additional roadmaintenance funding for local governments*
Variable

Urban

Rural

RemoteAverage

Need for additional road maintenancefunding

43.48%

74.63%

98.46%

61.34%

FAG roads allocations 2007-08(average)$936559$688759$545197$785012

FAG road allocations per capita$16.00$76.89$248.82$25.96

Source: Author’s own data and calculations; Department of Infrastructure, Transport, Regional Development andLocal Government (2007) Financial Assistance Grants to Local Government: Estimated entitlements; ABS(2006b) Census of population and housing; ABS (2006b) SEIFA Index of Relative Socio-Economic
Advantage/Disadvantage, Cat No. 2033.0.55.001.
*Table excludes data from the North Territory and Australian Capital Territory.
144

Research on the Roads to Recovery programme indicates that on average local governments
directly employed an additional 3 to 4 employees as a result of the programme. The precise
number of additional jobs created from funding provided under the Roads to Recovery
programme is not available since some local governments, particularly those in urban areas,used contractors to undertake the work. Researchers suggested that it was therefore possiblethat direct jobs creation was higher, lying between 4 to 5 people per local government area
(DOTARS and ALGA, 2003). The shortfall in funding for local roads is estimated at $630
million per annum (DOTARS and ALGA, 2003).
Information obtained from the National Local Government JG Survey demonstrates an urgent
need for infrastructure investment, including reparation and further construction of
infrastructure vital to ensure the continued growth and prosperity of Australian regions. The
neglect of infrastructure projects that will contribute substantially to the future prosperity of
the nation illustrates a failure in governance, which is broadly associated with the neo-liberalproject. The consequences of this are represented in increased traffic congestion, increased
commute times, transport based inequalities, energy inefficiencies and growing spatial
inequality.
8.4

Footpaths, cycle-ways, walking trails and local government

8.4.1 Overview of footpaths and cycle-ways
Mobility in Australia is primarily associated with vehicle ownership. Funds allocated to local
governments for expenditure on alternative transport infrastructure, such as footpaths andcycle-ways competes with the pool of funds available for local road investment. For instance,
funding provided by the Roads to Recovery programme can be put towards investment inbicycle and footpaths, but investment in local roads remains the priority. Only 1.6 per cent ofRoads to Recovery grants between 2004 and 2005 were spent on footpaths and cycle-ways(DOTARS, 2006c). Indeed, in-depth interviews with Local Government Social Planners
revealed that investment in footpaths and bicycle tracks was one of their major unmet needs,
which was attributable to funding constraints and the subsequent prioritisation of projects.
Investment in auxiliary transport systems has a very strong public good component andfacilitates the use of other modes of transport such as public transport. Many footpaths inurban communities are inadequate, unsafe or non-existent, and many rural communities only
have footpaths on their main street (Hensher, 2007).
Reporting about expenditure on footpath and cycle-way infrastructure is not consistent acrossstates. While local government is ultimately involved in processing project approvals, thesource of funds through which such infrastructure is created comes from a range of sources.
In some cases it is classified as ‘road expenditure’ as an ancillary service. In other cases
footpath and cycle-way projects are undertaken for local governments through schemes suchas Work for the Dole which provides funding for supervision, materials, safety equipment,
protective clothing and other project expenses. Elsewhere, developers may undertake
construction of footpaths and cycle-ways.
8.4.2 Analysis of results from the National Local Government JG Survey
Around 85 per cent of respondents from remote areas indicated a need for additional funding
for footpaths, cycle-ways and walking tracks compared to 72 per cent from rural areas and 56
per cent in urban areas. This pattern of unmet need for additional funding is similar to that for
local roads which is documented above.

145

Urban areas reported a greater need for investment in alternative transport infrastructure (56per cent) than for additional local roads funding (43). This may reflect the comparatively
better condition of urban roads and also the relative feasibility of using alternative transportsystems in areas with a relatively high population density. It is likely that this is because funds
made available for these investments come from the same or similar sources. For instance,
funds from the Roads to Recovery programme can be put towards footpaths as well as roadinfrastructure. Funds available for footpaths, cycle-ways and walking trails therefore competewith funds that would otherwise be spent on local road construction and maintenance. State
governments provide limited funding for investment in this infrastructure.

Number of jobs

Figure 8.1 Potential JG jobs for paving / surfacing labourers in surveyed LGAs

1800
1600
1400
1200
1000
800
600
400
200
0
NSW

Vic

Qld

Road maintenance

SA

WA

Tas

NT

Footpaths and Cycleways

The results of the survey indicate that there is substantial potential for employment creation
for low skilled workers in the construction and maintenance of local roads, footpaths, cycleways and walking trails. Figure 8.1 shows the potential JG positions that could be created forpaving / surface labourers in the LGAs included in the survey. The highest numbers ofpotential jobs are in the most populous states of NSW, Victoria and Queensland. As discussed
in Chapter 7, substantial differences relating to scale exist across states, possibility indicating
the link between population density, projected growth areas and road infrastructure. The scaleof potential job creation in Tasmania and the Northern Territory is indicative of the high levelof reported need.
8.5

Rail infrastructure

8.5.1 Overview
There has been a persistent lack of investment and maintenance in the rail infrastructure
resulting in the closure of rail lines, particularly in regional areas. Australia’s rail system
requires substantial outlays to bring it up to a level of efficiency that is consistent withinternational best practice. The amount of domestic freight transported in Australia has
increased by 58 per cent over the past two decades (ABS, 1997). However, much of thisfreight is conveyed by road as noted by Port Jackson Partners Limited (2005: 30): ‘30 years
ago rail held a 70% share of inter-capital freight by net tonne kilometres, with road having a
30% share, today this position is reversed.’146

It is widely recognised by local government that the shift from rail to road, which was touted
to promote flexibility and cost efficiency for transport, involved a redistribution of transport
costs across layers of government, and this cost shifting has been contentious (ALGA, 2005).
For rural and regional Australians, rail provides a means for attending medical appointments
and a travel environment that is friendly to the needs of an ageing population. For example, incomparison to bus and coach transport, rail transport provides the opportunity for motion
during transit and stations are equipped with mobility aides such as ramps. Further, concernsand doubts over public transport utilisation have proven to be unwarranted.
For example, Perth’s Joondalup rail line, which opened in 1993, exceeded its forecast usage
rate for in 2000 within only a few months of its opening. A fast and well connected public
transport system, accompanied by suitable public amenities such as ‘park and ride’ facilities,
can achieve a 50 per cent market share of transport services (Harris, 2007: 35).
Infrastructure Partnerships Australia (2007: 35) supports public transport investment, which isvital to the preservation and sustainability of our urban landscape. This includes constructionand extension of metro and light rail systems in major urban centres, and construction andexpansion of heavy rail links from major urban centres to residential growth corridors and key
infrastructure points, such as Sydney’s North West and South West areas, The Dandenongs,
Melbourne airport and the Gold Coast. Investment in fast or ‘bullet’ train technology to link
for example, Albury-Wodonga to Melbourne, has been proposed, but has not occurred.
Governments must prioritise these investments to avoid further compounding the social,environmental and economic costs of an inadequate and unsustainable transport system.
8.5.2 Analysis of survey results
Investment in rail infrastructure is beyond the scope of local government, as state or federal
governments typically undertake this investment. Survey respondents were therefore not bestplaced to assess needs in relation to rail infrastructure. While many respondents reported
additional need for rail transport, several expressed a high level of pessimism regarding the
likelihood of further rail investment within their communities.
Several respondents of the National Local Government JG Survey identified rail links asimportant community infrastructure that provided efficient transport to other locations. The
need reported was most evident in both urban developed and urban regional areas, particularly
in New South Wales and Victoria. Urban developed councils also pointed to the need forinvestment in light rail systems. Regional councils (rural agricultural) stated that rail services
should be reinstated or that rail lines should be extended to service their communities.
The precise scale of need was typically unknown as the provision of rail infrastructurenormally falls beyond the jurisdiction of local governments and, as we reported in theprevious chapter, this suggests that need was probably underreported by survey respondents.
The potential for job creation was also identified in service provision at rail stations andmaintenance of the rail tracks. These services were recognised as highly labour intensive.
Respondents were generally unable to quantify the number of jobs that could be created.
8.6

Transport services

8.6.1 Overview
Car ownership has been steadily increasing, and grew by 7 per cent between 1985 and 1995
(ABS, 1997). About 80 per cent of people travel to work or study in a private vehicle; 95 percent of these people are the driver, while only 5 percent are passengers (ABS, 2008d). The
remaining 20 per cent used either public transport (14%), walked or cycled. This trend has
147remained fairly constant over the last decade, with only a 2 percent increase in public
transport usage since 1996, which is consistent with population growth, rather than structuralchanges in the economy (Dodson, 2007).
In non-urban areas, distances travelled increased by 63 per cent between 1974 and 1993
(ABS, 2008d). Usage of rail networks has declined considerably. Public transport systems inregional and rural Australia are underdeveloped and in many local government areas nonexistent. Thus most travel by rural and regional Australians is undertaken in private vehicles.
Usage of urban heavy rail systems amounts to only one third of the usage of rail systems in
European cities with similar characteristics (IPA, 2007: 33). There is, however, considerable
scope and need for increasing light rail systems in major cities and heavy rail systems toincrease connectivity throughout rural and regional Australia. Moreover, the experience ofother OECD countries suggests that investment in such systems, that is, rail and bus public
transport, offers commuters an attractive and reliable alternative to private vehicle usage.
Transportation is not only about accessing services, it is also about enhancing the social fabricof communities and overall wellbeing of society. Effective public transport services provide
opportunities for social exchange and interaction, and these opportunities promote a sense ofcommunity and belonging amongst users. An effectively designed transport system can alsoenhance social cohesion by helping to break down negative perceptions of crime and stigma
attached to other social groups (Stanley and Stanley, 2007).
Public transport raises many issues for communities, in particular citizens’ rights to services
and the social consequences of inadequate service provision. Often significant unmet need fortransport services is reported, while existing services are underutilised. The reasons forunderutilisation are typically the high cost of services, inconvenient timetabling and routes
and inadequate marketing of the services. Further research needs to be conducted into how amore efficient and effective system of transport services can be achieved.
Transport disadvantage occurs when mobility and access to goods and services is restricted bya lack of transport options that are attributable to the geography of transport; availability; cost;and accessibility. Transport disadvantage further entrenches social disadvantage endured by
women, the elderly, the unemployed and those on low incomes. Issues with transport andaccessibility can be grouped into four categories: spatial, temporal, systemic and personal(Denmark, 2007). They may be related to distance of the transport from one’s residence, thestate of the facility (disability friendly; sheltered), cost, information dissemination, poorconnecting services, or reliability of services.
Effective transport systems are important to ensure social equity amongst communities so thataccessibility to employment, education, health services, shopping, and social activities is not
restricted. A submission to the Productivity Commission from the Public Transport Users
Association (2004) urged government at all levels to increase their commitment to alternativemodes of transport, including public transport systems. The submission reported that
Australia’s public transport infrastructure had suffered institutional neglect and persistentunder funding at the federal level. Remediation requires provision of accessible, reliable andefficient transport amenities.
8.6.2 Urban transport challenges
Transport systems play a major role in the socio-economic opportunities that people are able
to access, and this acknowledgement has penetrated into the strategic development plans ofmetropolitan centres, such as the Melbourne 2030 strategy, the City of Cities strategy from
Sydney and the South East Queensland Regional Plan. However, the extent to which these148strategies will be able to affect transport disadvantage has been questioned (Dodson, 2007).
Many of the strategies note the problem, but have not produced detailed plans outlining the
local scale of service provision. In the case of Sydney, the determinants of service quality andcoverage are to involve negotiations with private providers and the Ministry of Transport.
Dodson (2007: 11.7) notes that: ‘leaving service planning to private operators, who over the
past 60 years have failed to reduce transport disadvantage in the areas of Sydney that they
serve, is unlikely to achieve the goals of integrated transport and metropolitan planning.’
Prior to 1990, most urban public transport services were provided by the government or
subject to government fare regulations (PC, 2002b). However, major reforms of public
transport have occurred over the last two decades which has led to increasing privatisation or
corporatisation of public services, increased competition amongst service providers throughthe use of competitive tendering and a reduction of government subsidies so that prices moreaccurately reflected the cost of delivering services. For instance, the Victorian public transport
reform programme of 1993 led to a reduction in funding for public transport of $245 million
per year and an increase in fares of 10 per cent (Auditor-General of Victoria 1998, cited inPC, 2002b). Since then further reforms have taken place in Victoria, including theprivatisation of the Melbourne train and tram line in August 1999.
The issue of urban congestion and the need to engage in strategies to promote ecologicalsustainability represents an increasingly urgent challenge. In 1945, 50 per cent of urban
journeys were by rail compared to only 4 per cent currently (BCA, 2005). Urban congestion
has been estimated to cost in the vicinity of 2 per cent of GDP or $16 billion per annum(Cosgrove, 2000). Moreover, these costs are predicted to rise to $30 billion by 2015, unlessthere is major structural change. It will take considerable political will, capital and social
investment, and public education campaigns to induce a behavioural shift in the Australian
population to enable a more sustainable system of transportation within our society.
In urban areas, where incomes are generally higher, it is important that public transport
services remain attractive and represent a feasible alternative to private vehicle transport. Thisrequires services that are timely, conveniently located and timetabled, clean, safe andinexpensive. Local Government Social Planners who participated in the survey reported thatin many cases communities still experienced a dependence on private vehicles to travel towork and that public transport was too expensive (comparatively) to induce behaviouralchange. Indeed, figures from the ABS confirm that little has changed in public transport usage
over the last 10 years.
Further evidence of this problem is found in the Wyong shire community plan (UFV-urban
fringe very large). The plan noted that, ‘transport routes were often indirect and services arealmost non-existent at night and on weekends, especially in the outlying rural areas’ (Wyong
Shire, 2002: 196). Community members reported needing to change buses many times andthat journeys by bus would take up to 3 times as long as comparable travel by car. The report
also argues that transport services are urgently needed in the more remote and less populatedparts of the shire. Yet privately operated public transport systems in these areas have often notproven profitable. Moreover, some government concessions do not extend to these private
providers, leaving people 16 years and over paying full fares for transport. This same problem
has been noted by many urban LGAs. The Auburn Council (UDM–urban development
medium) reports concern regarding reliance upon private bus services and the quality and costof the service (Auburn Council, 2005).
The role of local government has been reduced to lobbying for improvements in theirtransport networks and / or acting as a facilitator of development. Wyong Shire stated in their149

community plan that they aim to enhance transport within their community by encouraging
private bus companies to extend trial services to regular bus routes (Wyong Shire, 2002: 199).
Transport safety is also a significant issue, particularly for young people in urban areas, and atdestinations such as universities and shopping centres. One survey respondent from a
metropolitan area commented that transport safety was a significant issue for females,
especially ethnic females, with reports of verbal harassment, and also physical and sexual
abuse. Increased staffing of transport hubs was needed and also the installation of lighting andclearing of bushland to decrease this problem. The actual and / or perceived lack of safety of
public transport in urban areas leads to underutilisation and a stigma associated with its use.
Moreover, the issue of safety extends beyond the actual public transport services, to the carparks and local streets that people must also use. For instance, the Burwood social plan(UDM) (2004: 58) notes that ‘virtually all discussion group respondents commented that theywould not go out alone at night in the Burwood local government area and would not feel safeon public transport at night.’
8.6.3 Rural and regional transport challenges
With low population density and associated social isolation, Australia has very high car
ownership but relatively low costs are associated with private transport (Nutley, 2003: 68).
Often higher levels of car ownership in rural areas reflect necessity rather than prosperity.
Many transport problems in rural areas are aggravated by single vehicle ownership inhouseholds. The Bega Valley Social Plan (URM-urban regional medium) (2006: 49) notesthat:
The public transport needs of the community are affected by the relative remoteness ofsome areas, access to existing infrastructure and the particular needs of different
groups within the community. For example households with only one car arecommonly reported as experiencing problems when the sole vehicle is used totransport one person to work. This exacerbates the isolation felt for families with smallchildren. For families with older children it can mean that young people are not able toaccess the family car to travel to training, work, education or recreational activities.
In rural and regional areas there is almost a complete absence of public transport services
outside of town centres. For example, the Bellingen Shire social plan (RAV-rural agriculturalvery large) (2004: 21) noted that ‘lack of adequate public transport remains one of the biggest
issues for the Bellingen Shire, as it is for the rural North Coast of NSW.’ Likewise, theBallina Shire (URM) (2004: 1) observed that:
Many families and individuals who don’t have access to private transport findaccessing medical, financial and recreational services very difficult. The limited public
transport options and the associated costs of using the system were identified as beinga significant impediment for some in fully engaging the community of Ballina Shire.
The availability of services on weekends and after hours is also extremely limited in regional /rural areas of Australia. The Queensland Sarina Shire local government (RAL) undertook atransport needs assessment of their community. The main problem identified related toadequacy of transport provision on the weekend and after hours.
Rural areas also feature problems of adequate transport systems allowing travel between local
government areas, to other employment centres. The Sarina Shire also noted the problem ofservices that connect satellite towns within the local government area to the major economic
centre of the area. This issue was also raised by many who participated in the National Local
Government JG Survey, and it seems that these issues are consistent with unmet needs across150Australian communities. There are generally bus services that travel inter-city routes, but theyvary in frequency and quality. Users of these services mainly come from low-income
households, and are also commonly elderly or young people (Nutley, 2003: 58). Moreover,the costs associated with transport in rural and remote communities can be prohibitive,
especially when one is required to access major metropolitan centres.
Youth are particularly disadvantaged by limited provision of transport services. Travel byprivate vehicle is often infeasible for this low income group. They may have to rely on public
transport for commuting, attendance at appointments with Job Network agencies, orinterviews with potential employers. Problems with the availability and timing of services canbe acute in certain industries, such as hospitality and trades, which have non-standard work
hours. The option of revising the timetable to cater for these unmet travel needs deprives
others of access to public transport for work and school. Some young people are forced toresort to private transport but a public safety issue then emerges, because people under 25
have higher rates of involvement in road accidents and drink driving than those over 25.
The lack of transport services available in remote communities, including indigenous
communities, also creates problems associated with drink driving and other unsafe driving
practices. Of additional concern is that many roads in remote and rural Australia are unsealed
and of low quality.
Survey respondents reported that in several cases apprentices had resorted to hitchhiking, only
to find that the reliability of this transport mode did not allow them to arrive at theirworkplaces or return home in a timely manner, nor was it a safe mode of transport.
Apprentices often abandoned their apprenticeship after a short time due to these difficulties,
which weakened their long term attachment to the labour market. In this case, provision of
additional transport services is the only feasible solution but local councils faced funding
constraints when considering additional services.
Rural communities have the added challenge of potential loss of both bus and rail public
transport services. For instance, the community of Byron Bay (URM) along on the Northern
NSW coastline lost their train service in 2004. This has led to increased hitchhiking
throughout the community (Byron Bay, 2004: 9). In addition, the community transport service
has had to close its books to new referrals due to capacity limitations.
For economies in decline, such as former textile and manufacturing communities, the lack ofpublic transport represents a significant issue. These individuals face the choice of either
relocating to a growth area, which may entail higher living costs, particularly for housing, or
enduring a transport environment that requires commuting with private transport. Indeed rural
Australians endure comparatively lower incomes, poorer housing, and poorer access tofacilities than their urban counterparts (Sorensen and Epps, 1993).
The literature often explains that public transport is limited in rural areas due to a low
customer base and low population density, which creates problems for the viability ofservices. However, these transport problems extend to urban regional centres, such as thecoastline of northern New South Wales, where the population density and customer basewarrants additional transport provision. This suggests that the problem of public transport
provision is not a simple rationalisation of services, but rather reflects a transformation in therole of the state, to one that privileges private provision and withdrawal of the government
from core services (Cook, 2006).

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8.6.4 Analysis of survey results for transport services
Table 8.4 details the major needs identified by Local Government Social Planners. For many
communities lack of regular public transport was a serious impediment to social andeconomic participation. Respondents emphasised the need for transport that was flexible
enough to accommodate community needs. Several respondents from rural areas noted thatmajor services were often located in larger towns which necessitated overnight stays for those
without private transport. Employment opportunities that could be generated by an expansionof transport services included drivers, clerical workers and personal care assistants.
Table 8.4 Areas of need for transport services
Transport

Examples of areas of need

Potential jobs for low/unskilledworkers

Transport services

Dial-a-ride community transport

Drivers

Increase inter-city service
frequency

General clerks
Personal care assistantFlexible community transport

160

800

140

700

120

600

100

500

80

400

60

300

40

200

20

100

No. of Jobs in Driving

No. of jobs in Administration and Care

Figure 8.2 Potential for job creation for low/unskilled workers in transportation services, asreported by Local Government Social Planners

00Revision and expansion of
public transport systems toincrease connectivity

Provision/expansion offlexible community
transport services

Provision of a community Increase frequency of intertaxi service/ dial-a-ridecity transport services
community transport

General Clerk

Personal Care

DriverRespondents identified transport needs, particularly for the elderly, under 4 categories, which
are outlined in Figure 8.2. Potential employment opportunities are associated with increased
frequency of public transport services, flexible community transport, community taxi services
and dial-a-ride community transport. These services largely involve the transportation ofelderly people to / from medical appointments, to shops or community centres. The transport152

needs of elderly people are reported in Chapter 9. In many local government areas acrossAustralia these essential services are undertaken by volunteer workers, with little or no
remuneration provided.
The greatest number of jobs that could be generated for drivers of different types of vehicle,
including cars to buses. A substantial number of positions would also be available for
personal carers to accompany the aged and disabled to ensure that they could maintain an
independent lifestyle and delay the necessity to enter care facilities. A smaller number of jobs
would be generated for clerical personnel.
8.7Conclusion

This chapter has considered unmet need for transport infrastructure investment, focusing on
local roads, footpaths, cycle-ways and walking tracks, and transport services. Data from the
National Local Government JG Survey and other data sources were analysed.
Unmet need for investment in construction and maintenance of local roads reported by Social
Planners indicated that there was greater need in the states with the smallest populations (withthe exception of Tasmania), despite the higher per capita expenditure in these states. There
were considerable spatial disparities in the proportion of respondents reporting need forincreased investment in roads, footpaths, cycleways and walking trails. Reported need washigher for rural and remote LGAs than for their urban counterparts and reflected disadvantage
as measured by the SEIFA index.
Substantial needs for enhanced public transport systems were identified by respondents. Many
respondents also indicated that there was a need to invest in rail services, either to restore
services that have been decommissioned or to extend existing train services. Several
respondents identified deficiencies in public transport that deterred usage. In particular, busroutes operated by private bus companies were difficult to use due to poor route planning,inadequate connections with other services and problems associated with scheduling. In manyrural and remote areas public transport was not viable for travelling to work, medical
appointments or social activities. Respondents from rural and remote areas frequently
reported that there were no public transport services in the local area with the exception ofschool buses. In order to enhance the capacity of residents to participate fully in economic andsocial activities Social Planners identified a need to substantially increase public transport
coverage and service frequency as well as extending community transport by introducing dial
and ride services. Flexible community transport was viewed as essential for residents withmobility restrictions due to age or disabilities.
Additional investment in transport infrastructure and services has the potential to enhance
individual wellbeing and create socially meaningful work opportunities for the unemployed
and underemployed. Jobs that could be created include construction workers, drivers, clerical
workers and personal carers.
Potential strategies to reduce energy consumption and greenhouse gas emissions have been
the focus of considerable research during recent years, as reflected in drafts for the
Sustainable Energy Policy and the National Greenhouse Strategy. Reductions in the numberof journeys by private motor vehicles would also have significant environmental benefits,
reduce congestion in major urban areas, and the financial cost of transport for low income
groups. A substantial investment in rail, road and public transport systems is required to meetthe immediate needs of local communities and to contribute to their long term sustainability.

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9
9.1

Community welfare services

Introduction

This chapter will investigate the extent of unmet need for community welfare services
associated with housing and accommodation services, and services for the elderly. This
chapter is in part framed by deficiencies identified by Local Government Social Planners,
with whom a qualitative survey was completed (see Chapter 7). The respondents were asked
to identify areas of unmet need that could be addressed by the provision of low-skill workers.
The chapter is split into two sections: i) housing and accommodation services and ii) services
for the elderly. Following an overview of the important issues in each of these areas, datacollected from the survey will be compared with data from other sources, including reports
from government departments, the Australian Bureau of Statistics (Census, National
Accounts) and evaluations from researchers, to assess more accurately the adequacy of
current service provision. Each section will conclude by considering the potential to address
unmet needs while providing meaningful employment for the unemployed. We shall not
address other important social needs notably the provision of childcare services, respite
services, education support services, and visitation services.
9.2

Housing and accommodation

9.2.1 Overview
Affordable housing is a prerequisite for full participation in economic and social life. Since
the 1990s, affordable housing in Australia for households in the bottom two income quintiles
has been defined as housing costs not exceeding 30 per cent of income. Those households
paying more than 30 per cent of their income are considered to be subject to housing stress(Harding, Phillips and Kelly, 2004). This is an arbitrary measure that has been criticised
because it ignores the actual impact of housing costs on living standards and distortions due todifferences in household size and type (Seelig and Phibbs, 2006).
Research has confirmed that poor housing and poor or inaccessible services / infrastructure
are closely associated with limited social opportunity. Indeed, the analysis that follows reveals
that areas with high levels of need for public housing, crisis accommodation and housing
brokerage services are also those communities that are comparatively disadvantaged and often
experiencing higher rates of violence. While research has traditionally focused on
disadvantage located in public housing estates, these tendencies transcend both public andprivate housing. Randolph and Holloway (2005: 174) explain that:
The creation and maintenance of concentrations of disadvantage in private housing isjust as much an outcome of the way the private market allocates those with leastchoice to the least desired locations, as the concentration of disadvantage on public
housing estates is the outcome of increasingly targeted allocation and eligibility
criteria among public landlords.
Arthurson and Jacobs (2008) found that the affordability and secure tenure of social housing
assisted tenants to obtain and maintain employment which contributed to reduced social

154

exclusion. Expansion of social and public housing would assist in addressing the housing
affordability crisis. Beer, Kearins and Pieters (2007) note that the debate on housing
affordability is significantly affected by tensions associated with land containment policies
and ecologically sustainable development. As a result, the debate focuses on planningresponses rather than policy that would lead to an increase in the affordable housing stock.
The lack of affordable housing and accommodation options was viewed by 87 per cent ofrespondents to our survey as a major social issue within their communities. The majority of
those who did not mention affordable housing as an unmet social need were from rural local
government areas. Respondents claimed that investment in state housing, as well as by private
developers, would help to address the affordability crisis, but expressed considerable doubt
whether this would eventuate. However, it was noted that affordable housing constructed for
private ownership was often inaccessible to low income families, and also not taken up by
local residents. For instance, respondents from mining communities throughout Australia
reported that affordable accommodation was provided for the transient population that workwithin the mining industry, rather than local residents experiencing accommodation stress.
The tight housing market had impacted negatively on the welfare of lower income groups.
Respondents in growth areas reported that investment in public housing had not been in linewith projected residential growth.
Data was collected from a small number of local governments in indigenous communities.
However, the issues that emerged from the analysis were vastly different from those that
presented in other local government areas, and comparative data sets on unemployment andsocial indexing of these communities are not reliable. For the purposes of this report, this data
has been excluded. Analysis of data collected on the specialised accommodation needs of theelderly and those with disabilities is also beyond the scope of this report.
The need for crisis accommodation services and housing brokerage services was also noted in
the survey responses. Many of the issues relating to housing affordability were attributed togovernment policy and residualisation of the supply of state accommodation options. As thisanalysis reveals, an inadequate stock of affordable housing can have a cumulative effect on
the social welfare of the most vulnerable. Thus this crisis, which has penetrated the majority
of communities throughout Australia, also requires expansion of social services to address its
adverse consequences.
The following section provides a summary of the current extent of affordability byconsidering both the rental and home ownership markets. The results of the survey with Local
Government Social Planners are reported in the next section and contribute to anunderstanding of the social issues that communities are facing as a consequence of the
housing affordability crisis. The need for the expansion of social housing, crisis
accommodation services and housing brokerage services is considered across the AustralianClassification of Local Governments remoteness index.
9.2.2 Trends in housing affordability and housing policy
Affordability issues are evident in both the rental and home ownership markets. The rate ofhome ownership in Australia has been fairly stable at around 70 per cent since the mid 1960s.
There are however major concerns that it will decline in future as low income earners are
priced out of the market (Beer, Kearins and Pieters, 2007). The Productivity Commission
report First Home Ownership found several adverse demand side impacts which havecontributed to the rapid growth of house prices (PC, 2004). In relation to owner-occupiers, themajor factors were the availability of finance, lower interest rates, the injection of $4.3 billion
over three and a half years through the First Home Owners Scheme, growth in real incomes,

155

population growth and smaller households. Investment in housing has doubled in the past
decade, reaching 17 per cent of the housing stock and 40 per cent of new housing loans. This
trend was primarily driven by negative gearing, changes in the capital gains tax in 1999 andthe decline in the share market from 2000 to 2003 (PC, 2004).
Figure 9.1 HIA affordability index 1985-2006
190

31

180

29

170

160

Affordability

25
150
23
140
21
130

Repayments (% income)

27

19
120
17

110

100
Mar1985

Mar1988

Mar1991

Mar1994
Affordability index

Mar1997

Mar2000

Mar2003

15
Mar2006

Repayment to income

Source: HIA First Home Buyer Affordability Index (HIA Economics Group, 2007)

Figure 9.1 shows that the housing affordability index for first home buyers has declined
dramatically since the early 1980s reflecting the rise in the proportion of income required toservice a mortgage (from 19.3 per cent in 1985 to 26.4 in 2006).
In the private rental market, which accommodates about 20 per cent of Australian households,
there is also widespread evidence of housing stress which has increased over time (Beer,
Kearins and Pieters, 2007). Mowbray (2006) explains rising rental housing stress by reference
to market failure, including the concentration of new investment at the top of the rental
market, longer duration of renting due to falling housing affordability, and a fall in low costprivate rental stock due to increased property management fees and higher maintenance costs.
The number of Commonwealth Rent Assistance (CRA) recipients increased from 480,000 in1984 to 941,306 in 2006 (SCRGSP, 2007) while Commonwealth assistance to state
governments for public housing under the Commonwealth State Housing Agreement (CSHA)
has declined over time in real terms. Figure 9.2 shows that between 1995-96 and 2004-05
total real expenditure declined by almost 11 per cent with CSHA expenditure declining by 30
per cent while CRA expenditure increased less than 8 per cent.
Social housing waiting lists seriously underestimate demand for social housing due to strict
eligibility criteria in most states. Also many eligible people are not on a waiting list forreasons including lack of local public housing and perceptions of futility due to long waiting
lists (IC, 1993). Respondents to our survey also noted that many members of their community
viewed public housing to be inaccessible, so that preparing an application was futile.

156

Figure 9.2 Real CSHA and CRA expenditure 1995-96 to 2004-05 (2004-05 dollars)
2 500.0

3 900.0

3 800.0

3 700.0

2 000.0

1 500.0

3 500.0

3 400.0

1 000.0

3 300.0

Total Expenditure Millions $.

CSHA/CRA Millions $.

3 600.0

3 200.0500.0

3 100.0

3 000.0–

2 900.0
1995-96

1996-97

1997-98

1998-99

1999-2000

CSHA Assistance

2000-01

2001-02

CRA

2002-03

2003-04

2004-05

Total Expenditure

Source: Review of Government Service Provision (SCRGSP, 2006)

Wait times for people on public housing lists vary with severity of need, but reports of wait
times lasting between 2 and 10 years would be seen as an unacceptable period of time to beexperiencing housing stress. For example, in 2005 there were 385,440 social housing
dwellings in Australia and an additional 252,463 households were waiting for social housing(SCRGSP, 2006). Sufficient provision of social housing by government is most importantbecause it can have a major impact on housing affordability with rents being set at a
maximum of 25 to 30 per cent of income. In 2004-05, 94.8 per cent of tenants paid less than
30 per cent of their incomes in rent.
In contrast to social housing, rents for CRA recipients are determined by the market. The
average rent assistance for the 941,319 CRA recipients in 2006 was $82.50 per fortnight,
while average rent payments were $303.90 per fortnight (ABS, 2007b). This means that CRA
provided an average subsidy of only 27 per cent of the average rent. The ineffectiveness of
CRA in delivering affordable housing is highlighted by the fact that one-third of recipientsremained in housing stress after receiving rent assistance (SCRGSP, 2006). Residualisation ofsocial housing has become entrenched through increased tightening of targeting mechanisms.
Now, a high proportion of social housing is only available to people with complex needs. The
increased reliance on CRA for financial support by those outside the labour market has
resulted in reduced access to affordable housing.
9.2.3 Analysis of survey results
Need for Social Housing
Public housing stocks have declined due to both a lack of new construction or acquisitions
and the sale of existing stock. Some respondents reported that all public housing stocks within
their local government area had been sold. The significant social consequences of the reduced
availability of public housing are exemplified in the research findings of Burwood Social Plan
(2004: 56), which concluded that:
There is a long waiting list for priority public housing, with more service providers
stating that many women involved in protracted family law disputes are forced into
the private rental market and subsequently face bankruptcy proceedings in order toobtain public housing.
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As noted, 87 per cent of respondents noted that housing affordability was an issue in their
LGA and also 77 per cent reported that expansion of public housing was needed. Ninety one
per cent of Queensland respondents reported the need for expansion of public housing,whereas just 68.1 per cent of Western Australian respondents identified this need.
Examination of the data by the Australian Classification of Local Government, a regionalclassification that considers remoteness from services and opportunity for social interaction,and the SEIFA advantage / disadvantage index (2001) reveals an inverse relationship, with ahigher percentage of respondents in areas that have low (relatively high disadvantage) SEIFA
scores indicating a need for additional public housing, as would be expected.
While most respondents reported the need for investment in public housing, they stated thatthe scale of need was unknown and were not able to offer any further information. This is due
to inadequate data, which, in part, reflects the characteristics of those experiencing housing
precariousness. For instance, the Byron Shire Council Social Plan (2004: 52) notes that:
There have been an increasing number of reports of homeless women and children
with strong connection to the shire. These are women who are not necessarily visible
as being homeless as they are moving around – staying with friends one week, in a
caravan park another week, at times sleeping in their cars.
Many respondents commented that public housing was needed, and also that an adequate
maintenance programme should also accompany this investment. Respondents commented
that many public housing estates remained in a poor state of repair, and this contributed to thestigma that public housing tenants face. In communities that did have a greater public housing
stock, respondents reported that due to the stringent eligibility requirement, highly
disadvantaged individuals and families had been attracted into their community.
Local government is often a first point of contact for communities, so when federal and state
governments withdraw from provision of adequate and affordable public housing, local
government and / or community groups are expected to plug these gaps. Some local
governments, particularly those in rural areas, continue to ease the shortfall in public housing
by providing residents with a small amount of social housing. However, the rate base of andfunding for local government is not adequate to address these needs. Only the federal
government has the fiscal capacity to adequately meet the public housing needs of Australia’s
population.
Public housing was not only needed by local residents suffering housing stress, it was alsoneeded, especially in rural agricultural and rural remote areas, to attract skilled or seasonal
workers.
Need for Crisis Accommodation
Crisis accommodation is sought for a number of reasons including eviction, usual
accommodation being unavailable, relationship or family breakdown, including domestic
violence, and financial difficulty. Forty four per cent of respondents reported the need for
additional crisis accommodation facilities within their LGA, and noted that demand forservices / facilities far outweighed the supply. Investment in additional crisis accommodation
facilities for those involved in domestic violence was the most frequently cited need; this wasfollowed by refuges for homeless men and homeless youth.
The government currently provides crisis accommodation through two main programmes.
The first is the Crisis Accommodation Program (CAP). CAP commenced as part of theCommonwealth State Housing Agreement (CSHA) in 1985 to assist people who were
homeless or at risk of becoming homeless. Under CAP the Commonwealth provides funds toacquire, construct or upgrade buildings that are used by local governments and various
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community groups to provide emergency accommodation under the Supported
Accommodation Assistance Program (SAAP). SAAP is jointly funded by the Commonwealthand State governments (AIHW, 2007). The objectives of SAAP have evolved over time, fromthe simple provision of accommodation to include a range of support services to assist clientsachieve independence and return to the community. The objective of the current SAAP
agreement that runs from 2005 to 2010 is to focus on prevention and early intervention (NSW
Department of Community Services, 2007).
In 2004-05 there were 1,294 providers who assisted 100,400 SAAP clients (AIHW, 2006).
There is evidence that agencies are operating at capacity in the presence of unmet need since
56 per cent of applicants were turned away. Program evaluations have found that SAAP’s
effectiveness is constrained by the lack of affordable and appropriate housing and ‘the impactof high rates of unemployment and poverty, and the diversity of problems faced by SAAP
clients including mental health and domestic violence’ (Erebus Consulting Partners, 2004: 5).
Despite the demarcation between social housing and crisis accommodation, many people
move between the two. A review of the use of SAAP services in Victoria between 2002 and2004 found that 8 per cent obtained public tenancy during SAAP support. Of those who
moved into public housing 25 per cent needed SAAP support again and 20 per cent had
moved out of public housing before the end of the following financial year (Kelly, 2006).
Similarly, those in public housing prior to accessing SAAP services used 11 per cent of SAAP
support periods, primarily due to financial difficulty and domestic violence. Of public tenants
using SAAP services 40 per cent were single women with children.
Kelly (2006) found that single people under 25 years and Indigenous Australians were themost likely to be repeat service users. The early intervention Reconnect program began in1999 to provide various forms of support to reduce homelessness among youth aged 12 to 18.
Reconnect provides a range of services to improve outcomes relating to family andcommunity relationships, and employment, education and training outcomes (Erebus
Consulting Partners, 2004).
A higher percentage of survey respondents from local governments outside metropolitan areas
reported much higher rates of need for domestic violence refuge facilities (28 per cent), thantheir counterparts in urban developed areas (8 per cent). Many respondents from nonmetropolitan areas reported the absence of any emergency accommodation facilities, whichmeant that those seeking refuge were faced with the additional challenge of leaving their local
area. The absence of such services can disrupt daily life, employment, education, community
interaction, and interaction with family and social networks. For instance, whenaccommodation services are made available to youth at risk of homelessness they maintainstronger links with education and the community (NSW Department of Community Services,
2007). Similarly, high levels of mobility for school aged children disrupt education, theformation of lasting friendships and participation in sport and other activities in thecommunity (Erebus Consulting Partners, 2004). The United Nations (2007: 13) concludes thata ‘transitory and insecure life leads to numerous forms of other disadvantage, including social
isolation, poor mental health, increased exposure to crime, greater vulnerability to being a
victim of crime, lack of employment opportunities, and persistent stigmatization anddiscrimination.’
Respondents revealed that even when emergency accommodation was available within theirlocal communities, it was only provided for certain social groups. In several cases, it was
revealed that in spite of documented need, political decisions had undermined thesustainability of some refuge services, particularly those for youth. In isolated cases

159respondents reported that residents had mobilised to block refuge facilities opening in theirneighbourhoods.
The need for investment in crisis accommodation services was not closely related to trends
evident in either unemployment or other social indexes, but the responses are indicative of
homelessness and broader social processes. For example, the need for (additional) youth
refuge accommodation was reported by 17 per cent of respondents in urban developed areasand 18 per cent in rural agricultural areas. The latter is most likely associated with theresidualisation of social services to these communities. On the other hand, urban developed
areas have become the destinations for homeless people, which may provide some
explanation of the survey results. The Youth Needs Audit of Penrith City Council (2002: 18)
provides an illustration of this:Refuges in Emu Plains and Penrith are often full, with young people having to go to
the city for emergency accommodation or organise to stay at a friend’s house. Youngpeople believe that this could be improved by providing more crisis and long-term
accommodation services in Penrith.
About 42 per cent of medium sized urban regional local governments, particularly those along
the NSW coastline reported unmet demand for accommodation to cater for homeless men (asdid 35.7 per cent of local governments in urban fringe areas). Analysis from Erebus
Consulting Partners (2004) found that single men accounted for almost one-third of thoseseeking support in 2002-03.
The need for domestic violence refuges, as reported by respondents was far higher in theurban fringe (33.1 per cent), urban regional (26 per cent) and rural agricultural (25.7 per cent)than in urban developed areas (8.8 percent). Data from the NSW Bureau of Crime Statistics
and Research (2007) on reported rates of domestic violence confirm this spatial trend.
Respondents suggested that there was great potential for expansion of collective housing,which provides post-crisis accommodation for vulnerable groups. Indeed, research has shownthat this housing model has proven to be somewhat beneficial to tenants, as it provides a
space for the development of household management and communication skills (Ziersch &Arthurson, 2005). Respondents reported that the needs of those people seeking refuge werecomplex and varied across each individual case. A range of social support, childcare andsubstance abuse services were needed for people using crisis accommodation facilities.
Previous studies have found that at least 30 per cent of people who access these services
required ongoing assistance with mental health issues (Erebus Consulting Partners, 2004).
Need for Brokerage services
The crisis of housing affordability, and the deficient stock of state accommodation, in turn put
significant pressure on emergency relief services. People increasingly seek the assistance ofsocial services to identify appropriate accommodation options. Not surprisingly, these
services are struggling to address the demands of their growing client pool, largely because of
the supply constraints on affordable accommodation. Survey respondents most commonly
reported deficiencies in brokerage and referral services for those seeking temporary or
medium term accommodation and they sought additional administrative support for these
services. Brokerage services assist in locating affordable accommodation, preparing rental
applications and locating furnishings, while also providing visitation services and mentoring.
These services assist those in crisis to maintain connections to community and institutions
that they need to access, while also minimising the disruption that housing precariousness
entails. These services are especially important because the lack of availability of affordable
housing options and reduced access to public housing stocks creates conditions where160discrimination may flourish against individuals and families facing crises and housing
precariousness. This was a particular issue for metropolitan areas. The Ashfield Social Plan
(Municipality of Ashfield, 2001: 69) exemplifies this point:
Young women with children, whose partners have left, not only find the cost of
housing too expensive but also face discrimination from real estate agents andlandlords in obtaining appropriate private rental accommodation. Because of the
scarcity of public housing these groups are forced into paying a disproportionate
amount of their incomes in accommodation costs.
Respondents in urban fringe and developed areas surrounding the capital cities were most
likely to report deficiencies with respect to brokerage services. This undoubtedly reflects thedramatic increases in housing prices over the last decade. For instance, 20 per cent ofrespondents from urban developed areas reported need for additional brokerage services. One
respondent reported that within the local government area there were 3 staff available toprovide accommodation brokerage services for 1200 homeless people. Medium to very large
rural agricultural areas also reported complete or near absence of brokerage services tosupport members of their communities during times of accommodation crisis. There is a weak
inverse relationship between the percentage of respondents in each state identifying unmet
need for brokerage services and the corresponding average state SEIFA score for 2001.
In tight rental markets, such as those in the mining areas in Western Australia andQueensland, the scarcity of affordable rental or post-crisis accommodation is evident in thewaiting periods faced by people seeking to move out of crisis-accommodation. Respondents
reported that at times these exceeded 6 months. The absence of options for people inaccommodation crisis has led to welfare support workers placing people in caravan parks as a
medium term solution.
9.3

Services for the Elderly

9.3.1 Overview
Australia has an ageing population and systems to cater for the needs of our evolving
demography are needed urgently. Policy solutions must move beyond consideration of
aggregate totals and allocations, and come to grips with the realities facing the ageing
population and their families (Courtney, Minichiello and Waite, 1997).
Demographic change has resulted in a greater proportion of the elderly living alone or withoutfamilial support. This means that there will be a growing need for aged care services,
particularly those to assist the elderly to remain in the community. Figure 9.3 shows the age
distribution of the Australian population, which is expected to age significantly over the next
half century as ‘baby boomers’ reach retirement age. The share of the population aged 65 isprojected to increase from 13 per cent in 2004 to between 26 and 28 per cent in 2051, while
those aged 85 or older will increase from 1.5 to between 7 and 10 per cent (ABS, 2006a).
The Productivity Commission (2005) examined demographic change at a regional level
between 1981 and 2001 and found there was a rising proportion of people over 65 in coastal
and inland urban areas due to both inward migration of older people and outward migration ofyounger people to inland rural areas. In contrast, the average population age fell in
metropolitan and remote areas.

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Figure 9.3 Age profile of the Australia population in 2006
100 and over
95–99
90–94
85–89
80–84
75–79
70–74
65–69
60–64
55–59
50–54
45–49
40–44
35–39
30–34
25–29
20–24
15–19
10–14
5–9
0–4
1000000

800000600000400000200000Male

02000004000006000008000001000000

FemaleSource: ABS (2006a)

Aged care services have high social value, because by assisting people to maintainindependent living brings dignity and maintains their access to social networks and enhances
social cohesion. Also, provision of respite care, provides primary carers with necessary relief
from caring responsibilities. Services supporting the maintenance of independent living areless expensive than the provision of residential accommodation. However, many of these
services have stringent eligibility criteria, long waiting lists, are inappropriately funded or
operate only with assistance of volunteers, who receive little or no remuneration for theirvaluable contribution (NSW Auditor-General, 2004). Also there is currently a volunteer crisis.
9.3.2 Residential and community aged care services
Aged care services can be divided into residential and community care. Residential aged carefacilities are subsidised by the Commonwealth Government and are provided by a range ofprivate and public sector organisations. In 2004-2005, 194,000 people received residential
care (Department of Health and Ageing, 2006). Implementation of the Aged Care Reform
Strategy 1985 produced a change in the balance between residential and community care inAustralia which ‘reflects a commitment to provide flexible, responsive services, including
services for people who would prefer to receive care in their own homes’ (Gray, Crofts and
Healy, 2001: 35). Residential care accounted for 76 per cent of Australian government
expenditure on aged care in 2004-05, but funding increased by only $17 million compared to
an increase of $189 million for community care (Department of Health and Ageing, 2006).
Three major community care programmes provide support to the frail elderly to remain at
home: Home and Community Care (HACC), Community Aged Care Packages (CACP), andExtended Aged Care at Home (EACH). HACC provides frail elderly and younger people withdisabilities with assistance, including nursing and allied health care, meals, domestic
assistance, personal care, home modifications and maintenance, and transport.

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The HACC programme is jointly funded by state and federal governments. It is administeredunder the Home and Community Care Act 1985 and the HACC Amending Agreement, 1999.
CACP and EACH are funded by the Australian government and have grown significantly inthe past decade, expanding from approximately 4,500 clients in 1995 to over 32,000 by 2005.
Both programmes provide an integrated package of services to the frail aged to enable them toremain at home but EACH is restricted to those assessed as requiring assistance equivalent tohigh level residential care and includes nursing care.
In addition to the effects of population ageing, growth in the demand for community care isdriven by the preferences of older people to remain at home and the availability of informal
support provided by relatives and friends. In 2003, of the Australian population needing
assistance with daily activities such as mobility, showering, meal preparation and housework,
79 per cent received assistance from family and friends while 53 per cent were assisted
through formal community care (ABS, 2003).
The direct relationship between age and need is reflected in usage of HACC and CACP
services. In 2004-05, 50.2 per cent of those aged 85 and over used HACC services compared
to 13 per cent of 70-74 year olds (Senate Community Affairs References Committee, 2005).
Similarly, 36 per cent of CACP recipients were aged over 85 years in 2001 (AIHW, 2002).
The ABS survey on Disability, Ageing and Carers (2003) found that 41 per cent of people
aged over 60 years required assistance with health conditions or daily activities, due todisability or age, but the rate increased from 26 per cent for those aged 60-69, to 84 per centfor those aged 85 years or older. Assistance was required with property maintenance, healthcare, transport, housework, mobility and self care (ABS, 2003). Approximately half of the
170,000 dementia sufferers in 2005 were residing in the community. Since the number ofpeople with dementia is expected to climb to 730,000 by 2050 there will be a need for
additional residential and community care places (Productivity Commission, 2005).
Informal care has played a crucial role in meeting current care needs. The ABS (2003)
Disability, Ageing and Carers survey found that of 2.45 million carers in Australia in 2003,
approximately 475,000 were primary carers, who provide most of the informal assistance, inthe form of help or supervision, to a person with one or more disabilities. Informal careconstituted the main form of assistance used, even though 61 per cent of people over 60 years
used some form of formal care. Most informal care was provided by partners (47 per cent)and almost half of these were aged 65 or over.
9.3.3 Unmet need for community care services
There is substantial evidence of unmet need for community care services. Research into
HACC services in Melbourne by the Brotherhood of St Laurence (2001: v) indicated that due
to insufficient services, elderly people needed to prove that they were incapable ofundertaking activities such as showering and meal preparation and were forced to ‘advocate
strongly and demonstrate a significant need in order to receive a service’. The ABS Survey
found that 25 per cent of those self-identifying a need for assistance with everyday activities
felt that their needs were not being fully met, including 50 per cent of those with a profoundlimitation (ABS, 2003). In some instances it is claimed that services are reserved for thosewith no family support and the quantum of services rationed to provide assistance to thelargest number of people (Senate Community Affairs References Committee, 2005). In
addition, community care programmes have been found to be fragmented, inflexible, andprovide inadequate levels of service (The Myer Foundation, 2002; Senate Community Affairs
References Committee, 2005).

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Testimony to the Senate Community Affairs References Committee in 2005 indicated that
there was a high level of unmet need. The Senate Community Affairs References Committee(2005: xii) concluded:
Community care programmes make a significant contribution in enabling older people
to successfully live at home or in the community. While current programmes provide
valuable services to older people, significant reform is required to achieve a systemthat better responds to the needs of consumers, care workers and service providers.
The current system is not providing adequate levels of service; services are
fragmented; and there is a complex mix of services that are often difficult to access.
Figure 9.4 HACC services in Australia, 2006-2006
Social Support
Respite care
Personal Care
Other food services
Nursing care (Home)
Nursing care (Centre)
Home maintenanceDomestic assistanceCentre-based day care
Allied health care (Home)
Allied health care (Centre)
0.0

0.5

1.0

1.5

2.0

2.5

3.0

Average hours per week
Source: Australian Government Department of Health and Ageing (2007).

The HACC minimum data set 2005-06 quantified service provision and confirmed the lowlevels of service intensity highlighted by submissions to the Senate Community Affairs
References Committee. Three services were provided in excess of 1 hour per week. Centrebased day care provided a weekly average of 2.7 hours to some 83,000 users while respite
care and personal care averaged 1.55 hours for almost 36,000 users, and 1.1 hours for 65,500
users respectively (Australian Government Department of Health and Ageing, 2007).
The inadequacy of provision is highlighted by Austin (2006) who points out that in 1998 there
were 30,000 people being cared for informally who could not be left alone for one hour and
33,800 who could only be left for a few hours, and stressed that access to supplementary
formal care was essential to the health and well-being of carers. Users of other services
achieved even lower service levels. Figure 9.4 shows the average amount of assistancereceived by users of HACC services. Domestic assistance averaged less than 36 minutes per
week for 220,278 clients and home maintenance, less than 10 minutes per week for 114,569
clients. Home meal deliveries averaged just over 2 meals per week for 99,048 clients andtransport services less than 0.7 trips per week for the 125,621 passengers (AustralianGovernment Department of Health and Ageing, 2007).

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An insight into the extent of unmet need for HACC services in NSW is provided by the
Auditor General’s (2004) report that stated only 53 per cent of eligible clients were assisted in
2002-03 and this fell to only 26 per cent in 2003-04. The reduction in client numbers was
attributed to the prioritisation of those with complex needs requiring more hours of assistance,
combined with a policy of replacing only one of each 4 clients exiting the programme, toprevent budget overruns (NSW Auditor-General, 2004).
9.3.4 Future demand for community aged care services
The future availability of informal care will be the main determinant of future need for formalcare. Access to informal care is expected to fall due to changes in family structure, increased
labour market participation by women and population ageing (Donato and Scotton, 1998).
The Productivity Commission (2005) survey of future availability of informal care indicates
that, in the over 65 year age group, couple families will represent less than half of all families.
The need for assistance will increase by 160 per cent between 2001 and 2031, outstripping the
expected growth of informal carers of 57 per cent. Also, carers aged over 65 will increase by
110 per cent, while those aged under 65 will increase by only 19 per cent (Austin, 2006).
Estimates of future need for formal care, based on the rate of unmet need remaining
unchanged, are generally obtained by determining the proportion of particular age groups
currently using various programmes and applying these proportions to estimates of future
populations. The Department of Health and Ageing estimated that community careprogrammes for people over 85 will rise from 81,000 in 2002 to 140,000 by 2019, while thetotal number of community care clients will increase to 970,000 over this period (Senate
Community Affairs References Committee, 2005). The number of people receiving assistanceunder HACC is expected to increase from 750,000 in 2004-05 to 1,166,000 by 2024-25 and1,559,000 by 2044-45, while CACP assistance will more than treble from 30,500 in 2004-05
to 107,000 by 2044-45 (Productivity Commission, 2005). To address current unmet need andthe anticipated failure of the quantum of informal care to grow at an adequate rate, the amountof formal care will have to grow faster than is anticipated.
9.3.5 Transport
The second important form of assistance required by the elderly to continue living in thecommunity is access to transport systems in order to participate in the community, as well as
to perform everyday activities such as shopping and attending medical appointments.
Much of the settled landscape of Australia has been geared to the use of private transport,
however, so, unless services are provided, the elderly, who are unable to drive, will find it
increasingly difficult to travel within their communities. The importance of effective transportsystems has been increasingly recognised for their significant role in the alleviation of
structural and intergenerational disadvantage and their contribution to social integration.
For the elderly, who are often reliant on public transport, the ability to participate in social
outings and day programmes, improves wellbeing and reduces social isolation. The mostcommonly identified need for the elderly is the provision of flexible transport services which
are often provided by teams of volunteers, who are themselves ageing. The ABS Survey ofDisability, Ageing and Carers (2003) reveals that 18.2 per cent of elderly people aged over 60
living in households required assistance with transport.
The United Nations Report of the Second World Assembly on Ageing (2002: 34-35)
challenged governments to improve the availability, accessibility and affordability oftransport systems so that the needs of the elderly would be better met.

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To achieve this outcome, the Report outlines three objectives:
1. Improve the availability of efficient public transportation services in rural and urban
areas;
2. Facilitate the growth of both public and private alternative forms of transport in urban
areas, such as neighbourhood-based businesses and services;
3. Encourage the training and assessment of older drivers, the design of safer roadways
and the development of new kinds of vehicles that cater to the needs of older persons
and persons with disabilities.
The National Strategy for an Ageing Australia (Department of Health and Ageing, 2001)
notes that elderly people will increasingly want to use public transport as their main mode oftransport. All Australians should have equitable access to appropriate transport. The strategy
focuses on design modifications, fare pricing and scheduling of transport routes to enhance
the suitability of services. The strategy urges business to consider the benefits that could be
gained from provision of free or subsidised transport to retail and service centres and seeks amarket-led approach to address the transport needs of our ageing population.
This strategy clearly aligns with the second objective from the United Nations Report.
However, it is interesting to note that in the past, provision of alterative modes of community
transport services have not been the result of initiatives of the private sector. These transport
services have typically been provided by volunteers from community and non-for-profit
organisations, and have been principally motivated by failure of government and the private
sector to provide adequate and appropriate services.
Declining health and eye sight cause many of the elderly to relinquish their driving licences.
In Sydney there is a sharp decline in licence holding amongst men beyond the 75-84 age
range, whereas for women with partners there is a significant decline beyond the 45-54 age
group which accelerates beyond the 65-74 age group. The decline in licence holding for
women without partners accelerates after the 55-64 age group, which has potentially serious
consequences for their capacity to participate in their communities, as well as access essential
services (Golob and Hensher, 2007). Women tend to relinquish their driving licences, evenwhen they are still physically capable. Also elderly women also drive less than their malecounterparts (Unsworth et al, 2007).
The opportunity for spontaneous outings is reduced, if use of a car is not possible. Further, thereliance upon limited public transport systems becomes an increasing barrier to social
engagement and dependency on family and friends for transport is viewed as burdensome.
Research has shown that driving cessation is associated with symptoms of depression inelderly people (Davey, 2007).
Compulsory assessment strategies which vary between states are used to evaluate the skills ofolder drivers. The OECD (2001a) found that mandatory testing of elderly drivers appeared to
be ineffective, and that a community based referral systems, involving health professionals,
community stakeholders and elderly drivers themselves would provide a more equitableassessment service. Moreover, the New Zealand high court ruled that annual driving tests for
specific age groups were discriminatory (Hensher, 2007).
In line with the third objective of the United Nations Report, the New South Wales Roads andTraffic Authority (2008) recently announced that it would institute reforms for drivers over
the age of 85. These reforms would at best moderate the decline in licence holding amongst
older Australians. The reliance on non-private forms of transport will continue to increase as
Australians get older.

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The first objective of the United Nations Report challenges governments to enhance theirtransport services in both urban and rural areas. In rural areas the elderly typically have to relyon people to volunteer their time to transport them to nearby regional centres for health andmedical appointments. State health departments provide some assistance for essential healthrelated travel. However the limited accessibility of these services often deters those in needfrom seeking assistance. Further, these services typically focus on specialist services, rather
than primary health care and also require co-contribution (Aged and Community Services
Australia, 2005). For instance, New South Wales operates the Isolated Patients Travels andAccommodation Assistance Scheme, which transports patients who live more than 100kms
from their nearest treating specialist. The scheme requires a co-contribution of $40 or $20 forconcession card holders per return journey. Community transport is also available to provide
health related travel but some organisations charge a contribution fee.
Services in urban areas have improved in their accessibility and availability, but mainstream
passengers rather than the elderly have typically benefited. In urban areas the elderly havealso reported that prices of private taxis are prohibitive and that the taxi services can be
unreliable with long waiting periods or failure to complete bookings. A coordinated system oftransport services is required to increase service quality and efficiency and to address
inequities with respect to access. There are however many innovative initiatives that operate
within local communities that are highly effective at improving the accessibility of selectedgroups who experience transport disadvantage. These include ‘council cabs’, community
buses, public transport systems and community volunteer programmes.
The ‘Council Cab’ model is used by the Gold Coast City Council. It is a public private model,
which allows the elderly and disabled access to subsidised transport from private taxi
companies during off peak periods. This system requires passengers to book their trip inadvance, the service then collects passengers from their homes in the morning and takes them
to a designated shopping centre where they will be collected after lunch. The service costs
passengers $2.00 and the local council pays the difference.
Despite these innovative arrangements, transport services for the elderly across both urban
and regional areas remain fractured and lack coherence because they are supplied through anumber of different not-for-profit organisations, private providers and government agencies,
including state and local governments as well as allied health agencies. Services remain
grossly inadequate to meet need.
Community Transport
Community transport (CT) provides the elderly, disabled and other disadvantaged groups withtransport services. CT was first conceptualised as providing door to door services, tailored to
the needs of individuals, in order to maintain the independence of the elderly and delay theiradmission into aged care facilities. Passengers who access these services can receive funding
from state health departments as well as the federal government, through programmes such as
HACC.
The HACC programme plays an important role in the provision of transport services toelderly people. Many of the transport services provided by HACC are performed byvolunteers. The CT services provided through HACC are used for a range of purposes,
including social, recreational and medical reasons and also for shopping. In 2005-06 125,621
clients or 16.2 of all HACC recipients received transport assistance through this service,
which amounted to just under 4.5 million single trips (Department of Health and Ageing,2006). The eligibility criteria are very narrowly defined, however, which deters someindividuals in need from seeking the service and also restricts the opportunities of those who
do have access to the service.
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Local governments provide community transport services and a range of different supporting
services, including office administration, organisational support and security, provision ofvehicles, maintenance of vehicles, and car and public liability insurance. In NSW in 1997
there were a total of 227.5 community transport services across 73 councils, (NSW
Department of Local Government, 1997). However, many HACC services, including thoseother than CT have come to rely on the fees paid by consumers to maintain service viability.
Local government social plans throughout New South Wales consistently note the inadequate
provision of CT. The problems of HACC services in NSW are exemplified in the following
quote from the Bathurst Regional Council Social Plan (2006: 45), which notes that:
Health related transport issues included older people having to drive themselves toOrange for services and the policy of the Health Department which determined that
only In Patients were eligible for health related transport. This excluded those going
into hospital for dialysis … Participants believed that there was a need for Bathurst
and Orange Hospitals, senior management to discuss the issue of transport for patients
accessing services.
Stanley and Stanley (2007: 13.10) report five difficulties that face community transportnationally. These include:
1. Restricted hours of operation,
2. Precedence of medical appointments over social interaction,
3. Difficulty in accessing sufficient volunteers to deliver the service effectively,
4. Poor public information dissemination strategies
5. Investment in vehicles, rather than transport services.
9.3.6 Analysis of survey results: assistance for the elderly
The analysis reveals two distinct areas of community welfare need for the elderly that are
suffering from gaps in service provision. The first relates to appropriate accommodation
options for the elderly. The second is concerned with provision of services to enable them tolive independently. Respondents emphasised the importance of local provision, to ensure thatthe elderly are able to live in a familiar environment and maintain social networks.
The need for investment in residential aged care facilities was a prominent theme.
Respondents reported the demand for such options was increasing, and far outweighed
supply. The importance of providing a range of accommodation facilities, such as nursing
homes, unit complexes and retirement villages, in order to cater to the diverse needs of theelderly was emphasised. Indeed, analysis of the survey data reveals that are there is also aspatial patterning to the accommodation needs of the elderly. For instance, respondents from
Victoria indicated a preference for the construction of public facilities coupled with provisionof services to enable independent living, rather than investment in residential aged carefacilities. Similarly, responses from NSW were much more focused on service provision to
enable independent living, rather than provision of transitional accommodation.
Respondents indicated considerable unmet need for basic care services to promoteindependent living of the elderly. Many organisations providing services to the elderly andfrail are external to local government, and thus in many cases respondents had incomplete
information about the demand for these services. However, the inadequacy of these services
was consistently noted.
Jobs identified by Local Government Social Planners associated with community welfare
services in aged care accounted for a large portion of jobs identified across the entire survey.
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Such work would entail provision of general household assistance, including cleaning, basic
meal preparation, basic personal care assistance, yard maintenance, basic handyman
assistance including activities such as changing light bulbs and painting. The incidence ofunmet need for these services as identified by respondents varied over states, and reflected
extant policies, and also lifestyle and locational factors. For instance, in the metropolitan areasof New South Wales a number of respondents reported the need for long day care services for
elderly people, thereby providing support for those families working full time and caring fortheir ageing parents. Respondents from rural and remote areas, particularly in Western
Australia, noted that preventing social isolation was a critical concern, so the results revealed
more jobs associated with visitation and social support, in addition to personal care services.
Provision of personal care and home support services were consistently identified as areas ofneed, which would require substantial additional employment to bring service provision inline with demand.
Many respondents highlighted the need for food preparation and delivery services, or ‘meals
on wheels’. Organisations that provide this vital service for the frail elderly, are typically run
on limited budgets and largely staffed by volunteers. Currently many of these organisations
face obstacles associated with volunteer recruitment and are facing growing service demand,.
In some cases, volunteers were responsible for transportation costs at a time of growing fuelprices. The NSW State government is addressing this issue via grants to organisations.
The volunteer culture of these agencies also revealed itself in various preconceptions amongst
survey respondents, relating to the differences between paid work and volunteering. Many
respondents suggested that these agencies would welcome additional volunteers, but were
unsure of the role of paid workers in such programs. Despite this, the study found thatsatisfying the need for these services could lead to employment of 1.2 per cent of theunemployed population across Australia (excluding NT).
Respondents commented that there was need for expansion of flexible community transport
services for the elderly including ‘dial-a-ride’ community transport services to assist withindependent living needs (weekly shopping trips, participation in social cohesion programs),
as well as services to take the elderly to various medical appointments. Respondentssuggested that a considerable number of employment opportunities could be created for low
skilled workers to drive cars and / or mini-buses, provide administrative assistance andpersonal care assistance to help fill some of the gaps in service provision and better meet thetransport needs of the elderly. Transport services for elderly people were very important in the
Northern Territory, reflecting the isolation of many communities.
The main source of employment opportunities across all states by occupation would be fordrivers to provide transport for attendance at medical appointments, to attend to everyday
needs such as shopping and social interaction (see Figure 9.5). The highest frequency ofdriving jobs was identified in NSW and Victoria, the most populous states. Personal careassistance and home support workers constituted the second highest source of employment,
while there was also substantial potential for job creation in administrative support.
In total, community welfare services, excluding community transport, accounted for 13.5 percent of all jobs identified that could be undertaken by low skilled workers. Employment
creation in community transport accounted for 2.7 percent of all potential job opportunities
identified by survey respondents. Jobs appropriate for low skilled workers in construction ofaccommodation suitable for the elderly accounted for over 3 percent of all jobs identified by
the sample.

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The expansion of public housing accounted for a further 26 per cent of possible jobs, but itwould require the contribution of skilled workers, including architects tradesmen andengineers. However, the focus here is on potential JG employment of low / unskilled workers.
Figure 9.5 Potential for job creation for transport for the elderly, as reported by Local
Government Social Planners across Australia.
500
450
400

Number of Jobs

350

General Clerk

300
Driver250
200

Personal careassistant/ Home
support worker

150
100
50
0
NSW

NT

SA

TAS

WA

QLD

VIC

State

The public sector currently provides some services in these areas, but often they are
undertaken by teams of volunteers but are not at a scale appropriate to community need.
Further access to these services often requires applications and assessments to be undertaken,
which deter many in need from utilising services to which they are entitled. Increases in
employment in aged care services, including visitation services, should strengthen the “social
fabric” by reducing the social isolation of the elderly.
9.4

Conclusion

This Chapter has identified service provision and service levels that are inadequate to meet
local demands for housing and services for the elderly. The current piecemeal approach toservice provision fails to address complex societal needs, which are not always clearly
articulated. The findings of the National Local Government JG Survey suggest thatrealignment or re-shuffling of service provision would not address the service deficiencies,
but would simply redistribute deficiencies across social services and across space.
Constrained funding paradigms were a key barrier to effective service and infrastructure
provision in communities. Investment in housing to meet the accommodation needs ofcommunities and services for the elderly that support independent living, including
community transport, are urgently needed.
Our National Local Government JG Survey reinforces the view that there is considerable
unmet need and potential for substantial job creation for low / unskilled workers. Further,national skill development strategies need to be aligned with the socio-spatial demands of ourdemographic composition. The Job Guarantee approach offers a coherent strategy forreengaging the most marginalised, discouraged members of society back into the labour
market by offering employment that is intrinsically valuable and socially meaningful.
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Part 4
Solutions for Regional Development

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10
10.1

A strategic framework forregional development

Introduction

Earlier chapters of this Report have demonstrated that the abandonment of the commitment tofull employment and the Keynesian welfare state in favour of the full employability
framework over the last 30 years or so has had major implications for communities
throughout Australia.
De-industrialisation occurred as major manufacturing industries such as passenger motor
vehicles, textiles, clothing and footwear were exposed to more intense international
competition following tariff cuts in a rapidly globalising economy. All tiers of government
have outsourced services. The sell off of public utilities, particularly in Victoria, has impacted
on regional communities. There have also been periods of prolonged drought that haveaffected the viability of rural industries as well as significant changes in relative goods prices.
These major transformations have impacted unevenly over the Australian geography
producing pockets of high and entrenched unemployment and labour underutilisation,
whereas other areas have enjoyed buoyant employment growth and rising incomes.
Responsible macro-economic management has been re-defined as maintaining fiscal surpluses
and setting monetary policy to ensure a low inflation environment. The unemployed havebeen used as an inflation control mechanism. Persistent unemployment has been reconceptualised as an individual problem, rather than the outcome of systemic macroeconomic policy failure. As explained by The Australian Futures Taskforce (2007: 3):…it can be argued that fiscal policy restraint aimed at sustaining an increasingly
inflation-first monetary policy strategy, while some would claim to have been
beneficial at an aggregate level, comes at the expense of vital public infrastructure andservices and of employment opportunities for some people and in some places.
Thus, at both a spatially and a socially disaggregated level of scale, the contemporary
picture is one of mixed levels of performance across the nation’s cities, towns andregions. It is one of marked differences in socio-economic outcomes.
Disturbingly, the new Rudd Labor Government appears to be perpetuating thesemacroeconomic and labour market myths (see Chapter 2). Until the message of Chapter 3 isfully understood by policy makers, Australia will still waste the potential of hundreds andthousands of its residents through persistently high rates of labour underutilisation.
Policy responses to the economic and social problems generated by these outcomes have been
inadequate. From the 1980s there was a discernable shift to supply-side policies with anincreased emphasis on training courses. In an era of sustained demand deficiency, demandside policies were generally restricted to wage subsidies with the exception of the adoption ofshort-lived job creation programmes in the aftermath of recessions in the early 1980s andearly 1990s. The emphasis on employability involved a more punitive approach in the late1980s with individuals receiving income support being subjected to more conditionality.
The adoption of supply side policies by Australian governments were affirmed by the OECD
Jobs Study recommendations (1994) which emphasised ALMP polices to enhance172‘employability’ rather than making extensive use of job creation programmes. By 1996 almost
all labour market programmes and attempts at developing human capital, had beenabandoned, and unemployed individuals were enveloped in a coercive regime that demanded
participation in activities with dubious labour market benefits, including Work for the Dole.
In line with other neo-liberal policies, the Howard Government privatised employment
services, creating the under-resourced Job Network that has proven incapable of providing
meaningful assistance to disadvantaged groups to secure ongoing employment. Results fromfocus groups with Job Network staff, reported in Chapter 6, emphasise the inability of thecurrent JN framework to adequately address the complex needs of disadvantaged job seekers.
In an environment where training has been restricted in the main, to courses of a few days
duration, Keating (2008: 103) highlights the discrepancy between the services delivered by
the Job Network and those required by job-seekers:
These people [the unemployed] usually have very low levels of formal education andas Australia is mainly short of skilled labour, not unskilled labour, there is a real needto provide opportunities for training.
Regional policies implemented by the federal, state and local governments have generally
been on a small scale and are notable for a lack of coordination. Also, attempts to shift
responsibilities and costs were common. The Commonwealth government has played a minor
role in regional development. State governments have provided the major impetus to regional
policies, by implementing a range of programmes designed to attract business, stimulate new
business formation and promote the expansion of existing businesses. There is a long history
of interstate rivalry, particularly with respect to the attraction of established inter-statebusinesses, but these initiatives have had minimal national impact and, in many cases, only
short-term gains at the state level. There is widespread recognition that, although local
government is ideally placed to assess community needs, councils are financially constrained
due to limited revenue raising capacity and the increasing burden of service provision due toreductions in services provided by other levels of government.
The results of the national local government JG survey reflect the social impact of the neglectof the past decades. The survey revealed that there were substantial unmet needs forinfrastructure and services across urban, regional and remote areas. In total, from the LGAs
surveyed, potential employment opportunities were identified that would accommodate
around 40 per cent of the unemployed. Need was unevenly distributed across states andregional areas. The greatest need was identified by Social Planners from rural areas and urban
fringe areas, whereas a significantly lower level of need was identified in urban developed
and urban regional areas.
Jobs that would need to be provided to fulfil these needs spanned a wide range of skills andwould provide an opportunity for job seekers to achieve long-term or interim employment
goals. Jobs would be required in occupations including: horticultural and construction
labourers, teachers’ aides, child care assistants, personal carers, refuge support workers, youth
workers, drivers, food preparation assistants and environmental remediation workers.
The results of this survey and other research reveal significant variations in labour
underutilisation and needs across regions so that ‘a “one-size-fits-all” approach in public
policy to dealing with regional differentiation issues will be problematic’ (The Australian
Futures Taskforce, 2007: 208).
This chapter outlines a new national strategy for addressing these issues that requires acoordinated, whole of government approach. This strategy has 3 major components: (a) atargeted expansion of the public sector; (b) the development of a national skills framework;

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and (c) the implementation of a Job Guarantee. This chapter provides a brief outline of these 3
strategies which are more fully developed in the following 3 chapters.
10.2 A new national strategy to address employment and service needs ofAustralian communities
Previous chapters have outlined the spatial disparities in employment opportunities and social
services across Australia, which highlight the necessity of adopting a spatially targeted
approach to employment creation and provision of services. The overriding objective of thestrategic framework for regional development proposed in this report is sustainable
development where economic, social and environmental objectives are achieved and available
labour resources are fully utilised. The United Nations (2006: 15) declared:
The challenge is to develop policies for economic growth and poverty reduction that
can absorb large numbers of workers, especially in resource-scarce areas, protect
natural resources and are at the same time environmentally sound.
As noted, the privileging of policies to achieve low inflation in preference to sustainable full
employment in recent decades has resulted in disparate outcomes for Australians. While some
sections of the population have enjoyed the benefits of economic growth and globalisation,other groups, such as the unemployed, underemployed, and those in precarious employment,
have been largely excluded from these benefits. At the same time the state’s retreat fromacceptance of responsibility for social provision in favour of private provision, has further
disadvantaged segments of society who are unable to access the services they require toensure their full participation in society.
The strategic framework outlined in this report will address equity by ensuring that there aresufficient opportunities for engaging in productive paid work and that provision of social
services addresses areas of acute social need so that all Australians can enjoy a reasonable
standard of living. A ‘Spatial Keynesian’ approach to economic and social policy is required
to address persistent regional disparities in both unemployment and service provision which
would involve (see Mitchell and Juniper, 2007):


A targeted expansion of the public sector to provided employment and supply
infrastructure and services that have atrophied due to the withdrawal of the state
during the past few decades as a consequence of the implementation of neo-liberalpolicies;The development of a national skills framework capable of anticipating andidentifying skill needs and the adoption of effective education and training strategies
to meet future skill challenges in a dynamic environment.



The implementation of a Job Guarantee to provide employment to all those who want
to work.

The first plank of such a strategy would reduce labour underutilisation by the targeted use of
expansionary macroeconomic policies to address the under-provision of infrastructure andservices that has characterised the period of neo-liberal economic and social policies that haveconcentrated on surplus budgets and reducing public sector expenditure while abrogating
responsibility for social provision.
The second plank in a national strategy to address the future economic and social
development needs of Australia is the development of a comprehensive national skills
framework incorporating all aspects of formal education, vocational education and training.
The skills framework would enhance the productive capacity of the Australian workforce andthereby enhance international competitiveness and reduce bottlenecks in the economy.
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The third plank of this strategy, involves a guarantee of employment to all those willing andable to work. The Job Guarantee (JG) would provide public sector jobs paying the federal
minimum wage for the provision of socially desirable outputs that are not currently being
produced, or not produced on a sufficient scale, to meet community needs. A JG would
eliminate labour underutilisation which would enable the unemployed to participate in thepaid workforce and enjoy higher living standards and greater social participation.
A spatial Keynesian approach would facilitate the development of regionally focusedinterventions to provide infrastructure and services on a differential basis according to thespecific needs of each community. The number of jobs available under the JG would bedetermined by the excess of labour supply over demand and would fluctuate anti-cyclically.
10.3

Targeted expansion of the public sector

A feature of the post-war welfare state period was the recognition that citizens should enjoy
equal access to services irrespective of residential location. This situation deteriorated in the
mid-1970s when governments were intent on implementing policies of macroeconomic
restraint and minimising public sector spending. The abandonment of government
commitments to provide services as a right of citizenship, is most clearly illustrated in relation
to remote indigenous communities. For example, in response to calls for improved service
provision in remote communities, WA Indigenous Affairs Minister Michelle Roberts
explained that the state government would review service delivery and prioritise spending,warning that ‘It may mean that some communities will be identified as being unviable’(Smiles, 2008).
Earlier chapters of this report have brought together data from a variety of sources, including
the national local government JG survey. These data have identified the significant unmet
need for infrastructure and services, which varies across Australian communities. The current
audit of nationally significant infrastructure that will be completed by Infrastructure Australia
by the end of 2008 will identify, and prioritise infrastructure needs that can be funded by the$20 billion Building Australia Fund.
An expansion of infrastructure will facilitate economic expansion, and enhance thecompetitiveness of lagging regions as well as improving the lifestyle and chances of citizens.
Chapter 8 outlined the need for expansion of transport infrastructure to facilitate economic
expansion and social participation. The Australian Futures Taskforce (2007) noted thatindustry estimates of capital investment to meet the infrastructure back-log were as high as$150 billion for roads, rail, water and energy.
Housing represents another major area where public sector investment was significant in the
post-war period but has fallen significantly over recent years, despite serious and ongoingrental and mortgage stress as outlined in Chapter 9. Those in public housing are effectively
protected from large increases in rents since maximum rents are set at a proportion of income,which is usually 25 per cent. The withdrawal of the public sector from the provision of public
housing has major implications for those low income earners who are forced to rent in theprivate market where there is no rental ceiling and very modest rent subsidies. As aconsequence, many low income households are left in housing stress (see Chapter 9).
Moreover, insecurity of tenancy has adverse implications in many aspects of social life andfuture economic opportunities.
As Holdsworthy (2008: 1) points out:
…home is more than a physical dwelling; it is also a space that provides security,
privacy, control, choice and a sense of belonging. Therefore, along with the physical175structure of the dwelling, a person’s association with home is linked to ‘social capital’concerns such as feelings of either connection with, or alienation from, communityand place.
Housing insecurity and short-term tenure are counter-productive in terms of maximisingsocial cohesion and social capital, and maintaining social networks that can be relied upon forsocial interaction and assistance in times of need. Moreover, children in families that movefrom one area to another are required to adjust to new educational environments and form
new friends, often with negative impacts on educational achievement and social development.
A plethora of social services including health, education and caring are undersupplied inAustralia, as the results of the national local government JG survey demonstrated. All
Australians are entitled to at least a minimal level of service provision. It is a politicaldecision as to what that level should be.
10.4

National skills framework

As outlined in Chapter 3, the post-war period was characterised by a government commitment
to full employment and direct provision of services which involved employment of large
sections of the Australian workforce. In addition to the employment function, governments
were also major trainers of skilled labour during this period. All the major public sector
utilities, public transport, and other government departments, employed and trained large
numbers of apprentices and even established state of the art training colleges. When these
apprentices qualified as tradesmen, they were available to supply the needs of private
industry. In other words, the reluctance of the private sector to invest in skilling the workforce
resulted in this important function being shouldered by the public sector.
The retreat from the public provision of services from the 1980s was accompanied by a large
reduction in the public sector share of employment and the dismantling of the training
systems that had supplied a large proportion of the skilled tradespersons (see Chapter 11 forfurther details). Major staff reductions occurred in transport and storage, electricity, gas andwater, communications services, finance and manufacturing. This loss of training capacity
was further exacerbated by the decline in the employment share of large private sector
manufacturing companies that were traditionally the other major source of skilled workers.
In response to mass unemployment from the late 1970s to the mid 1990s, a number ofdifferent labour market programmes were established, which could be broadly classified as
job creation, employer subsidies, vocational training and job search training, which varied inimportance over time. While these programmes were incapable of restoring full employment
in a macro constrained environment, they played a role in improving the skill levels of theunemployed.
These programmes were largely disbanded by the Howard Government in 1996. In their place
the work first strategy dictated that assistance be limited to short job search training and thepunitive Work for the Dole programme (see Chapter 6 for a full discussion of employment
and ALMP). Job Network agencies could also provide wage subsidies and pay for training
courses or use Job Seeker Account funds to pay for training for clients. Under this regime,
training was difficult to access and mainly consisted of courses lasting a few days at most.
Following intense media coverage of the “skills shortage”, the Howard Government
introduced a number of measures that included vouchers for skill upgrading with modest
funding. The incoming Rudd Government introduced the Skilling Australia policy withfunding of just $539 million over 4 years.

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The national skills framework proposed in this report provides a comprehensive strategy toaddress the current and future needs of Australian industry and the training aspirations ofworkers. A national approach to skill development begins with ongoing occupational
forecasting to anticipate future needs for skilled workers and put in place training programmes
to meet those needs. The public sector needs to assemble capacity to train apprentices in orderto bridge the gap between the number of apprentices trained in the private sector and the needfor skilled tradespeople.
In addition, opportunities must be provided for more mature workers to retrain to realise
employment goals or to successfully transfer from declining occupations or unemployment tojobs in demand in the local labour market. Importantly, the strategy provides multiple training
entry points and opportunities to combine formal and on the job training.
10.5

Job Guarantee

There are 2 major lessons from the high and persistent underutilisation of labour resources ofthe past 3 decades. The first is that a general economic expansion is not sufficient to restore
full employment. Buoyant economic conditions reduce unemployment and underutilisation
but these reductions are concentrated in areas of high economic growth while low growthareas record smaller reductions. The second lesson is that far from being a temporary
problem, there are substantial and long-term costs associated with unemployment that
increase with unemployment duration, both for affected individuals and their families, and thefuture economic capacity of the country. The individual costs of unemployment were outlined
in Chapter 3 and include skill atrophy, loss of motivation and self esteem, ill health, theundermining of relationships and family breakdown.
The right to work is a fundamental human right. Paid employment enables individuals toshare in the economic prosperity and contributes to social inclusion. Benefits derived fromparticipation in the paid labour force are multi-faceted and cannot be overstated. Labour
market participation is instrumental in determining the standard of living and opportunities
available to individuals as well as their overall well-being, as explained by Juan Somavia,
Director General of the ILO in June 2001:
Everyday we are reminded that, for everybody, work is a defining feature of humanexistence. It is the means of sustaining life and of meeting basic needs. But it is also an
activity through which individuals affirm their own identity, both to themselves and to
those around them. It is crucial to individual choice, to the welfare of families and to
the stability of societies (Juan Somavia, quoted in O'Reilly, 2003).
The consequences of persistent unemployment that has affected some disadvantaged job
seekers over a long period of time were graphically described by Job Network focus group
participants (Chapter 6). They described clients suffering severe disadvantage who wereconsidered to be unemployable in the private sector. A similar conclusion is reached by
Keating (2008: 103), who cites lack of employment as a contributor to social exclusion, so
that:
To lift employment participation levels and address chronic disadvantage, complex
and often multiple barriers need to be overcome and thus strategic and policy
responses by governments and industry are required.
The Job Guarantee provides a mechanism to deliver full employment through a government
commitment to act as an employer of last resort when the private sector provides insufficientjob opportunities for all those who want to work. Public sector jobs would be available for all
those willing and able to work. Jobs would attract the federal minimum wage and JG

177

employees would perform socially useful work that was currently undersupplied in the local
community (full details are provided in Chapter 13). Employment opportunities would
conform to the decent work requirements of ‘productive work, in conditions of freedom,
equity, security and human dignity’ (United Nations, 2006: 3).
The JG jobs would expand / contract as private sector employment contracted / expanded
providing a buffer stock (Mitchell, 1998). In this way the labour force would be fully
employed at all times but the proportions associated with public and private sector
employment would vary. As Mitchell and Muysken (2008) explain:
The JG introduces no relative wage effects and the rising demand per se does notnecessarily involve inflationary pressures because by definition it is satisfying a net
savings desire.
In this way the JG would include a countercyclical fiscal stabiliser effect since government
expenditure would expand when the private sector contracts, thereby increasing aggregate
demand above the level it otherwise would have been. Similarly, JG employment would fallas the private sector expands.
JG jobs would combine on-the-job work experience with training opportunities to allow JG
workers to develop skills in demand or fulfil training aspirations and thereby enhance future
employment prospects (see previous section). Work would occur in a supervised andsupportive environment which would facilitate provision of other assistance as required. Sucha programme combines the elements identified in the international literature as fostering
successful transitions to ongoing employment (work experience, training and support). In
particular, JG participants would have an opportunity to develop generic skills that are highly
valued by employers. Such skills include effective communication, self-management,
problem-solving, and the ability to work cooperatively and harmoniously as part of a team
(Keating, 2008).
Importantly, the operation of a JG would provide significant societal benefits in the form ofsocial cohesion, by eliminating the costs associated with unemployment that were discussed
previously. The JG would provide individuals with the dignity and community recognition
that accompanies economic contribution in our society. Ongoing employment would provide
an income for those displaced from private sector employment so that they could continue toparticipate in normal economic and social activities.
Further, the JG would replace the current punitive ‘work first’ approach and the Work for the
Dole regime that forces disadvantaged job seekers who are locked out of the labour market toenter into a contractual arrangement to work in exchange for Newstart Allowance byperforming work that is stigmatised and undervalued by society because it is unpaid.
Moreover, Work for the Dole contravenes the principles of fair and decent work.
The national local government JG survey identified significant unmet social needs forinfrastructure and social services that varied by location. Implementation of the JG would
provide an opportunity for community involvement in prioritising the activities that would be
included in the JG, thereby facilitating a spatially sensitive solution to employment and social
needs.
In addition, the JG provides a vehicle for employment geared to environmentally sustainable
activities (Mitchell and Muysken, 2008). There are two ways that JG jobs can promote
environmental sustainability (Forstater, 2006). In contrast to jobs in the private sector wherecost minimisation and profit generation is the overriding consideration, JG jobs can be
designed to include consideration of social and environmental impact. In addition, JG
positions may be designed to make a direct contribution to the environment through creation178

of jobs which contributed to “community and industrial recycling, improved insulation forresidential and commercial structures, carpooling, rooftop gardening and urban landscaping,solar energy applied to the public infrastructure (e.g. streetlights, schools, construction
warning signs, billboards), monitoring and enforcement, environmental education, andresearch support” (Forstater, 2006: 64). The national local government JG survey identified
areas of need in relation to remediation of environmental degradation and / or preservation ofnatural assets. Therefore, the JG would make a positive contribution to environmental
enhancement.
10.6

Conclusion

In the past 3 decades there have been far reaching changes in Australian economic and social
life. Sustained economic growth since the early 1990s recession has resulted in increased
average incomes, but has had disparate impacts on industries, sections of the labour market
and the population. Growth has also involved adverse environmental impacts.
Major changes in the labour market have resulted in the destruction of significant numbers ofjobs, particularly full-time permanent jobs in manufacturing, many of which involved lowskilled work. Combined with higher unemployment and underutilisation rates, there has beena shift towards increased proportions of part-time, casual and precarious employment thathave impacted on the ability of Australians to participate fully in economic and social
activities.
Concomitant with these labour market changes there has been a diminution of state provisionthat was the hallmark of the post-war period until the mid 1970s. Governments at both thestate and federal level have privatised provision through asset sales and contracting out
services as well imposing financial ceilings on expenditure that have reduced service
provision and restricted access for some sections of the Australian population.
A new nationally coordinated strategy based on spatial Keynesianism is required to addressthese issues and to ensure that all are able to participate in the nation’s economic and social
life. The following 3 chapters elaborate on the 3 components of such a strategy. Chapter 11
discusses the operation of a policy of public sector expansion to meet the needs of regions.
This will increase economic efficiency and facilitate future economic development. Chapter
12 elaborates a proposal for development of a new national skills framework that incorporates
all aspects of education and training and is informed by ongoing forecasting of future training
needs and evaluation of programme effectiveness. This policy will increase the efficiency ofthe labour market by anticipating and addressing skill shortages and thereby removing
bottlenecks from the economy. However, these policies will not eliminate spatial variations ineconomic performance and employment opportunities. Therefore, Chapter 13 outlines a
proposal to introduce an employment guarantee in Australia under the Job Guarantee, toprovide employment opportunities to all those willing and able to work. The JG will ensure
productive employment in periods of depressed private sector labour demand and an
opportunity to maintain or enhance work skills through work experience combined with
opportunities to complete further training and enhance community well-being.

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11
11.1

A targeted expansion of
public sector employment

Introduction

Previous chapters have demonstrated the existence of a substantial need for investment inboth capital and social infrastructure across Australian communities. Reforms since the late1970s have reduced the role of government as part of the transformation from the full
employment to the ‘full employability’ welfare state (see Chapter 3). Governments haveincreasingly sought to deliver physical and social public infrastructure through private
providers that operate through a market model. Policies such as deregulation and privatisation
have amplified disadvantage and poverty experienced by vulnerable groups, and contributed
to fragmentation of contemporary Australian society (Dollery and Coombs, 2003; O’Neill and
McGuirk, 2002). Efficiency objectives claimed for the reform process provided a convenientmechanism for transferring distributional claims on public assets to the private sector.
This chapter argues that need for investment has been accentuated by persistent government
under-investment and the abandonment of the welfare state (Cook, 2006). The following
section outlines the transformation of public policy from the Keynesian welfare state policies
associated with the full employment period up to the 1970s to the neo-liberal policies
associated with ‘full employability’, particularly with respect to the changing role of the
public sector in provision of infrastructure and public services and the employment impact of
this policy transformation. The following section examines the Australian experience withprivatisation, including the increasing use of public private partnerships (PPP) and the impact
of competition policy. The remainder of the chapter presents the case for a targeted expansionof the public sector to provide additional employment opportunities and deliver services
according to the diverse needs of communities.
11.2

The changing role of Australian governments

11.2.1 Overview
Public sector investment during the post-war period facilitated rapid industrial expansion andurban development that delivered sustained economic growth and low rates of employmentthat averaged 2 per cent over a period of 30 years (Mitchell, 2001a). In common with otherOECD governments, Australia assumed greater responsibility for provision of services that
constitute the social wage; education; health; community services; and the like.
Responsibilities were shared by the 3 levels of government and were influenced by theinstitutional arrangements that flow from the Australian federal system. The Commonwealthprovided some funding for infrastructure. Traditionally State / Territory governments haveprovided roads, railways, water, electricity, public housing and public transport. Local
governments build and maintain local roads. Service provision has been affected by a vertical
fiscal imbalance, whereby State governments have responsibility for much of the direct
service provision but these responsibilities outstrip state revenue raising capacities. As aresult, federal or joint federal / state financing is necessary and there is a long history of
dispute regarding the adequacy of funding and blame-shifting in relation to politicalresponsibility for failures in service provision.

180

The neo-liberal challenge to the traditional public sector role from the early 1980s was driven
by the need to open up new avenues for private corporations and to restrict deductions fromsurplus value that constituted the social wage. In short, the objective of neo-liberal policies
was to return functions to the ambit of the market and to shift the financial burden fromgovernment to individuals (see Chapter 3).
From the 1990s there were extensive programmes of privatisation at both the federal and statelevel that commenced with government business enterprises, and expanded to incorporate
services that continued to be financed by governments but were increasingly delivered by theprivate and / or non-profit sector (see Fairbrother, Paddon and Teicher, 2002). Other policies
privileged expansion of the private sector. The residualisation of access to services by
increased targeting meant that growing sections of the population were expected to self-fundservices. Commonwealth education funding for private schools has increased significantly,
rising from just over 35 per cent of total Commonwealth education funding in 1977 to 66 percent in 2004 (Australian Education Union, 2004). Similarly, the government has promoted
private health insurance and private hospitals through subsidies to private health insurance
and the Medicare surcharge for higher income earners. The private hospital share of
separations increased from 29 per cent in 1991-92 to 38.7 per cent in 2006-07 (AIHW, 2008).
The introduction of the purchaser-provider model was instrumental to privatisation. In thefirst instance the policy-making and delivery arms of government departments wereseparated. Subsequently, delivery was frequently transferred to the private sector bycontracting out to for-profit and non-profit organisations. As discussed in Chapter 6 the public
sector employment service was privatised in 1998 and a plethora of community services are
increasingly being delivered by non-profit organisations. The remainder of this section
outlines the impact of the changed role of the public sector on the public sector share ofinvestment and employment.
11.2.2 The shift in investment from the public to the private sector
Since 1976 there has been a gradual decline in public sector investment expenditure which
has been offset to some degree by increased private sector investment. Private sector
investment has increased rapidly in recent times due to reforms introduced through the
National Competition Policy. Trends in Australian investment have generally been higher
than the OECD average, but continue to follow the broad OECD average (see Figure 11.1).
From the year 2000 onwards, gross fixed capital formation has increased, and much of thistrend is attributable to the resources boom (Figure 11.1). However, much of the increased
investment from the 1990s onwards was due to mergers and acquisitions rather than capitalformation.
In order to gain a clearer understanding of the changes in investment it is necessary to look at
the absolute and relative shares of public and private sector investment. The higher
investment spending in Australia compared to the OECD average is driven by private sector
investment since public sector investment in Australia has been below the OECD average
since at least 1980 (see Figure 11.2). Figure 11.2 uses estimates developed by theInternational Monetary Fund and reveals that government net capital stocks have been
declining as a percentage of GDP throughout the OECD and the rate of decline has been
greater in Australia than the OECD average (Kamps, 2004). In population terms, Australia’s
total fixed capital stock per capita has also been declining over the past 20 years (Coombs andRoberts, 2007: 13).

181

Figure 11.1 Investment in OECD countries and Australia as a percentage of GDP
35

30

Percent of GDP

25

20

15

10

5

0
1970

1972

1974

1976

1978

1980

OECD Gross fixed capital formation

1982

1984

1986

1988

1990

1992

Australia Gross fixed capital formation

1994

1996
OECD FDI

1998

2000

2002

2004

Australia FDI

Source: World Bank (2008) World Development Indicators, World Bank, Washington D.C., Online database.

Figure 11.3 shows public sector investment and total investment in infrastructure as apercentage of GDP. The graph shows that public sector investment has declined from morethan half total infrastructure investment in 1901 to less than one-quarter by 2006.
Figure 11.2 Government Net Capital Stock as a percentage of GDP for Australia and theOECD average, in 1995 prices
70

Government net capital stock
Percentage of GDP (1995 prices)

60

50

40
Australia
OECD average
30

20

10

0
1980

1990

2000

Year

Source: Kamps (2004).

182

Public sector investments declined from the mid-1980s and are currently lower than in the
post-war period from 1950 to 1985. In the first half of the twentieth century, fluctuations inpublic sector and total investment were more closely aligned than in the latter half of the
century. The increased gap between public sector and total investment between 1945 and1950 indicates that private sector investment gained considerable momentum in theimmediate post-war period. The acceleration of total investment from 2001 indicates thatprivate sector investment has increased rapidly during this period and the share of public
sector investment has shrunk considerably.
Figure 11.3 Public sector and total infrastructure investment, 1901-2006 (percentage of GDP)

Source: Infrastructure Partnerships Australia, 2007: 20, Figure 1.

The Allen Consulting Group (2005) analysed the decline of public sector capital formation by
disaggregating to the Commonwealth and State / Territory level. Capital formation by State /Territory governments is much higher than for the Commonwealth as expected, given thegreater role of States / Territories. Commonwealth expenditure has fluctuated over the period
1971-2006 averaging around 0.5 per cent of GDP. However, there has been a dramatic decline
in capital formation by States / Territories which fell from 3 per cent of GDP in 1983 to 2 percent on 1989, a reduction of one-third. Following a brief period of consolidation in the early
1990s investment continued a secular decline reaching around 1.25 per cent of GDP by 2006.
Infrastructure investment trends are affected by a range of factors including the macroeconomic situation; the developmental phase; and the need for renewal and technologicaladvancement (Allen Consulting Group, 2005: 13). Trends in infrastructure investment in both
Australia and internationally, reveal a shift away from nation building and redistributional
focus of investment characterised by Keynesian state policies of the post-war era.
Infrastructure investment in contemporary Australia has become increasingly concentrated
and localised with a focus directed towards construction of industry clusters and information
nodes, which have potential to intensify returns on investment and maximise investor profit(O’Neill and McGuirk, 2002: 243). The nature and benefits of growth and competition havebeen concentrated, especially in major urban centres such as Sydney and Melbourne. This has
contributed to the development of spatial disparity across the Australian landscape(Productivity Commission, 2005).
Australia’s population density, composition and distribution, raises challenges forinfrastructure investment. Should infrastructure investment be concentrated around183

settlements that are the most economically viable? Should there be distributional equity withgovernments obliged to provide services irrespective of the location where people reside?
Australia’s size combined with low population density means that per capita infrastructure
costs are higher than in countries with a higher degree of spatial agglomeration. Clusteringdevelopment or encouraging high density population clusters within a specific area is one
mechanism that can be used to intensify the outcomes of investment and lower the cost of
infrastructure development.
Figure 11.4 reveals that spatially concentrated populations within our sparsely populated
nation allows the investment ratio of public infrastructure stock to remain relatively low. The
figure also reveals a trend of decreasing levels of public infrastructure stock as a ratio of grossdomestic product between 2001 and 2006. This may be attributable to gains in efficiency.
However, it is more likely to be a consequence of the policy preoccupation with runningbudget surpluses rather than reinvesting in community assets.
Investments in infrastructure affect the efficiency of the economy both in terms of its longterm competitiveness, productivity, and in its ability to withstand shocks. Many studies haveconsidered the character of public sector investment and found that it produces a high rate of
return, while also contributing to the future capacity of the economy to grow (Allen
Consulting Group, 2005).
Figure 11.4 The relationship between the geographic concentration of population and public
infrastructure stock by state, 2001 to 2006
Infrastructure stock per cent of GDP
350
2001-02
NT

300
through to250
200

2005-06
WA

QLD
150
TAS

VIC

100

NSW

ACT

50

SA

Geographic concentration of population
0
0.60

0.80

1.00

1.20

1.40

1.60

1.80

Source: Coombs, G. and Roberts, C. (2007); Trends in Infrastructure, in Economic Roundup Summer 2007,
Canberra: Commonwealth Department of Treasury.
Note: The capital stock to Gross State Product ratio of public infrastructure is highest for each state and territory
in 2001-02 and falls to 2005-06, the lowest point for each state and territory in the chart. Source: ABS cat no.
5204.0, 1379.0, 8762.0 and Treasury.

11.2.3 The need for infrastructure investment in Australia
The reduction in public infrastructure expenditure may be partly explained by improvements
in productivity and efficiency, increasing use of the private sector, sectoral changes inindustry composition and declining cost of infrastructure. However, there is a vast body ofevidence that the current stock of infrastructure is inadequate for the needs of business andcommunities.

184

The Australian Council for Infrastructure Development (2001, cited in AFTF, 2007: 153)
estimated that there was need for an additional investment of $150 billion to repair, upgrade
and complete road, rail, water and energy infrastructure projects in Australia. Their estimates
include need for a further $10 billion worth of investment in road infrastructure and $8 billion
for rail. Further, a review of local government expenditure on infrastructure has estimated ashortfall in funding of $14 billion, due to insufficient growth in the tax base of many councils(AFTF, 2007: 160).
ABN-AMRO (2006) suggest that investment of 4.5 per cent of GDP should be the minimum
expenditure for total public capital formation, but proposes that recovering from prolonged
periods of under-investment will require investment beyond the minimum to ‘catch up’.
Figures from June 2006 put public sector investment at 1.8 per cent of GDP. ABN-AMRO(2006) identified a base for infrastructure spending that required investments of $338 billion
over the next decade, $184 billion of which would be on economic infrastructure (roads, rails,
electricity, gas, water, ports etc…) and the remaining $154 billion on social infrastructure(schools, hospitals, universities, defence, etc...). In addition, they modelled a scenario
requiring $416 billion of infrastructure investment over the next decade. Both these estimates
outstrip actual public capital formation of $280 billion over the preceding decade. The federal
governments’ response to this need for investment in transport was to put forward an
additional $3.6 billion for road and rail over a period of 5 years (Department of Transport andRegional Services, 2004: xi).
The impacts of investment extend beyond efficiency gains and an improved built
environment. Hardwicke (2005: 2) reported that an additional outlay of $1 billion on urban
arterial and local roads would bring with it employment creation in the vicinity of 20,000 jobs
and increases in GDP. The major obstacle to infrastructure improvement was associated withthe governments’ imposed budgetary constraint and reluctance to fund projects throughrunning deficit budgets.
The findings of the 2007 national local government JG survey (outlined in Chapter 7) confirm
that current infrastructure provision does not meet the needs of communities throughout
Australia. Cost reductions, increases in efficiency and productivity, and increased
involvement of the private sector have not provided communities with a level of infrastructurethat is satisfactory. This is clearly documented in numerous documents including Local
Government Social Plans and Engineers Australia report cards.
COAG (2007: 7) identified a framework for the future development of infrastructure inAustralia that includes:
a stock-take of the physical infrastructure including good information on its
performance;effective management of the infrastructure and factors influencing user demand;a comprehensive planning framework, which identifies future demands andchallenges; anda regulatory and pricing framework which encourages increasingly efficient use of
infrastructure and timely investment in new and updated infrastructure, where this isthe best option for responding to particular needs.

11.2.4 The need for expansion of services to the community
Attempts to reduce or limit government expenditure, has also impacted adversely on the leveland quality of public sector services. Increased targeting has removed access altogether forsome sections of the population forcing them to provide for their needs through the market.
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According to the Productivity Commission (2008: E.21) ‘Government involvement in healthservices is predicated on the desire to improve the health of all Australians and to ensure
equity of access’. However, there is evidence that access to public hospitals as deteriorated
despite the Howard government contention that the Private Health Insurance (PHI) rebate
would relieve pressure on public hospitals and reduce waiting times. The average waitingtime for elective surgery at the 50th percentile in 2001-02 was 27 days but this had increased
to 32 days by 2005-06 (Productivity Commission, 2008). In addition, 4.6 per cent of elective
surgery patients treated in 2005-06 had waited more than 365 days.
The measures taken by the federal government in the 1990s to limit supply of GPs by
restricting Medicare provider numbers impacted on accessibility to primary medical care.
There is evidence of continuing major disparities in the availability of GP services and accessto bulk billing between urban and rural areas. Compared to rural areas there were more GPs
per 100,000 people in urban areas in all states except Queensland and bulk billing was lower
in rural and remote areas than in urban areas (Productivity Commission, 2008). In recent
years there has been an increase in the proportion of GP visits that are bulk billed, rising to 78
per cent in 2006-07 (Productivity Commission, 2008). However, bulk billing rates werehigher in capital cities than in rural and remote areas.
Although outside the parameters of the national local government JG survey (outlined in
Chapter 7) , which was restricted to identifying employment opportunities for low skilledworkers, Social Planners frequently referred to severe shortages of a range of healthprofessionals including doctors, nurses, physiotherapists and dentists. In 2005 there werearound 7 public dentists per 100,000 people in Australia but these were disproportionately
located in major cities (Productivity Commission, 2008). There were no public dentists inremote and very remote areas of Victoria or Tasmania, or inner regional areas in the ACT.
In relation to child care and pre-school services, equitable access is measured by participation
rates for special needs groups. The Productivity Commission (2008) found that children from
non-English speaking backgrounds, Indigenous children, children with disabilities andchildren from remote areas had lower rates of participation than other children. Unmet needfor child care from the ABS Child Care Survey 2005 (Productivity Commission, 2008)
indicated that there was a slight increase in unmet need at the national level between 2002 and2005 (Productivity Commission, 2008). In 2005 there was need for additional child care for 6
per cent of children under 12 years (Productivity Commission, 2008). Unmet need ranged
from around 5.5 per cent in Western Australia and the Northern Territory to 10 per cent in the
ACT.
Access to Home and Community Care (HACC) services is essential to improving andmaintaining the quality of life of the elderly and people with disabilities residing in thecommunity and ultimately to the fulfillment of individual desires to remain in the community
rather than move to an institutional setting. Chapter 9 analysed the provision of aged careservices and demonstrated that access to HACC services are woefully inadequate. Evidence
suggests that services are inadequate, fragmented and difficult to access. For those fortunate
enough to obtain services, it is at a low level; a weekly average of 36 minutes domestic
assistance, 10 minutes of home maintenance and 0.7 trips for transport services. Similar issues
pertain to the needs of people with disabilities (see Chapter 9).
In addition, carers need regular access to respite services. In 2005-06 only 11.5 per cent ofpeople with disabilities who reported having a primary carer used respite services(Productivity Commission, 2008). Moreover, those from outer regional and remote or very
remote areas had lower rates of utilisation of respite services than those from major cities andinner regional areas.

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In the 2006 Census there were only 3.6 per cent of households in public housing and 0.7 percent in community housing (Productivity Commission, 2008). As discussed in Chapter 9, thepolicy shift from direct provision of public housing to subsidising rent in the private market isan inferior strategy to achieve housing affordability, since the level of private rents cannot be
controlled in the same way as the public housing rental. There is an urgent need for a large
increase in the public housing stock to alleviate housing stress.
The results of the 2007 national local government JG survey (outlined in Chapter 7) indicatedunmet need for the provision of a diverse range services that must cater for specific needs ofindividual communities throughout Australia.
11.2.5 Public sector employment outcomes
Government policies over the past two decades have impacted significantly on public sector
employment. Governments have articulated the objective of transforming the public service
from bureaucratic, input-focused and process-driven, to becoming a dynamic, output-focused,efficient and effective organisation. Such ambitions commenced with the Coombes
Commission in 1976 and continued through the Reid Report in 1983 and the Public Service
Act 1999 (Cook, 2006). An integral component of the implementation of neo-liberal policies
was the objective of increasing the profit share of national income and reducing government
expenditure. These objectives were pursued through attacks on the rights of workers tocollectively organise, both in the public and private sector.
The Hawke government instituted managerialist reforms from the mid 1980s, coinciding withthe balance of payments and exchange rate crises and the introduction of the Structural
Efficiency Principle under the Accord. The government streamlined functions and agencies in
1986, and then amalgamated departments to form mega departments in 1988. The number ofjob classifications was reduced to produce a ‘flatter structure’ for administrative (1986),
professional, technical and blue-collar public sector workers (1988), and projected staffing
levels were reduced by an ‘efficiency dividend’ in the form of a 1 per cent per annum
reduction in running costs, imposed in the 1987-88 budget, and increased to 1.25 per cent in
2005-06. From 1988, commercial practices were introduced in government businessenterprises (Bureau of Industry Economics, 1995).
Subsequent privatisation policies further reduced public sector employment. Mitchell (2001a)demonstrates that declining public sector employment contributed significantly to persistently
high unemployment in an environment where private sector employment growth failed tomatch labour force growth. From the mid 1980s public sector employment growth slowed,
then in the recession in the early 1990s pro-cyclical job losses of 160,900 exacerbatedunemployment, and a further 123,700 public sector jobs were destroyed in the late 1990s(Mitchell, 2001a: 198).
Figure 11.5 shows Commonwealth, state and local public sector employment and the share of
public sector employment between 1983 and 2007. In a period when total employment grewby over 3 million, public sector employment stagnated in absolute terms and contracted
relative to total employment. Total public sector employment increased from 1,642,000 in
August 1983 to 1,683,000 in May 2007, but declined from 26.6 per cent of total employment
to 16.5 per cent over this period. The decline was driven primarily by reductions at theCommonwealth level where employment contracted from 410,000 or 6.6 per cent of total
employment to 232,000 or 2.3 per cent of total employment. State government employment
increased from 1,089,000 to 1,281,000 but declined as a share of total employment from 17.7
per cent in 1983 to 12.5 per cent in 2007. Similarly, local government employment increasedslightly (from 143,000 to 170,000) but declined from 2.3 to 1.7 per cent of total employment.

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2000

28

1800

26

1600

24

Thousands

1400

22

1200
20
1000
18
800
16

600
400

14

200

12

0

Percent of total employment .

Figure 11.5 Public sector share of employment 1983 to 2007

10
1983

Commonwealth

1987

1992

State

Local

1997

2002

% of total employment

2007
Total Government

Source: ABS 6248.0.55.001 Wage and Salary Earners, Public Sector Australia, original; ABS 6202.0.55.001
Labour Force Australia, original (2007a)

The industry composition of public sector employment has changed dramatically. Education,
government administration and defence, and health and community services have dominatedgovernment employment, growing from 54 per cent of public sector employment in 1983 to
78 per cent in 2004. Between 1983 and 2004 public sector employment in the education
sector increased from 342,700 to 484,500, while government administration and defence grewfrom 277,700 to 405,900, and health and community services staffing increased from 268,800
to 341,300.
Staffing reductions in transport and storage, electricity, gas and water, communication
services, manufacturing, and finance and insurance, reflect government privatisation policies.
For example, the combination of deregulation, privatisation, and technological innovations
reduced full-time equivalent staffing in Telstra from 87,620 in 1989 to 50,761 in 2000
(Barton, 2002: 58), while the workforce in the Victorian gas industry contracted from 5215 in1982 to 1214 in 1998 (Barton, 2001).
11.3

The failure of the privatisation mania

11.3.1 Overview
Privatisation is promoted on the basis that it increases competition and efficiency, enhances
choice, reduces prices and relieves budgetary stress of governments (Bureau of Industry
Economics, 1995). Privatisation may also reduce the power of vested interest groups such as
trade unions and thus provide a vehicle for reducing staffing, wages and working conditions.
Finally, ideological preferences for small government and private sector dominance in themarketplace have resulted in vociferous demands for withdrawal of the public sector under
the catch-cry articulated by Osborne and Gaebler (1993) of “steering not rowing”.

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Major reforms in the public sector have centred on the transformation from public to private
service delivery ranging from outsourcing functions through to complete privatisation.
Reforms have been justified on the grounds of enhancing competition and consumer choice aswell as increasing efficiency and reducing prices. Outsourcing became a major policy
direction for both federal and state governments in the 1980s and 1990s, particularly fortransport services, cleaning, information technology, waste disposal, building and equipment
maintenance. In relation to health, NSW introduced competitive tendering from 1988,
followed by Victoria and Western Australia in 1994 and South Australia in 1995 (Industry
Commission, 1998). State governments outsourced provision of non-core services such as
cleaning and maintenance in education from the 1980s. More recently, competitive tenderinghas been introduced into core services. Queensland, NSW, Victoria, South Australia,
Tasmania, and the ACT established competitive tendering arrangements for training programsin 1996 and 1997. Major infrastructure developments have also been subject to various
contracting out or privatisation arrangements through public private partnerships (PPP).
Public employment services, delivered exclusively by the Commonwealth Employment
Service (CES) since 1946, were partly contracted to private and community sector providers
by the Keating government as a component of the Working Nation package and privatisation
continued under the Howard government with the introduction of the Job Network in 1998.
The public sector provider Employment National closed in 2003 (see Chapter 6 for further
details).
Privatisation of government businesses and services began in earnest in the latter part of the
1980s and accelerated in the 1990s under both ALP and Coalition governments at the Federal
and State level (for a comprehensive list of privatisations in Australia refer to Fairbrother,
Paddon and Teicher, 2002), raising a total of $85 billion, of which state electricity and gas
sales comprised 40 per cent and the partial privatisation of Telstra raised $30 billion (Moran,
2000). Commonwealth government privatisations included: AUSSAT (1991), theCommonwealth Bank (1991-1996), Australian Airlines (1992), the Moomba-Sydney Pipeline(1993), Qantas (1995), the Snowy Mountains Engineering Corporation (1995), various
airports from 1998, and the partial privatisation of Telstra from 1997. Privatisations at thestate level varied considerably: most have privatised financial and insurance institutions,while others such as Victoria and South Australia have conducted more extensive
privatisation including electricity, gas and port facilities (RBA, 1997). In addition, the public
transport system was privatised in Victoria bringing total asset sales for the state to $30
billion. Between 1990 and 1997, the federal and state governments raised over $61 billion inproceeds from the sale of public assets.
Generally progress toward privatisation involved major restructuring as enterprises were
corporatised, broken into discrete organisations and ultimately privatised. The Victorian State
Labor government sold 51 per cent of Loy Yang B power station in 1992. Subsequently, theKennett Coalition government corporatised electricity in 1993, outsourced non-core functions
such as transport and maintenance, and restructured the organisation into commercially viablebusinesses which were sold in 1996 and 1997 (Fairbrother and Testi, 2002). Similarly the Gas
and Fuel Corporation of Victoria was corporatised by the Labor government in the early
1990s, outsourcing began in 1993 and by 1999 privatisation was complete (Barton, 2001).
There have been some spectacular failures related to privatisation. The Kennett Coalition
Government privatised the rail and tram network in Melbourne in 1999 in order to introduce‘private sector disciplines and innovation into public transport’ (Grieg, 2002: 237), boastingthat privatisation would deliver reductions in public subsidies amounting to $1.98 billion andprovide $1.6 billion in new infrastructure investment (Hammond, 2003). National Express

189which was awarded 3 of the 5 franchises walked away in December 2002 leaving debts of $55
million and forcing the state government to assume responsibility for operation of the rail
network. Subsequent restructuring of the privatised franchises resulted in higher public
subsidies, eroding the expected gains from the privatisation. Hammond (2003) claims that the
expected major infrastructure investment by the private operators also failed to materialise.
Similarly, in assessing electricity privatisation in Victoria in the 1990s, Cahill and Beder(2005) note that:

the introduction of interstate competition in 1998 resulted in a number of privatisedcompanies selling their assets at a loss;

further rationalisation subsequently occurred with 30 per cent of the retail market up
for sale in 2002;



extensive blackouts occurred in 1997 due to insufficient maintenance;

privatisation failed to deliver any increased generating capacity;

prices increased with low income households particularly affected.

11.3.2 Public Private Partnerships
Overview
Government procurement has undergone considerable reform over the last 20 years andPublic Private Partnerships (PPPs) are increasingly becoming the norm for social andeconomic infrastructure delivery. PPP projects in Australia have been estimated to havereached a total of $20 billion (Joint Select Committee on the Cross City Tunnel, 2006). The
term PPP covers a wide variety of collaborations between the public and private sector. A
familiar model that has been used frequently in Australia since the early 1980s involves
provision of infrastructure such as toll roads which is argued to provide infrastructure more
quickly than by public provision which is subject to government-imposed budget constraints.
This arrangement ultimately transfers the cost of infrastructure to users with associatednegative distributional impacts.
PPPs offer the government and society a hybrid model for public investment in infrastructureand services. PPPs seek to harness the benefits of a competitive market as well as private
sector expertise and innovation. In theory, the involvement of the private sector allows the
public sector to transfer the risk associated with delivery, obtain “value for money”, andallows increased provision of public infrastructure compared to traditional public sector
provision. The PPP literature maintains that access to services and utilities remains equitable
and that positive benefits associated with the asset continue to flow onto society. In practice
however, there may be major deficiencies in accountability and private acceptance of risk.
Prominent examples of public private partnerships are found in the Joondalup Health Campus
in Western Australia (see below), the Casey Hospital in Victoria and the New South Wales
Government “New Schools Projects” for new schools financed, built, owned and maintainedby the private sector and handed back at the expiry of the 30 year contract.
We note that due to our inefficient national constitution, state and local governments have todeliver most of the essential services but face constant revenue issues. There is a real case forrealigning spending and taxing responsibilities to allow the federal sphere more influence.
This follows the logic we developed in Chapter 3 where we identified that the federal
government does not have a financial constraint. If the Federal Government took over the
responsibility for infrastructure provision much of the PPP debate would become irrelevant

190inasmuch as it is based on the revenue constraints faced by state governments in the face of
their responsibilities.
However, in saying that, the debate when focused at the state level is based on false premises.
There is no economic logic that state government borrowing is bad. The argument that a state
government has to run a surplus to maintain an AAA rating is nonsensical in the context of aideologically-driven unwillingness to use that rating to borrow on favourable terms which
maximise social advantage. There is nothing efficient about surpluses that both accompany
the run-down of social infrastructure and the higher cost provision of essential infrastructureand services.
The role of government is to maximise social welfare rather than maximising private welfare.
When we discuss the efficiency of a particular activity within the context of resource
allocation we should always focus on the maximisation of net social benefits rather than the
maximisation of net private benefits. Generally, PPPs have failed to meet this performancebenchmark and typically compromise social interests in favour of private interests.
Government should use its fiscal power to: (a) ensure full employment; and (b) to maintainhigh quality public infrastructure. In relation to this second role, governments face twoquestions: (a) What is the best way to provide for the rising demand for best practice public
infrastructure?; and (b) What is the best way to gather the resources necessary to guarantee
this provision?
There is a strong economic case for Government to provide public infrastructure because of
market failure considerations – the existence of public goods, externalities and such does notsupport sufficient private returns from user charges to ensure the private provider will remain
profitable. The classic case is of the railway system. Further, the presence of natural
monopolies will generate excessive prices and returns should a private supplier be present.
Finally, public infrastructure services typically generate benefits across time and beyond theimmediate users (schools, hospitals, sewage, etc…) which means that it is not an excludable
good and therefore not appropriate for private provision.
Public infrastructure investment also promotes productivity and economic growth. It provides
a fundamental training ground for skilled labour (for example, a national apprenticeshipcapacity), and, beyond its economic contribution, public infrastructure provides a social fabricand hence social benefits.
Key steps in a PPP
A PPP is a contractual partnership between the public sector and the private sector to finance,
construct and / or operate projects which would normally be the responsibility of the public
sector.
Key steps involved are:

Private partner invests in public infrastructure;Contract extends to operation of the facility – usually with bundled services; andGovernment pays annual fees for capital and services which include risk premium,private profit margin.

There are various forms of PPPs used, the most popular being:Design, construct and maintain (DCM)

Build, operate and transfer (BOOT)

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The issue of how much service delivery should government retain usually results in thegovernment being reduced to policy development, and brokerage and management ofcontracts with private service delivery partners. Given that these arrangements oversee thedevelopment of key public infrastructure the responsibilities vested in private financiers anddevelopers is disproportional to their ability to gauge the public interest.
The proponents of PPP arrangements argue that they offer value for money which in theliterature is an efficiency concept entailing: (a) Lower construction costs; (b) Lower operating
costs; and (c) Higher quality services. The evidence from Australia and the UK is mixed but
generally does not support these alleged advantages across education, health and othersectors. We consider a specific case study further on in this sub-section.
The financing myth – who ultimately carries the risk?
The standard attack on PPPs has been somewhat misleading. The argument goes that theprivate sector has to price its debt in the market whereas public debt prices at the long-termbond rate. Given that there is typically a 3-5 per cent difference between private and publicfunds, the PPP can never be cheaper unless services (employment) are cut dramatically or
construction quality reduced.
However, we have to recognise that the difference in borrowing rates reflects project risk andlower public rate implies that government will rescue a failing project via drawing on
consolidated revenue. Therefore the PPP is constructed by its proponents as an efficienttransfer of risks from public to private and the critics are dismissed as being ignorant of this“risk transfer” argument. The gains are alleged to arise from the private sector being better
able to manage risk – largely because they have a higher incentive to do so – private profit.
The real problem with the PPPs in this regard is that is a falsehood that the risk shifts from thepublic to the private sector. Who ultimately bears the risk? The risk premium in private
financing is based on the fact that a private entity can become bankrupt with its product andservice exiting the market. With an essential public service it is a fantasy to say that the PPP
contract transfers risk to the private sector. If the private partner defaults, the public always
has to pick up the pieces. There is no real risk transferred.
There is substantial empirical evidence, particularly from the UK that shows that PPP partners
in the private sector profiteer from the “risk” transfer component built into the contract
payments. The private provider aims to minimise financing costs over the life of the contractby early repayment and refinancing existing loans at lower interest rates. The risks are
typically high in construction phases and drop to near zero once service operations begin. The
private partner reduces costs by refinancing at lower rates once construction is completed.
The private partner captures these gains at the expense of the social good. The PPP contract
may be able to prevent this from happening but then it reduces the incentive of the profitseeking private provider to enter the contract.
The problem is that the concept of making private profit on public infrastructure is in ourviewed a flawed one. Why should the public payments include a profit margin? Is ownershipor management the key to sound project outcomes? This is a rehearsal of the privatisation
debate which failed to show ownership mattered.
Monitoring problems
A constant problem with PPPs, is that Government monitoring and evaluation systems aredesigned to ensure contract requirements are met but the details of PPPs are often suppressed
as “commercial in confidence” so that public scrutiny is curtailed. The key elements ofsuccessful PPPs are transparency and effective monitoring and evaluation systems to ensure

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that the deliverables are consistent with expectations of quality, timeliness, utility and public
interest. Indeed the introduction of PPPs imposes an increased need for independent
assessment of outcomes in regard to the relevance, effectiveness, efficiency, feasibility andsustainability of the tendering process and outcomes of the partnership. English (2007)
challenges the scope of the monitoring and evaluation frameworks that auditors are using to
draw their conclusions. Of concern is the distinction between audit methods, which Pollitt etal. (1999 cited in English, 2007: 319) refer to as systems-based or substantive.
Systems-based evaluations focus on procedures or best practice frameworks, and in the caseof Australia have focused on the pre-contracting stage of a PPP by ensuring that steering
mechanisms are implemented appropriately and that objectives can be achieved effectively
through adherence to best practice procedures.
Alternatively, substantive evaluations consider efficiency in terms of core activities and ‘thequality of service experienced by users against externally-derived criteria’ (English, 2007:319). Substantive investigations involve critiquing and questioning government policy, andalso challenging the effectiveness of outcomes verses the processes and strategies employed
to derive those outcomes. English (2007: 331) further notes that only, ‘two auditors-general
have investigated the achievement of anticipated risk transfer and the “value for money” inthe operating stages’ of PPPs in Australia –which are core motivations for engaging in PPPs.
Both of these audits occurred prior to 2000, one of the Joondalup Health Campus in Western
Australia (see below), and the other of the New Prisons Project in Victoria.
The procedures that the Auditors-General follow raise questions about the degree of scrutiny
to which PPPs are exposed. In the absence of appropriate monitoring and evaluation systems,
who ensures that PPPs are accountable, responsible and performing in the best interest of the
public? Evaluations of PPPs have also been undertaken by bodies such as the VictorianParliamentary Accounts and Estimates Committee and NSW Public Accounts Committee.
Both the NSW Public Accounts Committee and the NSW Auditor-General evaluated the precontracting phase of the cross city tunnel project. The cross-city tunnel opened in 2006 andwas placed in the hands of receivers in 2007 with debts in excess of $560 million. The
following section outlines developments that can be described as privatising public hospitals.
11.3.3 Case study: Privatising public hospitals
In Australia, creeping privatisation policies that shift resources from public to private
hospitals have been combined with overt policies including: contracting out services such as
catering, cleaning, maintenance, laundry, car parks, security, radiology and pathology (Senate
Community Affairs Committee, 2000), and more recently, utilisation of PPPs to transfer
responsibility for financing, building, owning and operating some public hospitals to theprivate sector. Pierson (1994) classifies privatisation as systemic welfare state retrenchmentthat weakens pro-welfare state groups.
The 1998-2003 Australian Health Care Agreements (AHCA) provision that public hospital
services may be provided in “any appropriate environment” facilitated treatment of 98,527
public patients in private hospitals in 2002-03 (AIHW, 2004). Individual services have been
contracted to the private sector include: maternity services in Bernie and ophthalmology in
Hobart, Tasmania; urology services in Illawarra NSW; and public day surgery, step-downcare and cardiac catheterisation in Flinders Medical Centre, South Australia (Forwood, 1997).
Elsewhere underinvestment in public hospital capacity and increasing reliance on the private
system is evident. Victorian public patients are transferred to private hospitals for intensive
and coronary care when beds are unavailable in the public system (Department of Human
Services, 1998). In April 2005 the NSW government announced that 2,591 of 4,500 patients
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waiting longer than one year for elective surgery would be treated as public patients in private
hospitals. In recent years, State governments have engaged in various forms of PPP to operate
public hospitals, and / or provide infrastructure off balance sheet. The rationale includes:
claims of higher productivity and greater innovation in the private sector; necessity due topublic sector funding constraints; negation of more generous public sector employment
conditions including security; and the transfer of risks associated with construction (Steering
Committee for the Review of Commonwealth/State Service Provision, 1988; Forwood, 1997:87).
Several types of PPP have proceeded in Australia: a) Build, Own, Operate (BOO), where theprivate operator retains ownership of the hospital when the contract expires; b) Build, Own,
Operate, Transfer (BOOT), involving private construction and operation, followed byownership transfer to the public system after the contract expires; c) Build Own and Lease
Back (BOLB) involving private construction and ownership with the government leasing andoperating the hospital; and d) Operate (O), where operation of the hospital is contracted out.
UK private finance initiative (PFI) experience, which has been the primary vehicle for most
new capital investment since 1992, provides insight into issues involved in PPPs with respect
to hospitals. Gaffney et al. (1999) contend BOOT arrangements failed to provide an efficient
lower cost option, claiming that costs have exceeded public finance options and ‘required adiversion of hospital budgets from staffing to capital payments and have led to major
downward revisions in the planned capacity of hospitals’ (Gaffney et al., 1999: 51). For
example, average beds available in 11 NHS trust areas are expected to fall from 8063 in 199596 to 5583 under PFI, a fall of 30.8 per cent (Pollock et al., 1999). Also, national capitalplanning based on population needs has been replaced by delivery of facilities according tolocal affordability (Pollock et al., 1999). On balance the evidence suggests that the promised
benefits of PFI have not occurred.
In Australia, superior efficiency of private sector delivery is yet to be proven (Sperling and
Parslow, 1999). A review of Joondalup hospital by the Western Australian Auditor Generalfound contractual process failed to establish that PPP would deliver net tangible benefits overa public sector alternative (Auditor General, 2000: 7). Post implementation comparisons withbenchmark hospitals, found patient satisfaction ratings for Joondalup were inferior in all areas
except food and surroundings. The greatest discrepancies were for availability of staff,
continuity of care and being kept informed. Contract omissions regarding non-coronial post
mortems and a requirement to accept patient transfers from other hospitals necessitatedrenegotiation and additional payments. The Metropolitan Health Service Board (MHSB)
claimed that Joondalup’s reluctance to accept patient transfers due to financial arrangements
resulted in bed block at inner city hospitals (Auditor General, 2000: 23). Significantly,
benchmark hospitals accepted 30 times more patient transfers than Joondalup.
The NSW government contracted Health Care of Australia (HCoA) to construct, operate andown (BOO) the Port Macquarie Base Hospital (PMBH), with projected savings of $46 million
over the 20 year contract period. Collyer’s (1997) analysis of the PMBH development raises
many issues that have been considered in the British context. First, the project was promotedon the basis that public finance was not available due to Commonwealth constraints on global
borrowing. Secondly, cost comparisons purporting to demonstrate the private option was lessexpensive in both construction and operation phases were challenged by a Parliamentary
Accounts Committee (PAC) inquiry that suggested public sector construction costs could besubstantially reduced, while estimates for the private option were understated due to theomission of insurance, debt servicing and maintenance costs (Collyer, 1997).

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The PMBH privatisation failed to produce the estimated cost savings, and contract omissions
necessitated significant additional payments (Collyer, 1997). Similarly, the NSW Auditor
General claimed the government would pay twice for the cost of capital construction, in theannual availability fee and through fee-for-service payments, but would own neither the land
nor the buildings. Collyer further claims that associated administrative, legal and oversightcosts plus government liability for costs of leave for employees for the first year were omitted
from cost comparisons. The sale of PMBH to Affinity Health Care in 2003 provoked a longrunning dispute with the State government, culminating in the 2005 purchase of the hospitalby the NSW government. Collyer (1997: 35) concludes:
The increasing support for privatisation, despite its poor fiscal outcome to the state,
can best be explained with recourse to the theory of privatisation as a prevailing,
pervasive discourse which favours the interests of powerful groups and institutions –particularly financial corporations and the political arm of the state ... and it hides thefact that privatisation is actually a transfer of public wealth to the private sector.
Similarly, several unsuccessful privatisation attempts in other states have resulted in hospitals
reverting to public ownership and / or operation, raising questions regarding the extent of risk
transfer to the private sector. The Victorian government contracted the Ramsay Health Care
Group to build Berwick Community Hospital but decided to operate the hospital after thewithdrawal of Ramsay, then Mercy Health and Aged Care. Similarly the La Trobe Hospital in
Victoria and Robina Hospital in Queensland were handed back to the state in 2000 and 2002
respectively. In addition, management of the Mersey Hospital was outsourced in 1995 but
subsequently returned to the State in 2004.
Sperling and Parslow (1999) insist that assessments of potential savings must include
bargaining costs, costs of disputes, transaction and monitoring costs. Moreover, they argue
that ‘Governments must retain the capacity to provide comparable services or to engage
alternative providers if they are to ensure value from contracts with private operators’(Sperling and Parslow, 1999: 82).
Outright privatisation of some Australian public hospitals has also occurred, notably
Repatriation General Hospital in Western Australia, Lady Davidson in NSW, andRepatriation General Hospital in Queensland in the mid 1990s, as part of the Department of
Veterans Affairs’ divestment program (Productivity Commission, 1999: 8). In addition,
expenditure on private hospital treatment for veterans increased from 16.7 per cent of total
DVA hospital expenditure in 1992-93 to 32.4 per cent in 1996-97 (Sperling and Parslow,
1999: 88), due to the increase in the number of private hospitals providing services to DVA
patients, from 192 in 1991-92 to 275 in 1996-97 (Productivity Commission, 1999: 22).
11.3.4 Co-location: Blurring the boundaries between the public and private sectors
The distinction between public and private has become blurred by the trend toward colocation where public and private sector organisations share facilities. For instance, public andprivate hospitals share facilities such as pathology, radiology, laundry, catering and parking(Sperling and Parslow, 1999). Further, the federal government plans to create a subsidised“one-stop-shop” for childcare services, which will integrate community health centres, child
day care and long day care, pre-school and playgroups. It is proposed that these centres will
provide both private and public services to the community. For instance, the long day careservices may be private, and families may be eligible to receive a government subsidy thatcovers a proportion of the service costs. The community health services would remain public.

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11.4

National Competition Policy

11.4.1 Overview
The major policy that triggered the public utilities reform was the National Competition
Policy (NCP). It was introduced in 1995 to help address the various regulatory andinstitutional restrictions on competition that led to perceived inefficiencies within theAustralian domestic economy. The NCP was to enhance competition through cost control,
innovation and responsiveness to consumer needs (Productivity Commission, 2005: xiii). It
was based on recommendations from the Hilmer report, which sought to redress public sector
competitive advantage through industry deregulation or self-regulation and competitive
tendering of services that had traditionally been provided by the government.
At the Council of Australian Governments’ Meeting (COAG) in 1995, State and Territory
governments agreed to implement NCP to increase competitiveness and economic growth(COAG, 1995). The reform package involved:…extending trade practices legislation to State and Local Government businessenterprises and unincorporated businesses, providing access to essential facilities andencouraging competition in the business activities of governments and other sectors of
the economy through a program of regulation review, enhanced prices oversight,
application of competitive neutrality principles and procedures for structural reform of
public monopolies (COAG, 1995).
The scope of the Trade Practices Act was expanded to include government businessenterprises, public monopolies and other bodies not previously covered by the Act. The NCP
also included establishing independent authorities to monitor prices and competition, in orderto ensure that regulatory frameworks and service provision was in the public interest and that
restrictions on competition were remedied to best serve civic interest.
Officially, the scope of the National Competition Policy did not encompass industrial relation
reforms, nor did it mandate privatisation, compulsory tendering, contracting out ofgovernment services, or reductions in infrastructure services in rural and regional Australia.
However, NCP coincided with the Commonwealth agreeing to maintain real funding levels
and provide additional competition payments to State governments that were contingent onstates meeting obligations such as the establishment of a competitive national electricity grid,reforms in gas, water supply and road transport. According to Quiggin (2004: 172), NCP
locked State governments into major public sector reforms, in particular requiring them tocorporatise or privatise.
Additional momentum was provided by the National Commission of Audit 1996 report,
which put forward recommendations to limit the role of government further: to fund but notdirectly provide services or infrastructure (Ranald, 2002); and to separate policy formationfrom service delivery to increase efficiency and effectiveness (Verspaandonk and Holland,2003). Despite the government commitment to transfer functions and / or ownership to theprivate sector on efficiency and productivity grounds, the potential gains have been highly
contested. For example, the Industry Commission estimated that the Hilmer reforms would
raise GDP by 5.5 per cent while Quiggin (1997) claims that the direct benefits of
microeconomic reform are likely to be in the order of 1 per cent of GDP, and the flow oneffects negative.
Over a decade since the inception of the NCP it is difficult to determine the extent to which
the NCP has contributed to productivity and economic growth. It is difficult to untangle the196impact of the NCP from longer-term structural changes and parallel policies. Equally, theongoing prosperity of the Australian economy cannot be solely attributed to the NCP.
An evaluation by the Productivity Commission in 2005 found that the NCP has made amarked contribution to growth. Closer examination of the findings, however, reveals that
benefits and costs have varied across the Australian landscape and across socioeconomic
groups. While there remain some government policies which seek to redress issues relating to
distributional equity, such as taxation policies, income support payments and employment
services, these traditional redistributive policies have also experienced reforms in recent times
that have exacerbated uneven outcomes across urban and non-urban areas and also high andlow income households.
11.4.2 The economic impact of National Competition Policy
The Productivity Commission’s review of NCP highlights Australia’s strong economic
performance over the past decade, and the productivity growth that has underpinned this. The
Commission estimated that productivity gains and price reductions for infrastructure that NCP
contributed to resulted in a 2.5 per cent increase in GDP (or $20 billion), compared to a nochange base case. The report emphasised that this figure does not include the broader‘dynamic’ efficiency gains associated with more competitive markets (Productivity
Commission, 2005: 51). The modelled gains are however, far lower than the 5.5 per centincrease in GDP that the Hilmer reforms had predicted.
It is not possible to obtain robust analysis on the impact of NCP (in isolation from otherdynamic influences) on pricing in the market, the business cycle, adjustment costs of thereform or other policies operating around the NCP. However, in some targeted areas, such as
telecommunications, prices have fallen (Productivity Commission, 2005: 56). The
telecommunications and electricity industries represent the highest estimated gains from NCP
reforms. Economic modelling from the Productivity Commission estimates that the former
increased GDP by just under 0.8 per cent, while the later increased GDP by over 0.6 per cent.
Telecommunication prices fell by 29 per cent between 1996-97 and 2002-03 and electricity
prices decreased by 19 per cent between 1990-91 and 2003-04. However, the Productivity
Commission (2005: xix) noted that real prices for electricity, gas, water and urban transport
had increased over the past decade, and that price rises were higher in regional areas and for
low income households.
11.4.3 Spatial impact of privatisation and National Competition Policy
Throughout the 1990s privatisation of infrastructure accelerated, including: electricity, gas,
telecommunications, railways, roads and ports. Benefits accrued from privatisation have beencounterbalanced by costs and disadvantages for regional Australia. A feature of privatisationis the reduction of employment which impacts differentially across space. Significant adverse
employment impacts have been experienced in regional areas such as Port Pirie, Port
Augusta, Junee and Bendigo as a result of rail privatisation (Standing Committee on
Transport and Regional Services, 2003). Similarly, employment in the electricity industry has
been reduced due to privatisation causing significant job losses in the La Trobe Valley andPortland (Standing Committee on Transport and Regional Services, 2003). Other job losses
have occurred at regional aviation centres due to privatisation of airports and ports.
The benefits of the NCP have been unevenly experienced across Australian communities. The
Productivity Commission found that the benefits have not been exclusively urban based orthat there have been uniform negative consequences for rural and regional Australia. Some
small regional communities had experienced a continuing decline due to population drift anddeclining terms of trade. Although the NCP was not explicitly responsible for these outcomes,197

it didn’t function as a preventative policy instrument. The benefits gained from downward
pressure on the cost of power and transport that is associated with the NCP may have helped
to ease some of the adjustment burdens for these communities, but ultimately the NCP has
been more beneficial to larger urban communities. The report notes that:
Benefits from NCP have flowed to both low and high income earners, and to country
as well as city Australia — though some households have been adversely affected byhigher prices for particular services and some smaller regional communities haveexperienced employment reductions, (Productivity Commission, 2005: xii).
The National Competition Policy has subtly influenced the spatial configuration of Australiansettlements. However, the full spatial impact of the NCP is still unknown as the review, while
required to collect regional data, focused on the national impact and did not address particularsectoral or regional issues that were raised in some submissions. These concerns included the
distributional equity of the reforms and the degree to which they have served the public
interest. The Country Women’s Association noted that,
While the ‘big end of town’ and shareholders in the main have benefited, it is theworker, the ‘little man’ who has suffered and who, in spite of promises that things will
improve, continues to suffer. Social, rural and environmental needs are not being met(Productivity Commission, 2005: 86).
Other submissions questioned the apparent trickle down benefits that were expected to beshared by the community as a whole. In some cases, the highly localised consequences of the
NCP have been compounded by reforms in other industries resulting in substantial businessand jobs losses. In these specific cases, regions have suffered from a low productivity stateand only recovered after the government committed high levels of funding to support local
social and capital development rejuvenation initiatives.
There is some continuity relating to concern for regional development under the NCP. In theCommission’s 1998 inquiry it was acknowledged that the preliminary data seemed to indicatethat the policy favoured metropolitan areas more than rural and regional areas (Productivity
Commission, 2005: 95). The impact of NCP in regional Australia has exacerbated the effects
of other reforms to tariffs, financial deregulation, industrial relations reforms and contractionof the public sector (Productivity Commission, 2005). The report revealed clear regional
losers, such as Gippsland in Victoria for which the structural reforms in electricity resulted ina fall in employment in the vicinity of 7 per cent (Productivity Commission, 2005: 109).
Regional employment effects for infrastructure industries have varied significantly, with
benefits in some regions counterbalanced by losses, including large negative employment
effects in some regions (Productivity Commission, 2005). The largest employment
contractions were in Gippsland in Victoria and Wheatbelt in Western Australia where
employment in infrastructure industries declined by 11.27 and 4.19 per cent respectively.
Concentrated job losses such as those sustained by Gippsland can have substantial and longlasting negative impacts on communities. Regional studies have identified that highunemployment rates result in welfare dependency, lower household incomes and reducebusiness activity. While economic theory posits that the solution is out-migration to areas
where labour is in demand, this is not always possible or desirable. In communities in decline
depressed house prices preclude movements to major cities where housing costs are higher.
Moreover, there is no guarantee that moving to areas of low unemployment will result in
employment, and moving has negative personal consequences for maintaining social
networks and for community cohesion.

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The Productivity Commission (2005) assessed that deregulation in primary production
produced gains for consumers and producers. However, the gains have not been evenly
distributed and producers in areas of northern NSW, southern Queensland and parts ofWestern Australia have sustained reductions in income. In addition, significant employment
reductions occurred in dairy farming, sugar and cotton between 1999 and 2004 (Productivity
Commission, 2005).
11.4.4 Social Impact
The evaluation of the NCP revealed that the reforms had benefited businesses more thanhouseholds. The report notes that there is some evidence which suggests households,
especially those with low demand and often lower incomes have not faired as well from thereforms associated with the National Competition Policy. The Productivity Commission(2005: xix) note that:
At face value, businesses generally appear to have benefited more than households.
Across Australia, real prices paid by households for services such as electricity, gas,
water and urban transport have, on average, risen over the last decade or so, though
there has been considerable variation across jurisdictions. Also, there is a limited
amount of evidence suggesting that:

in overall terms, price rises for households in regional areas may have beensomewhat higher than for their counterparts in metropolitan areas; and

increases in household prices for services such as electricity have generally been
greater for households with low demand and often lower incomes.

The NCP has coincided with a prolonged period of national growth, largely triggered by the
resources boom, increases in productivity and rapid growth in exports. Official
unemployment statistics have been reduced to 30 year lows but there are many workers who
are under-employed or do not receive adequate amounts of work to meet their preference (seeChapter 3).
The NCP resulted in net employment losses of 31,000 within infrastructure industries in the 5
years preceding 2003. This was one of the NCP targeted reform industries and the costs of job
loss were largely borne equally across urban and non urban areas. It was noted that:
Between 1990 and 2003, public sector infrastructure employment fell by 147,000(figure 5.2). But this was largely offset by the creation of 116,000 new private sector
jobs, mainly in communications, electricity and road transport (Productivity
Commission, 2005: 95).
Reports of positive social impacts have been surrounded with controversy. The Commission
reports gains in service efficiency, price reductions and service availability. The Commission(2005: 69) notes that public transport in Victoria has improved its service timeliness acrosstrams, buses and trains and natural gas has been made available to an additional 800,000
households.
However, the report makes scant reference to negative consequences, particularly in relation
to issues of market failure in private sector operation of major infrastructure. While noting
service improvements in public transport in Victoria no mention was made of the major
failure and disruption caused by the withdrawal of the private operator National Express,
underinvestment in infrastructure and increased public subsidies granted to the private
operators during the contract period.

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11.4.5 The future of The National Competition Policy
Although the review by the Productivity Commission marked the 10 year programme impact
evaluation, over half of the report was dedicated to progressing the reform agenda. The
limited scope of the study and difficulties in establishing casual relationships for the costs andbenefits of the NCP means that further analysis revealing the true impact, costs and benefitsof the policy is still required.
The report identified several target areas for reform including further reforms for the national
electricity market, the national water initiative, communications, passenger transport andfreight transport systems. The report also looks to the market as a mechanism for achieving
long term environmentally sustainable outcomes through market led trading schemes. It also
calls for overarching reform to bring coherence to human services associated with publichealth and vocational education and training systems.
The report recognised that the demographic composition of Australia may constrain ourcapacity to improve living standards in the future and called for an extension of competition
policy in order to offset the economic impact of our demographic composition. The reportnotes that:...carefully considered market-based approaches can sometimes be employed within amanaged framework to improve the cost effectiveness (including the quality) of‘human services’ and to deliver better environmental outcomes. Given the projected
escalation in expenditure in areas such as health and aged care, taking advantage of allopportunities to improve the efficiency of service delivery will be especially
important. (Productivity Commission, 2005: xxvii)
The continuing focus of NCP is increasing competition and progressively opening up humanservices to the ambit of the market. NCP outcomes to date have demonstrated:bias toward businesses rather than households;



greater benefits to higher income households than lower income households; andpockets of spatial disparity.

The possibility of similar outcomes in human services provides cause for concerns overequity. The specific motivation for reforms in these areas should be questioned and extreme
caution used in extending NCP to human services given the uneven impact that reforms
relating to public assets have had on distribution.
11.5

A targeted expansion of the public sector

11.5.1 Overview
In Chapter 10 we argued that an expansion of public sector service provision is an essential
component of a national strategy to address the employment and service needs of Australiancommunities. Public sector employment expansion would take two forms. First, there is aneed for expansion of jobs that are necessary on an ongoing basis in order to ensure the needsof communities are met. Secondly, the JG would provide a mechanism to ensure that all
people who want to work could contribute to society on a paid basis. This section reviews theevidence of service gaps in various regional areas and outlines how the needs identified by thenational local government JG survey (outlined in Chapter 7) and other sources could be
addressed through a targeted expansion of the public sector. Such a policy would also reduce
the residual pool of workers that would need to be employed through the JG.

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The results of the national local government JG survey (outlined in Chapter 7), along withother evidence presented in this report, points to the need to expand provision of
infrastructure and services to Australian communities in order to improve economic andsocial outcomes. In particular, this chapter has highlighted the impact of the withdrawal of the
public sector from direct provision and funding as a consequence of the abandonment ofKeynesian welfare state policies and the adoption of neo-liberal policies. This policy shift has
been responsible for a prolonged period of labour underutilisation since private sector labourdemand has been insufficient to employ all those who want to work.
Areas that could be expanded include: high priority infrastructure development, services tothe community; for example, assistance to aged and disabled persons to remain at home; andincreased provision of health services.
11.5.2 A targeted versus a general expansion
Mitchell and Muysken (2008) analyse the impacts on the economy of a generalised Keynesian
expansion, which remains a popular strategy among progressive policy activists who desire to
reduce labour underutilisation and improve the public amenity space. By comparing the key
differences between the JG policy approach and a generalised demand expansion, Mitchelland Muysken (2008) show that the former is better instrument to pursue establish a full
employment economy.
Does the JG operate akin to a generalised demand expansion?
It is important to note that while deficient aggregate demand manifests as unemployment in amarket economy, an introduction of the JG may or may not increase overall aggregate
demand. Mitchell and Wray (2005: 235) argue that it is a common misconception amongcommentators that the JG is a similar strategy to any Keynesian approach that ‘increases
employment by raising aggregate demand’. This misconception has been at the heart of adebate among progressive economics about the JG approach, characterised by the exchange
between Sawyer (2003, 2005) and Mitchell and Wray (2005). Sawyer (2003) perpetuated theview that the JG is similar to any traditional Keynesian generalised demand expansion. The
point is important because if Sawyer’s representation is valid then the debate quickly moves
to comparing different options that could be pursued by expansionary fiscal policy – that is,
by increasing government spending and / or lowering taxes.
Mitchell and Wray (2005: 236) showed that the JG approach cannot be characterised asKeynesian “pump-priming” because it is a buffer stock program, which “hires off the bottom”(paying a fixed minimum wage). The size of the buffer stock of jobs is determined by private
activity levels (principally fluctuations in private investment) and non-JG government
spending. The stock will fluctuate with movements in aggregate demand. The private sector
can make the JG pool as large or as small as it desires by choosing particular levels ofinvestment spending. But, significantly, the maintenance of full employment under a JG is
independent of the state of aggregate demand (see Mitchell and Wray, 2005: 237).
While aggregate demand may initially increase by more than the JG wage bill (for example,
to pay for working capital used by the JG workers), the government can easily tighten fiscal
policy to ensure that aggregate spending does not increase overall. So, the introduction of the
JG could be accompanied by either deflationary or expansionary fiscal policy. Mitchell andWray (2005: 236) concluded that the JG approach ‘represents the minimum stimulus required
to achieve full employment and does not rely on market spending and multipliers—and“works” regardless of the level of demand.’201

So in contradistinction to Keynesian pump priming, which competes for labour at market
prices, the JG buys labour which attracts a zero bid (that is, no employer is currently prepared
to offer these workers employment at the going wage) in the market economy.
Why not just pursue full employment through generalised Keynesian expansion?
As we have seen in earlier chapters of this Report, the orthodox approach to inflation control
is costly and unacceptable. The neo-liberal solution to the resulting unemployment is topursue supply-side policies (labour market deregulation, welfare state retrenchment,
privatisation, and public-private partnerships) to give the economy room to expand without
cost pressures emerging. Progressive economists, in general, reject this strategy because thesacrifice ratios are high and the distributional implications (creation of an under-class andworking poor and loss of essential services) are unsavoury.
However most progressive economists still advocate Keynesian remedies as an alternative.
Specifically, they advocate generalised fiscal and monetary expansion mediated by incomespolicy and controlled investment as a solution to unemployment (Davidson, 1994; Ramsay,
2002-3; Seccareccia, 1999; Kadmos and O'Hara, 2000; Sawyer, 2003, 2005). Davidson (1994:79) is representative of this group and argued that ‘Government fiscal policy is conceived as
the balancing wheel, exogenously increasing aggregate demand whenever private sector
spending falls short of a full employment level of effective demand and reducing demand if
aggregate demand exceeds the full employment level.’
Under the generalised expansion approach the government ensures spending is sufficient topurchase all available output by the government itself purchasing goods and services atmarket prices or by the government providing incentives to profit-seekers to expand activity.
Both policy measures will be conducive to private employment expansion. Typically, public
and private capital formation is targeted.
Four major criticisms of the generalised expansionary approach can be made. First,
indiscriminate demand expansion in isolation is unlikely to lead to employment opportunities
for the most disadvantaged members of society. Second, generalised expansion fails to
address spatial (regional) labour market disparities which are now common across OECDeconomies. Third, generalised expansion does not incorporate an explicit counter-inflation
mechanism. Fourth, how does generalised expansion address environmental concerns giventhat market allocations are the basis for the employment expansion?
The regional disparity issue is addressed by Mitchell and Juniper (2007) in what they call a
Spatial Keynesian framework. They show that a generalised expansion will not have thecapacity as a stand-alone policy to target regions in need of employment creation which may
be reliant on a declining industry. Further, aggregate policy is not able to account for
feedback or spill-over effects between regions such that social networks and neighbourhood
effects transmit shocks from one region to another. This behaviour underpins the observations
common in OECD economies that clusters of high unemployment regions or hot spots form
as a result of spatial interdependency (Mitchell and Bill, 2006b). Arestis and Sawyer (2004a:
11, 18) argued correctly that:the industrial structure of a region and … variations in productive capacity as well as
in aggregate demand of the region … [drive these disparities and conclude] … interms of policy implications, appropriate demand policies are required to stimulate
investment and underpin full employment.
But how can we be sure that the investment will provide jobs in failing regions? Upon what
basis are the most disadvantaged workers with skills that are unlikely to match those requiredby new technologies going to be included in the generalised expansion?
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Accordingly, public investment is unlikely to benefit the most disadvantaged workers in theeconomy. The JG is designed to explicitly provide opportunities for them. By way of
example, during the golden age in Australia (1945-1975) when public capital formation andsocial wage expenditure was strong, full employment was only achieved because the public
sector (implicitly) provided a JG for low skilled workers (Mitchell, 1998). This experience isshared across all advanced economies.
Where is the inflation anchor in the standard Keynesian approach? Most progressive
economists who still advocate this approach construct the solution to unemployment in termsof solving the deficient effective demand (closing the aggregate spending gap) by stimulating
net spending via purchasing goods and services and / or labour at market prices. An economy
struggling with high unemployment will typically react to increases in nominal demand by
quantity adjustments (rising output). This applies to the introduction of a JG as well as a
generalised expansion. However, the generalised expansion approach will inject considerably
more nominal demand into the spending system, directly and via the multiplier processes,
than would be the case under the JG. Accordingly, the generalised expansion approach relies
on demand stimulus to approach full employment and provides no nominal anchor to theeconomy. If the quantity adjustment gives way to price adjustment then full employment may
never be reached. The advocates of generalised expansion argue that the expansion could beaccompanied by the introduction of an incomes policy. While an incomes policy may help
constrain costs pressures there are few examples of successful incomes policy being
implemented and sustained in an economy. Ultimately, they do not provide a long-term
inflation anchor.
By way of sharp contrast, the JG does not rely on the government spending at market prices
and then exploiting multipliers to achieve full employment. The latter approach characterises
Keynesian pump-priming and as a consequence fails to provide an integrated full
employment-price anchor policy framework. Under a JG policy, the net spending to financethe JG pool is the minimum required to restore full employment, as defined above.
The generalised Keynesian expansion relies on the market to provide the increased
employment. Therefore the allocations that follow largely reflect private costs and benefits,
hence environmental constraints are likely to emerge. As noted above, JG proponents
emphasise the regional dispersion of unemployment. Higher output levels are required toincrease employment, but the composition of output remains a pivotal policy issue. JG jobs
would be designed to support local community development and advance environmental
sustainability. Indeed, an environmental criterion could be used to determine which jobs are
acceptable for the JG, introducing an environmental planning aspect to the policy framework.
JG workers could participate in many community-based, socially beneficial activities thathave intergenerational payoffs, including urban renewal projects, community and personalcare, and environmental schemes such as reforestation, sand dune stabilisation, and rivervalley and erosion control. Most of this labour intensive work requires very little capital
equipment and training (Mitchell, 1998).
It is this spatially targeted employment policy that Mitchell and Juniper (2007) called Spatial
Keynesianism, in contrast to the bluntness of orthodox Keynesian tools which fail to address
the spatial distribution of social disadvantage.
We do not want it thought that the JG is the only solution available to government. While
advocates of the generalised expansion approach usually ignore any role for a buffer
employment stock policy, which allows the government to guarantee full employment using
automatic stabilisers by purchasing at fixed prices, the fact is that both approaches can coexist. First, there is a strong role for public infrastructure spending to ensure that communities

203are well supported with schools, roads, hospitals, etc... Second, the JG does not replace social
security payments to persons unable to work because of illness, disability, or parenting andcaring responsibilities.
Clearly, and emphatically, a mixture of both approaches is likely to be optimal – however, ageneralised expansion alone is not preferred.
11.5.3 Additional provision of community services
Reforms undertaken by successive governments have resulted in the residualisation of many
services. Rather than universal provision as a right of citizenship, access to some services isrestricted to those assessed as in the greatest need. For those who retain eligibility for services
there are issues around timeliness of access and adequacy of the service in terms of quality
and quantity. The remainder of the population is expected to purchase necessary services fromthe private sector. Evidence presented in government reports indicates that the consequencesof these policies have been borne unequally across space and across the income distribution.
Analysis from the national local government JG survey (outlined in Chapter 7) indicates thecurrent level of service provision does not provide adequately for the needs of communities.
Evidence presented throughout this report indicates that there is a need for a targeted
expansion of services associated with social care that people require on an ongoing basis.
Many services of high intrinsic value are chronically undersupplied in Australia. Thissituation has significant negative impacts on the quality of life for individuals andcommunities. A plethora of social services including health, education and caring are
undersupplied in Australia as the results of the national local government JG survey (outlined
in Chapter 7) have demonstrated. Services that enhance the quality of life of elderly, disabled
or socially isolated persons make a valuable contribution to society in addition to theindividual benefits obtained.
For instance, jobs identified in the area of aged care need to be expanded to achieve the goalsof individuals and government policy that individuals have an opportunity to exercise theirpreference to age in place. There is overwhelming evidence that these services currently meet
only a small fraction of the physical and social needs of the elderly. There is a high degree of
reliance on insufficient numbers of paid and volunteer workers to meet the diverse needs ofthis group and the availability of volunteers is expected to fall in the future due to higher
labour market participation of women and population ageing (see Chapter 9).
Increasing the paid workforce engaged in delivering such services would undoubtedly
increase the quantity and reliability of those services. The question as to which of the twodelivery mechanisms should be used to address needs relates to the whether the service isamenable to the buffer stock model or should be provided on an ongoing basis. The
requirement that these services be provided on an ongoing basis suggests that there may belimited scope for Job Guarantee jobs in these industries.
Therefore, the suitability of these jobs in a buffer stock model, which expands and contracts
with the business cycle, may be limited. There may still be scope for Job Guarantee
employees to perform auxiliary tasks or offer assistance in these industries; however thisshould not be used as a substitute for an aggregate increase in employment in these industries.
Physical infrastructure provision may be delivered by a combination of increases in public
sector infrastructure programmes to cater for prioritised projects of significant economic orsocial importance, and JG jobs for lower priority projects that may be planned in advance andimplemented to accommodate fluctuations in the labour market.

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11.6

Conclusion

As part of the mixed economy of welfare, the public sector in Australia traditionally provided
health, education, employment, and other services. In addition the public sector operated
government business enterprises in areas of “natural monopolies”, including essential services
such as telecommunications, electricity, gas and water. In the past few decades governments
have withdrawn from the role of funding and providing physical and social infrastructure dueto the ascendancy of neo-liberalism that demands governments produce balanced or surplus
budgets and the primacy of the private sector in the production of goods and services.
What have been the consequences of these policies? When we draw on multiple sources ofdata together we learn that communities have significant needs for investment that are going
unmet and many people are effectively locked out of the labour market or are underemployed.
This situation has adverse impacts on economic and social outcomes including reductions insocial cohesion.
In the post-war period, expansionary monetary and fiscal policy was used to maintain full
employment. As discussed in earlier chapters, unemployment has been used to counter
inflationary pressures over the past two decades. It is therefore necessary to devise a strategy
to restore employment opportunities and deliver community services in such as way as tominimise inflationary risks. A general expansion of public sector activity could potentiallyabsorb excess labour resources but would not address the spatially specific issues associatedwith unemployment and community need. Moreover, a general expansion may havedeleterious inflationary outcomes. The needs of regions for employment opportunities andeconomic and social infrastructure could be effectively addressed through a targeted
expansion of the public sector and implementation of a JG scheme.
Employment guarantee programs can effectively contribute to social development andprovide a strong engine for growth within the local economy. Further, a Job Guarantee
approach to employment policy could subsequently create additional ‘spin-off’ employment
opportunities in other sectors of the economy. Findings of this research reveal that some areasof community need would be amenable to the Job Guarantee model, while other areas may
have potential for people employed in a buffer stock model in auxiliary roles only. Expansionof the role of governments in providing services such as health, education and aged care that
constitute the social wage could be complemented by the JG to deliver a range of additionalsocial and environmental services tailored to the needs of individual regions. To the extent
that the provision of ongoing social care positions were created, there would be a reduction in
the number of buffer stock jobs required under the JG.

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12
12.1

Skills shortages in Australia:
concepts and reality

Introduction

Skills shortages are now well recognised by Australian industry as compromising their ability
to innovate and compete in global markets (KPMG, 2008; AIG 2008) 1 . Sixty eight point one(68.1) per cent of CEO respondents to an Australian Industry Group survey published in April
2008 said skills shortages had impacted on their business in the preceding year, and estimatedthat it would require 180,000 to 240,000 extra skilled full time employees to meet their needs(AIG, 2008: 22-23). Sixty point two (60.2) per cent of the firms reportedly affected by skills
shortages said it was restricting their capacity to innovate (AIG, 2008: 28).
It is actually difficult to verify these claims using official data. The Skilled Vacancy Survey
published by DEWR does not appear to support it. But the ICT survey also published by
DEWR provides some support for the notion that in certain sectors skills are in short supply.
What is incontrovertible is that over the last 30 years around 9-10 per cent of Australia’s
willing labour force has been consistently underutilised, with considerably higher peaks
during periods of recession.
Despite relatively strong economic growth for some 16 years since the last major recession in
1991, there are still 487,000 people officially unemployed (ABS Labour Force Survey,
October 2008) and some 688,500 underemployed (ABS Australian Labour Market Statistics,
May 2008). Total labour underutilisation (counting hours of work lost due to insufficientdemand for labour) is now more than 10 per cent (ABS Australian Labour Market Statistics,
July 2008).
The only way a skills shortage could emerge from this wastage is through a wholesale failureof our national training and employment policies. Why haven’t we trained this persistent poolof underutilised labour to meet these shortages? Despite the denials of successive federal
governments, any degree of skill shortage and the persistent unemployment andunderemployment of the past 30 years represent two-sides of the same coin. They both reflecta lack of governance at the federal level.
At the top of the growth cycle, this lack of governance manifests as skill shortages withpersistently high labour underutilisation, whereas at other times it takes the form of very highlabour underutilisation and rising long-term unemployment. Both manifestations are the resultof erroneous federal government macroeconomic policy.
The problem Australia has is one of insufficient skills formation. Skill formation is achallenge that Australia, along with other countries in the Anglo-American and neo-liberalmould are clearly failing to meet. When we look to societies with a high skills formation
capacity, we see their success underpinned by institutional arrangements that place national,
collective interest at the forefront. The provision of a high standard of skills formation anddiffusion in Germany, for example, can be partly attributed to the existence of an institutionalframework where the state requires employers and unions to share decision-making overvocational training content (since 1969), ensuring skills portability for workers, and thus wide
skills diffusion throughout the labour force. Peak employer bodies also assert authority within
206their industries to reduce inter-firm poaching of skilled workers (free-riding), while theavailability of “patient capital” through local banks creates longer time-frames for return on
training investments (Gough, 2005). Other high-skill countries such as Japan and Singapore
have other institutional arrangements, but each includes a significant role for the state increating the social underpinnings of high skill formation, including:Social cohesion and cooperation among societal players;Value-adding rather than competing on the basis of cost reduction;

Continuous investment in new skills and particularly skills of communication andproblem solving that support collaboration and innovation;

Coordination to produce system coherence;High skills diffusion throughout the labour force rather than a polarisation of high andlow skilled workers;Social inclusion in the benefits of a high skilled society (Brown et al., 2001).

Australia performs poorly in most of these areas. Indeed, successive Australian governments
and employer bodies have undermined high skill formation over 30 years by their efforts tominimise the size and role of the state. Peak employer groups and their political advocatespublicly and privately advocated for the abandonment of full employment in the early 1970s,
to restore (socially exclusive) labour underutilisation as a productivity driver (Quirk, 2003),
and achieved their objective by significant cuts to public sector employment (Mitchell,
2001b). Efforts to promote corporatist arrangements in Australia, such as the ACTU-backed
Australia Reconstructed report of the 1980s, which examined Scandinavian and other highskilled examples, and proposed tri-partite institutions to steer industry development, werelargely rebuffed and the low-cost road to global engagement was taken instead.
The neo-liberal era is defined, in part, by the increased precariousness of work. This was
institutionalised in the Australian labour market in the late 1980s through the abandonment oflegal constraints on permanent casual employment and by making the systematic harassmentof unemployed people the object of labour market policy, beginning with the OECD-inspired'active employment strategy” (see Mitchell and Muysken, 2008 for a full account). Despite
the power they have wielded over public policy to the detriment of working people, and incontrast to their German counterparts, Australia’s peak employer bodies have lacked theauthority to persuade their members to overcome their free-riding reliance on poaching skilledworkers from other firms, and indeed advocate skilled immigration (poaching from othercountries) as the solution. In short, we lack institutions that are conducive to high skills
formation.
The lack of institutions has been the result of a demolition of the national skills development
framework that served the country well during the true full employment period after WorldWar II. Up until the mid-1970s there was a capacity within the Federal and State employment
departments to conduct occupational forecasting and integrate that with a comprehensive
apprenticeship and training structure. The neo-liberal cutbacks in government spending andemployment since the mid-1970s were accomplished, in part, by abandoning these crucial
capacities.
Mass unemployment of the type we have endured in Australia since the mid-1970s has also
been the result of a lack of aggregate spending. The prime responsibility for ensuring there isenough spending rests with the federal government. When private spending is insufficient toprovide work for all, as it always is, the spending gap has to be filled by the federal
government via budget deficits.
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However, discretionary monetary and fiscal policy decisions over the last 15 years by thefederal government - characterised as an obsession with budget surpluses - havesystematically prevented the Australian economy from creating enough jobs in recent decades
to match the preferences of the labour force, and enough hours of work to match thepreferences of those who are employed.
The maintenance of mass unemployment may be thought to facilitate the supply of affordable
skilled labour, by undermining the bargaining position of skilled workers and enabling
selective avoidance of the less skilled. However, the absence of full employment, and thedemise of public sector employment (the principle cause of prolonged unemployment in thiscountry), have both contributed to an erosion of skills formation, atrophy of underutilised
skill, and deterioration in the private sector’s willingness and ability to integrate less skilled
people into their workplaces.
This chapter initially introduces the concept of skill and the factors influencing employer
estimation of ‘employability’. Section 12.3 examines how skills shortages are explained by
the government and industry, and considers alternative explanations. Section 12.4 considers
the role of the state in providing a framework for national skills development. Section 12.5
develops an innovative approach to national skills development. We propose a National Skills
Development Framework within the context of a national Job Guarantee. We show how sucha framework would operate and create an effective solution to Australia’s on-going skill
development needs.
12.2. Introducing the concept of skill
12.2.1 What is skill?
The term “skill” refers to a specific ability, and is generally used where the ability is assumed
to have been in some sense developed through experience or training. “Skill” is one of several
terms used to express the concept of “ability”, the mental or physical power to do something,that variously distinguishes how the ability was acquired, and to what standard. For example,“aptitude” implies an inherent capacity for acquiring ability, whereas “talent” often infers
ability is inborn. “Competence” generally suggests an ability to do something satisfactorily
but not outstandingly. “Proficiency” suggests significant competence. “Skills” are also often
classified according to the method of their development, as “formal” (derived through aprocess of structured training and documented assessment), “non-formal” (training was
structured but no certification issued) or “informal” (obtained through practice, experience,
self-education, etc…).
Not everything that people learn to do can be considered a “skill” (for example, bad habits).
The presumption is that skill enables the performance of a useful undertaking, raisingquestions such as “useful to whom and how?” “Skills shortage” is raised almost exclusively in
relation to “marketable” skills, which are those that employers require in employees in orderto profit from employing them.
12.2.2 Marketable skills
It is usually assumed that when employers speak of a “skills shortage” they are referring to an
absence of technical proficiency, but more broadly, they mean a range of worker capabilities
and behaviours that contribute to their profitability. This is reflected in the definition of Skills
Shortages adopted by the Department of Education, Science and Technology (DEST), as
being when208

employers are unable to fill or have considerable difficulty in filling vacancies for an
occupation, or specialised skill needs within that occupation, at current levels of
remuneration and conditions of employment, and reasonably accessible location(DEST, 2002: 3).
In other words, “skills” are defined relative to the perceived needs of the employers. Thismeans that a broader range of qualities is typically included in the vector of characteristics
than might be manifest in technical training courses. To show this, Figure 12.1 is based on
training material provided to staff in the former Commonwealth Employment Service (DEIR,
1985).
It provides a schematic representation of the way in which hiring decisions and skills interact.
Employers have basic productivity concerns when they hire workers in terms of the speed atwhich the new entrant will attain acceptable performance standards and the length of timethey will remain at the firm.
AP1 represents average productivity of the firm’s workforce; whereas AP2 is the productivity
below which the worker’s contribution to the firm’s revenue equals the cost of employing
them (economists may think in terms of a marginal product-cost relation although we do notinvoke diminishing marginal returns in this conception). We assume for the plant as a whole
there are constant returns.
Figure 12.1 Training and productivity concerns of employers
Productivity
A

B

AP1

Break even point

AP2

C

0

D

E

Time

Initially, all new workers are 0 productive (even negatively productive if someone else has tostop their work to orient them to the workplace). Curve OA represents a new worker who
possesses or quickly acquires the skills required to perform the work, rapidly surpassing the
break-even point and achieving average productivity and presumably keeping an on-goingattachment with the firm. Curve OB represents a new worker with fewer skills or who more
slowly acquires the skills needed to achieve average productivity. Firms will try to screen
between worker OA and worker OB in their hiring decision because the latter takes longer toreach AP1. These differences in economic contribution to the firm by OA and OB may becompensated with a wage subsidy. Line OE represents the situation where one new worker
after another fails to achieve even break-even level of productivity, either because they are209

fired or quit before doing so. The presumption is that these workers lack the skills orapplication to become proficient in a reasonable time-frame, or to manage the social
relationships encountered in the workplace. Clearly, employers seek workers such as OA, but
in their absence, may be persuaded to employ worker OB, particularly if offered thecompensating inducement of a wage subsidy. While employers hope to minimise the initialperiod of negative income entailed in hiring a new worker, they understand this as aninvestment for which they will hopefully receive a steady return thereafter. Critically, theselection process is aimed at identifying and excluding worker OE, because a series of shortlived placements is a dead loss to the firm.
Thus, the determination of how quickly a worker will achieve a profitable level ofproductivity, and how long they are likely to remain with their firm, are of crucial
significance to employers. Mitchell and Watts (1986) developed a critique of the narrowly
constructed view of productivity based on the neo-classical efficiency concept. They
distinguished between quantitative efficiency (the ahistorical and technical neo-classicalinput-output concept) and qualitative efficiency (which specifically recognises the power
relations operating in the capitalist mode of production). Accordingly, an “efficient” or“productive” worker will have qualities that ensure the owner of the firm can extract as muchsurplus from the production (labour) process as is possible. While this may entail determining
whether or not applicants possess certain technical skills and other personal characteristics, it
necessarily must also reflect the employer’s estimation of their firm’s ability to integrate aworker with those skills and characteristics into their workplace. Skill concepts have to bebroadened to reflect these significant social dimensions in addition to the narrowly definedtechnical requirements.
12.2.3 Skills shortage and structural unemployment
The concept of a skills shortage is clearly a relative concept, implying some distance from an
optimal state, which begs the question: according to whom (Green et al., 1998: 165-166).
Unsurprisingly, analyses of skills shortages by industry and governments invariably consider
the issue from the perspective of business and profitability, which places the emphasis on
containment of labour costs both in terms of wages and conditions, and hence, wheneverpossible, externalising the costs associated with developing the skills firms require in theirworkers.
Within this context, the notion of structural unemployment arising from “skills mismatch” canbe understood as implying an unwillingness of firms to offer jobs (with attached training
opportunities) to unemployed workers that they deem to have undesirable characteristics.
When the labour market is tight, the willingness of firms to indulge in their prejudices is morecostly. However, when labour underutilisation is high, firms can easily increase their hiring
standards (broaden the desired characteristics they demand from workers) and the training
dynamism driven by labour shortages is lost. Then we observe, in a static sense, “skill
mismatches” which are really symptoms of a “low pressure” economy.
12.3

Causes of skill shortages

12.3.1 Official explanations
The policy position of successive federal governments on this duality – skill shortages andpersistent unemployment - is confused and unacceptable. They have all (since the Hawke
regime) articulated a vision of high skills and high participation but fail to provide thenecessary macroeconomic policy conditions that will ensure both. While there has clearly
been a shortage of jobs, due to their own macroeconomic policy stance (budget surplus
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obsession), governments have persistently vilified the economically disadvantaged withincreasingly harsh welfare compliance policies to ensure the ‘victims’ (the unemployed) areblamed.
The skill development capacity inherent in a strong public sector maintaining full
employment was abandoned as unemployment rose. Industry and government now both seem
reluctant to acknowledge the responsibility of employers to invest in the planning anddevelopment of the skills they require in their workers.
The Howard Government introduced the National Skills Shortage Strategy (NSSS) whichdeveloped a World-Wide-Web presence it terms “Getatrade”. It claimed that the skills
shortage occurred as a consequence of: (a) the strong economy with low rates of
unemployment; (b) the growth of new industries with few ready-skilled tradespeople
available; (c) the relocation of new industries into different regions with a different skills
base; (d) the lack of interest in particular industries among potential job seekers; (e) the
location of industry, or project-based work, in rural or regional areas with a small skills base;(f) technology changes within an industry, especially production, resulting in new methods
and therefore skills needs; and (g) changes in underpinning skills needs to successfully
undertake trade training for example, Year 12 maths for technology trades (DEST, 2005).
Under-investment in the training of workers by industry is not mentioned. Notwithstanding
this glaring omission, there are also oversights in the reasons advanced. The NSSS WWW site
has disappeared and the programme subsumed into the innovation strategy of the new federal
government. However, its grossly inadequate representation of the problem has to someextent survived with the failure of the current government to abandon the supply-sideemphasis of its predecessors.
12.3.2 Misleading labour market statistics
The low unemployment claim misrepresents labour market data, in that persons-based
measures of labour market status classify people as “employed” if they work for one hour per
week and thus obscure the underemployment endemic in our highly casualised labour market(CLMI, 2008).
We noted in the introduction, that, despite relatively strong economic growth for some 16
years since the last major recession in 1991, there are still 487,000 people officiallyunemployed (ABS Labour Force Survey, October 2008e) and some 688,500 underemployed(ABS Australian Labour Market Statistics, May 2008). Total labour underutilisation (counting
hours of work lost due to insufficient demand for labour) is now more than 10 per cent (ABS
Australian Labour Market Statistics, July 2008).
The question that arises is: why have these people not been trained to meet these “skills
shortages”?
12.3.3 Institutional failure
The question is highly relevant given that the overwhelming policy emphasis has been to
shunt people into a series of active labour market programmes within the privatised Job
Network structure. The philosophical underpinnings of labour market policy that followed in
the wake of DEET’s formation in 1988, and gained expression throughout the 1990s as theActive Employment Strategy, Newstart, and the marketisation of employment services,
coupled with funding cuts to higher education, vocational and technical training, has left
Australia poorly equipped institutionally to meet our current challenges.

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The stated aim has been to improve the “employability” of young and long-term unemployedpeople (for example, Kemp, 1996; Mitchell and Muysken, 2008). There is substantial
evidence now available to show that this strategy has been largely ineffective. The poor
employment outcomes for participants in programmes like Work for the Dole and Intensive
Assistance point to the futility of preparing the unemployed for jobs that are not there(Mitchell and Cowling, 2003; ACOSS, 1999; Carson et. al., 2003; Borland and Tseng, 2004;
Productivity Commission, 2002).
In Chapter 3, we reported that the current Minister for Employment Participation recently
expressed concern at the inadequacies of the Job Network saying that while
job seekers, employers and providers have had to endure a complex and rigid
employment service structure … Over the last 10 years skill shortages have worsened,
dramatically hampering productivity and growth … [and] … Over the last 10 years
many thousands of job seekers have become increasingly detached from the labour
force (O’Connor, 2008a).
If some areas are experiencing skills shortages then what have the billions of dollars that havebeen pumped into the Job Network been used for? The acknowledgement of skill shortages
amounts to a substantial failure on the part of the Job Network. All the evidence suggests thatthe supply-side strategy lauded by the OECD has not been effective in increasing theemployability of disadvantaged workers (Mitchell and Muysken, 2008). The poor results areto be expected in the absence of policy measures designed to increase the quantum of jobs.
In isolation, supply-side measures merely re-shuffle the jobless queue. The clear danger ofthis kind of zero-sum redistribution is that policies achieve tentative or short-term
reattachments to the labour force at the expense of deepening employment insecurity. Labour
market instability, poverty, and welfare dependency are not solved by such measures; they aresimply redistributed amongst the same at risk groups.
The Job Network’s predictable failures are attributable to structural design flaws. It was
designed as a breaching machine, first and foremost, and this function, as was plainly stated in
the Norgard Review of the CES (Norgard, 1977), is counter-productive when effective labour
market brokerage is the objective. Welfare policing creates power relations that inhibit clientbroker communication, depriving Job Network staff of insight into their jobseeker client’s
circumstances. Norgard also observed that a legally defensible punishment system consumes
crucial staffing and training resources in what Job Network staff described during focus
groups undertaken for this study as ‘administrivia’ (see Chapter 6).
In terms of monitoring labour market developments, the former CES played a significant rolein detecting, analysing and coordinating responses to skills shortages. But the fragmented andcompetitive nature of the Job Network prevents formation of a coherent overview, or thegathering of clear labour market intelligence with which to inform policy.
The Job Network also suffers from the same endemic market failure that generally pervades
the private sector: it has failed to adequately train and develop its staff in fundamental areas,such as employment brokerage skills of interviewing, counselling, industrial and occupational
knowledge, and in understanding labour market disadvantages and strategies for redressing
them. By contrast, following specific recommendations by Norgard, the CES maintained highquality training in these areas for a decade, until the massive administrative workload createdby activity testing, which begun under Newstart, pushed this operational skills formation
aside. Without the skill to manage the complexities of their role, Job Network staff experiencehigh levels of stress (reported by Goddard, Patton and Creed in 2001) and an annual staff
turnover approaching 25 per cent that further undermines the prospect of up-skilling. Reforms
212envisaged for the July 2009 contract round address some of these issues, particularly throughthe moderating of compliance activity, but still do not adequately acknowledge the skills
required of people operating at the intersection of labour, capital and the welfare system. It is
not a function amenable to profit maximisation if it is to be done with appropriate
sophistication.
12.3.4 Attitudes
It is often argued that young people are lured away from the trades by the emphasis on higher
education. DEST (2002: 1) said
… most industries felt that the skilled trades had an image problem in terms of theirappeal to young people thinking about potential careers. All industries felt a bias on
the part of school parents and the media towards university education and theprofessions.
The implication is that such attitudes are not founded on a realistic assessment of theattractiveness of trades occupations. However, trades training commencement and completion
data from the National Centre for Vocational Education Research (NCVER), reveal thataround 50 per cent of those commencing trades training do not complete, which casts doubt
on the assertion that the young and those advising them are misguided, since half of those
who do undertake trade training are either sacked or decide to leave (NCVER, 2005). In any
event, it is likely that employers are receiving applications for apprenticeships but not fromapplicants that they deem of sufficient quality.
12.3.5 Cost shifting
Both industry and government seem reluctant to acknowledge that a significant cause ofindustrial skill shortages is the unwillingness of industry to invest in sufficient skill formation.
We argue that the private sector has a long history of cost shifting its training responsibilities
onto the public sector, reflected in the acknowledgement of the gap that emerged with thedemise of the public sector as an employer.
The private sector’s habitual externalisation of its training costs was less of a problem when
the public sector took leadership in training (and thus implicitly ‘accepted’ the cost shifting).
Public sector enterprises were the largest trainers of apprentices in Australia (Gospel, 1993:
13-14). At any time, there were tens of thousands of apprentices trained in the large public
utilities and within government departments (AIG, 2005: 3). Throughout the period ofAustralia’s economic and industrial development, driven by public infrastructuredevelopments and industry protection and assistance, much of the private sector relied onpoaching skilled workers from other employers as a first strategy. Clearly the pressures of full
employment also forced the private sector to develop their own skill building capacities, but
the public sector was a significant net contributor to the national skills pool.
With the privatisation of public utilities, the downsizing of public sector workforces, and thewidespread adoption of private sector practices in the public sector, the skill building role wasabolished with little consideration as to the impact this would have on the maintenance ofadequate levels of skill development. Belatedly, and coyly, both government and industry
recognise that the demise of the public sector as an employer and trainer has left a large gap in
the nation’s training infrastructure. For example, the National Skills Initiative Engineering
Working Group reported:
On the supply side, privatisation of public utilities has reduced the traditional training
ground and supply of skilled labour for engineering trades, and large companies are
typically more focussed on training for their own skill requirements. DEST (2002: 8).
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Similarly, the Senate Employment, Workplace Relations and Education References
Committee report ‘Bridging the Skills Gap’ (EWRERC, 2003: 17) notes:
The major factors are the decline in trades training associated with the privatisation of
public utilities and ‘mean and lean’ strategies of large private enterprises, which
previously provided a steady pool of skilled labour for small and medium enterprises.
Why has the market failed? There are two major reasons. First, the persistent excess supply in
the Australian labour market over the last 30 years has provided industry access to a broad
supply of ‘ready-made’ skills and taken the pressure off firms to tailor their jobs (andtraining) to suit the available workforce. We contend that this has reduced the incentive andcompetence of employers to adequately orient, supervise and train people with significant
training needs, such as young people who may have performed poorly at school, or others
suffering skills deficits due to long term unemployment.
Second, there is an endemic free rider problem. Training is costly and can only be justified bysubsequent profitability. An employer who makes such an investment understandably hopes itwill enhance the productivity of their workforce. However, a worker who acquires moremarketable skills through training may discover they are worth more in the labour market,
putting pressure on their employer to pay more to retain their services. The degree to which
the skill development is firm-specific thus influences the extent to which firms will engage intraining. Where skills are more general, employers will under-invest in training and theeconomy as a whole suffers skill shortages. Prima facie, this free rider problem provides an
economic rationale for public intervention, and its solution has exercised the minds of policy
makers around the world (Smith and Billett, 2003).
12.4

The role of the state

12.4.1 Encouraging employers to train their staff
Governments have been aware of private sector under-investment in skill formation for
decades, responding by wielding various sticks and carrots to persuade industry to lift theirperformance in this area, with marginal results at best. Early wage subsidies (such as theSpecial Youth Employment Training Program of the Fraser and early Hawke Governments),
required employers to detail what skills were being inculcated in young people for whom theyreceived a wage subsidy, obliging local CES labour market programme administrators toperiodically visit workplaces to monitor employer compliance. A mid-1980’s overhaul oflabour market programmes (Kirby Report, 1985) acknowledged the tokenism of this approachand removed training obligations as a condition of wage subsidies.
The Hawke and Keating Governments’ Training Guarantee Levy (along the lines of a French
scheme introduced in 1971) gave employers the choice of spending the equivalent of 1 percent of their payroll on training and development, or paying it as tax. There was considerable
employer resentment toward this scheme reflected in the cynical emergence of numerous
executive junkets (training courses based on golf courses, etc…) which circumvented theobjective of the programme, and was promptly abolished by the new Howard administration.
Britain introduced a system of Industry Training Boards (ITBs) in 1964 to administer anindustry levy on firms in each sector, providing financial rewards to those that contributed toskills formation, effectively forcing free-riders to contribute to training in their sector. The
Thatcher government largely abandoned the scheme in 1982 (Finegold, 1996: 236). Industry
skills boards formed the centrepiece of the Howard government’s response to skill shortages
in 2001, which aimed to promote participation, streamline the administration, and improve thequantity and quality of vocational training. Employers have been particularly urged to employ
novices on discounted “training wages” in entry-level training positions known as “New214

Apprenticeships” (collective term for traditional 4-year apprenticeships and on-the-job
training / certificate courses of lesser duration formerly known as Traineeships), but this offer
of cheap labour does not necessarily result in a commitment to skills formation (Wood, 2004).
In any event, had these numerous efforts to raise employer participation and commitment toskills formation proven effective, skills shortages would not be exercising the minds ofgovernment and industry to the extent they presently do.
12.4.2 The role of immigration in alleviating skills shortages
The present government has embraced skilled migration as a significant part of the skills
shortage solution. It might appear attractive to industry since it allows Australian industry to“poach” workers that have been trained abroad. There is clearly a debate that is beyond theremit of this report about the ethics of advanced countries poaching the skilled people fromcountries which made an investment in their education and training. However, the question of
relevance here is whether it is economically sensible to increase the labour force with skilled
immigrants when there are such high rates of labour underutilisation already present in theAustralian labour market.
Skilled immigration provides business with a low cost and relatively rapid solution to
impending specific labour shortages. However, this is myopic thinking. Consider the plight of
the thousands of unemployed foreign trained engineers, who having been encouraged tomigrate to Australia in the 1990s were unable to find work because local employers were
unimpressed with their skills, suspicious of the quality of their training, andunaccommodating of their cultural and language differences (Hawthorne, 1997).
In seeking skilled workers off-shore, policy makers overlook the tacit and cultural skills andknowledge that people born, raised and educated in Australia already possess, skills that takethe average school leaver 17 years to accrue. Many employers know this, with relatively few
expressing an interest in off-shore recruitment (AIG, 2004).
We contend that the state does have a role in to play in getting employers to act in theircollective interest (and that of the nation), and that the way to encourage them involves
improving the governance of the labour market as a whole, beginning with the establishmentof full employment.
12.4.3 The imperative of full employment
Full employment should be a major macroeconomic goal of the Australian Government. A“high pressure” economy not only maximises output but also enhances labour force
participation and provides strong incentives for employers to tailor training and paid-workopportunities to attract scarce labour. When labour is in excess supply (high unemployment)
employers lose this incentive and the dynamic skill-building process falters.
From 1945 to the mid 1970s, Australia, like most advanced western nations, maintained very
low levels of unemployment (rarely above 2 per cent). This era was marked by thewillingness of governments to maintain levels of aggregate demand that would create enoughjobs to meet the preferences of the labour force, given labour productivity growth.
Governments used a range of fiscal and monetary measures to stabilise the economy in theface of fluctuations in private sector spending.
Were there shortages of workers in this period? Between September 1966 and December
1974 the average number of unemployed for each registered vacancy was 0.96. That is, there
were more vacancies over this period than there were unemployed ready to fill them. The
unemployed-vacancy ratio in December 2004 was 3.9 (3 unemployed for every vacancy).

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Since June 1979 it has averaged 10.2. As of June 2008 there were still 2.5 unemployedpersons for every vacancy (RBA Bulletin Statistics).
The sustained full employment from 1945 to 1975 forced employers to compete for workers
as they sought to expand market share. The upshot was that for every job that was offered, acorresponding training opportunity was also created (Thurow, 1976).
Moreover, it was a central feature of the infrastructure established by the 1945 White Paperon full employment that the Federal and State governments invested heavily inapprenticeships and maintained ‘manpower planning’ capacities to forecast likely new skill
requirements so that policies could be forward-looking (Coombs, 1994)
Since 1975, successive Federal regimes have progressively jettisoned their responsibility tomaintaining full employment. This failure is also directly responsible for the underinvestment in Australia’s skills which now reveals itself as a “skill shortage” as the businesscycle improves (see Mitchell, 2001b). The paring back of the public sector, driven byideological zeal rather than any economic logic, has not only reduced the number of public
sector jobs available on demand to the most disadvantaged workers, it also led to thedecimation of the apprenticeship “institution” which was one of the most effective ways tointroduce young people into the paid workforce (BLMR, 1983).
12.4.4 Labour market intermediation
The propensity of business to externalise its costs is one factor undermining investment inskills development. From the other side of the labour market is the difficulty of unemployed
and working people to anticipate what skills they could profitably acquire, as this entails
anticipating developments in commerce and industry of which they generally haveinsufficient knowledge. Apart from interviewing, counselling, and the general occupational
and industrial knowledge this requires, those providing this information need to understandthe condition of the local labour market through research and open sharing of information.
There is also the challenge of determining how skills are to be acquired, both in terms oflocating sources of specialised training and support and the means of paying for it. While thiswas core business for the CES, the “marketised” Job Network, by contrast, is designed to
avoid anything that uses its resources without generating an income. This largely precludes
investing in the skills and knowledge of its own staff (Goddard, et al, 2001) and even the
sharing of information, on competitive (Eardley, Abello and MacDonald, 2001) and“commercial in confidence” grounds (Crossland, 1999; Quirk, 2002). The Howard
Government actually discouraged unemployed people from undertaking training by making
its provision conditional on their first participating in its compliance programme, known as“Work-for-the-Dole”.
Efforts to emulate the role of the CES with business dominated Area Consultative
Committees and management-only industry working groups fail because these don’t offer
solutions that balance the needs of both workers and business. They do not have theindependence that occasionally emboldened CES managers to suggest to employers they
could find better staff and fill their vacancies faster if they provided better pay and conditions.
Such an obvious suggestion would never be made by a Job Network agency, or an industry
dominated board. The independence of the CES, and its capacity to monitor andauthoritatively respond to trends at the local level, enabled it to temper the self-interest of theprivate sector. The Job Network, by being disjointed, poorly skilled, over-dependent on
employer patronage and narrowly focused is incapable of imposing a coordinated approach toresolving skills gaps and shortages.

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The failure of the last Federal Government to maintain viable labour market services,
including the capacity to anticipate emerging skills shortages at the local level and organise
local solutions is symptomatic of the way its ideological obsessions have undermined
Australia’s economy. This failure is reflected in its economic policy framework which
erroneously extols the virtues of running budget surpluses. The persistence of high levels oflabour underutilisation and the identification of skill shortages in certain occupational groups
are manifestations of this lack of macroeconomic policy leadership. They are two-sides of thesame coin – a failure of governance.
12.5

The creation of a national skills development framework

12.5.1 Overview
In this Section, we build on the understandings from the previous sections to sketch theelements of a National Skills Development (NSD) framework which we consider will address
the skills problem Australia faces. Most of the underutilised workers in Australia haverelatively low education and skill levels (Mitchell and Muysken, 2008).
Several points need to be considered when developing a NSD framework. First, maintaining abuffer stock of public sector jobs provides work for all irrespective of their skill levels andalso allows paid-work opportunities to be structured into training and career development
paths. In this way, while the person may initially have low skill levels, over time, under somecircumstances, they can advance. But at any rate, they always have work and are freed fromwelfare dependence.
Therefore an essential component of restoring full employment is to introduce a Job
Guarantee along the lines advocated by the Centre of Full Employment and Equity. Thisrequires the Federal Government to maintain an unconditional offer of work to anyone who
cannot find employment elsewhere at the minimum wage. This underpins the fully employedeconomy and maintains the dynamic pressures discussed earlier. It also allows two chronic
problems to be solved. On the one hand, Australia is wasting our experienced (skilled) aged
workers who have been driven out of the labour market by the lack of employment
possibilities. Some workers who lost their jobs in the last major recession have been idle
since, some outside of the labour market on disability support pensions. On the other hand, we
have high youth unemployment. This group desperately need paid work-training pathways
and supervision. The two cohorts could be embraced by public job creation programmes tomutual benefit.
Second, the Federal and State Governments must renew their commitment to adequately fundour public schools and universities. The recent press covering the parlous plight of our public
universities and the uncertain future of “export” education, highlights the need for a solid
public spending response. A renewed commitment to trades education is also required. The
public cutbacks in this area are indefensible and we have seriously underprovided in this area
over the last 30 years.
Public policy must also set in place safety-net structures for the youth who leave school early
as a matter of top priority. Every person under 20 years of age should be in education, training
or a paid job. A strong public commitment to providing employment and integrated
apprenticeship opportunities with a revitalised TAFE sector is necessary. We do not consider
that the so-called “New Apprenticeship” scheme introduced as part of the previous Federal
Government’s National Skills Shortage Strategy developed any real trade skills at all.
Ultimately, investments in human skills and capacity are the only durable strategy and if
spending on education and job creation is not done now, the lack of investment will reduce
our opportunities (and wealth) in the future.
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Third, occupational planning capacities must be reintroduced to ensure that the apprenticeshipand training programmes are targeted in areas of regional and industrial need.
Fourth, by maintaining full employment, the private employers are forced by competition totake a major responsibility for training and skill development of our workforce.
12.5.2 Education and Training
A public employment service that cannot detect and address skill shortages is only part of the
problem, as there has also been insufficient provision of education and formal training
opportunities. A Commonwealth Government report now acknowledges that universities,
TAFE and other institutions need more adequate funding to fulfil their missions. The Reviewof the National Innovation System, released by the Australian government in September 2008
argues ‘… it is imperative that our educational institutions do receive adequate funding and it
is likely this will require a substantial increase in funding as a share of GDP’ (Cutler, 2008:
xi).
Currently research in universities is not fully funded under competitive grants
programs such as the Australian Research Council (ARC) and performance based
block grants, and so it is typically subsidised from universities’ other revenue streams,
most particularly from the teaching of full fee paying overseas students. This crosssubsidisation of research from teaching profoundly undermines both activities, theformer by short-changing it, with the upshot of leaving it subject to the uncertainties
of international markets, and the latter by undermining its international
competitiveness (Cutler, 2008: x).
The cost-cutting application of commercial incentives and corporate management techniques
to higher education has been profoundly destructive of academic freedom and integrity, it has
lowered academic standards, undermined commitment to pedagogy (crucial for intergenerational knowledge transmission), suppressed intellectual diversity, and devalued
academic culture. Universities are now little more than income-generating credential
factories, with the relationship between scholars and students hollowed out by an explosion in
student to tutor and lecturer ratios. To raise the capacity of universities to develop (throughresearch) and teach more complex material, lower ratios of students to staff will be required.
12.5.3 The big problem: giving novices skilled work on which to practice.
The inability of the public employment service to monitor and manage the labour market, andthe impoverishment of our higher and technical education systems are not our worst
institutional deficiencies, for even with the development of a skilled public employment
service, and substantial improvements to all levels of our education system, chronic skills
shortages will persist because education and skill, albeit related, are not the same thing.
Verbal and written instructions from a teacher, lecturer, trainer or supervisor, or text conveyed
with books or computers, may impart knowledge that can usefully underpin the formation ofskill in the novice, but this constitutes merely a framework upon which skills may form. Skill
is formed when novices attempt, practice and eventually master skilled work. Tacit
knowledge accumulates with experience, neural pathways are laid in response to theirnecessity, so that the expert can automatically and fluently perform what the novice can only
consciously, and tentatively attempt. This is the point where Australia’s skill formation
capacity is most deficient, for as in most Anglo-American market economies with lean public
sectors, too few opportunities exist for novices to perform skilled work under attentive andskilled supervision.

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Because practical skill-intensive work experience is necessary for imparting skill, agencies
such as schools, TAFE, universities and rehabilitation services, etc…, naturally turn toemployers to provide it. However, Australian employers do not even sufficiently train theirown staff, nor is it common practice for employers to invest quality time and money intotraining people they have little expectation or intention of employing. Large firms (500+
employees) generally undertake significant staff training and development, but the training
commitment of firms of lesser size is disproportionately smaller (Kapuscinski, 2000).
Consider the practicalities: incompetent performance of a skilled task constitutes a significant
risk in many situations – people can be killed or injured, expensive materials wasted,machinery damaged, business reputations harmed or important customers alienated. For thenovice to safely undertake skilled work, it is therefore necessary that they be closely
supervised by a skilled practitioner who is drawn away from work of more immediate value
to their enterprise. This would be less problematic if the firm was certain of recouping theirinvestment in training and development through the enhanced productivity of the novice, but
often they are uncertain of the novice’s job tenure. If training only inculcated skills that weretraining-firm specific, the training firm could expect a dividend of higher productivity.
However, if skills are imparted that are also of value to at least one other firm, the possibilityof poaching arises, and the probability rises the more skills are of general value to the labour
market (Stevens, 1996; Cutler, 2008). Knowing that other firms covet the skilled workers they
develop, training firms are forced to match prevailing market rates of pay to prevent their
being poached, transferring the gain in productivity to the worker, making training an
unprofitable investment. Most firms therefore choose to buy in skilled labour as required
rather than invest in significant training, exacerbating aggregate skill shortages in theprocess 2 . It follows that firms will similarly avoid assuming significant responsibility forsupervising non-employees in work-experience in very large numbers. When employers doprovide work experience they generally minimise the cost of supervision by providing workwith minimal skill content, in which incompetent performance constitutes minimal risk.
It is a sobering thought than while we reportedly have too few skilled workers at the outset ofthe present unfolding global economic crisis, as fears of recession grow, firms will
discontinue their least immediately profitable activities, shedding their least productive
workers and driving up unemployment in the process. Training and trainees are often
jettisoned early in a recession, removing critical sites of skills formation, thus reducing
capacity for skills formation and re-tooling the labour force in preparation for newcommercial opportunities as they appear on the horizon of economic recovery. At the sametime, by depriving the unemployed of social contact, activity, stimulation, daily structure, andsufficient money to maintain a dignified existence (Jahoda 1982), unemployment corrodessocial and self-management skills that may take years to form. Consequently, as we have seen
after previous recessions, economic recovery is prematurely choked off because skill
shortages cause inflationary labour supply bottlenecks, producing a long and painful crawl outof each recession known as “hysteresis” (Mitchell and Muysken, 2008).
Given the growing challenges of the 21st century, including rising international
competitiveness, environmental change, resource depletion, shifting global power balances,rapid technological change, and so on, national survival will depend crucially on our capacity
for rapid and effective strategic adaptation. This means not only having the capacity to
inculcate skills in current demand, which we are inadequately doing at present, but to be able
to anticipate demand and develop regional labour forces that will attract capital investment.
But if skills are formed by performing work that requires such skills, how can skills be
formed prior to new firms commencing operations? The answer lies in reviving a role for thestate as employer of last resort and net producer of skilled workers.
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12.5.4 Restoring the employing and training role of the public sector.
While there are few examples of effective skill formation systems that rely on private sector
engagement, the Australian public sector of the 30 year post-war era (1945-1975) largely kept
skill shortages at bay despite prolonged high labour utilisation, despite the demand fortechnical and trades skills in the growing manufacturing and housing construction sectors, andthe implementation of major infrastructure projects such as the Snowy Mountains Hydroelectric scheme, because the public sector deliberately trained more people than it required tocounter the under-training propensity of the private sector. State government instrumentalities
employed large numbers of apprentices and otherwise offered large numbers of entry leveljobs in government departments and public enterprises such as the railways, gas andelectricity utilities, local government etc... as part of its role as “employer of last resort”.
Preserving permanent, full-time, full employment and an unemployment rate of around 2 percent, forced the private sector to employ whoever it could get, which also obliged them totrain unskilled recruits. Many categories of people who were consistently employed in boththe private and public sectors during the period of post-war full employment were precluded
from similar levels of employment participation following the abandonment of full
employment in the mid-1970s.
As with other types of market failure, the state is uniquely capable, and therefore responsible,
for addressing the problem of Australia’s insufficient skill formation capacity. To do so
requires that it play a more significant role as an employer, which constitutes a significant
departure from the public policy orthodoxy of the past 30 years that has pointedly denied thestate a significant role. Can we not now question the wisdom of this position in the light of its
chronic debilitating effect on the Australian labour market? We need to restore a 21st century
role for the state in direct skill formation, designed in a way that supports the global
competitiveness of Australian industry. The clear necessity is for the state to provide
experiential opportunities that develop vocational skills designed to abstractly resemble theskilled tasks performed in local labour markets. How this could be done is the subject of therest of this chapter.
12.5.5 The concept of industrial simulation.
We can learn to do something by doing it or by doing something that closely resembles it.
Specific skills can be isolated and developed through exercises designed to accelerate theprocess of achieving competence, that abstractly capture the essence of the skilled task. For
example, the famous cricketer Sir Donald Bradman developed his much lauded hand-eye
coordination in his youth by batting a golf ball against a round corrugated iron water tank(which created a random return trajectory) with a cricket wicket. Musicians practice theirscales, while visual artists learn how light falls across a human face, for example, by drawing
standardised forms such as cubes, cylinders, pyramids and cones. In the same way, a rigorous
analysis of the skilled tasks performed within a local labour market could inform the design of
Job Guarantee activities entailed in the provision of services to the community or
rehabilitation of the environment, so that provision of community and environmental services
also raises national skill levels during all phases of the business cycle.
An effective skills formation system requires specially designed and managed training assets.
Universities and TAFE operate laboratories, workshops, studios, theatres, mock courtrooms,
and other simulated environments, in order to conduct exercises for the inculcation ofparticular skills. Large industrial organisations, like power utilities, also build specialist
training areas in which a broad range of vocational experiences can be simulated – such as alinesperson training ground with 100 differently configured power poles, or the mock220

streetscape at a fire-fighters training ground, or the obstacle courses of military training. The
SkillShare programme of 1988-98 required community groups to build training assets such as
computer rooms, metal and woodworking factories, commercial kitchens, mock retail outlets,
and so forth, usually with very meagre resources, though often with effective results.
National skills formation capacity will be enhanced by establishing a Commonwealth agency
with the resources to rigorously survey industry practices and produce state-of-the-art
experiential training facilities in conjunction with other institutions (universities, TAFE, Job
Guarantee, integration and rehabilitation providers, etc…), and to deploy this inventory ofvenues and equipment according to the strategic planning of each region.
Workplaces are also simulated in training and job creation schemes by adopting processes andprocedures that are to be found throughout industry. For example, many SkillShare groups
quite self-consciously sought to provide socio-cultural elements of employment such asactivity, stimulation and social contact (Jahoda, 1982) by modelling a work-like environment,
requiring work-like hours of attendance, strict OH&S, team work, recording of productivity,
etc… Had the design of these environments been undertaken with greater rigor, based on
authentic research into current and anticipated local industry requirements, furnished withindustry-standard equipment, and participants relieved of the pressure of living in abject andprecarious poverty by being paid a decent wage, such a system could produce customised
skill formation on demand to support the skills needs of Australian industry.
12.5.6 The components of the National Skills Development framework
Regional analysis and coordination unit
Building Australia’s skill formation capacity will require the introduction of labour market
institutions capable, firstly, of identifying and anticipating skills of strategic value within eachregional economy, secondly, of coordinating and aligning regional employment, educationand training institutions to address the skill development and allocation needs of their regions,and thirdly, of materially supporting skill formation activities.
It is proposed that the Commonwealth establish regional labour market coordination units to
support the delivery of a range of labour market support services, whereby several
Commonwealth agencies co-locate in order to:Conduct multidisciplinary regional socio-economic research and analysis.

Facilitate industry and community input into regional strategic planning.

Promote employment, education and training institution alignment with regional
economic development strategic plans.

Provide regional coordination of the Industrial Simulation Service and Job Guarantee
Service, including coordinating development of Job Guarantee service specifications.

Industrial Simulation Service (ISS)
Rapidly adaptable regional skill formation requires the establishment of a technical andmaterial capacity within each region to rigorously identify the skilled tasks performed byindustry, to design activities that inculcate the skills to perform such tasks in novices, and to
furnish the training authorities (school, TAFE, University, Job Guarantee Service,rehabilitation provider, etc…) with the venues, technical support, and equipment they require
to provide experiential activities to form those skills.
We propose that a Commonwealth government agency be established in every region to
support other public agencies in designing and delivering experiential training programmes
221reflecting regional skills formation needs, and to build and manage a national stock of capital
equipment and venues. Other agencies (Job Guarantee Service, primary and secondary
schools, TAFE, universities, rehabilitation services, corrections services, migrant orientation
services, etc…) would bring their knowledge of their clientele to the job design process while
the ISS role will be to design skill-forming simulations of current regional industrial practices,
identified through regular skills audits of local industry.
Other institutions, such as the CSIRO, will have special relationships with the ISS, to design
technical training opportunities in special areas, and to channel the labour engaged in the ISS
for industrial research undertakings of national strategic benefit.
Job Guarantee Service
This is a proposed new public institution to rival the magnitude of the Snowy Mountains
scheme in terms of national strategic benefit and scale, capable of transforming the social
landscape by providing the otherwise unemployed with work not welfare, and using theirlabour to provide services that raise the quality of life of the most excluded people in oursociety. The Job Guarantee will be a system of public sector employment paid at theminimum federal award, with particular emphasis on developing skills in local demand while
meeting unmet community and environmental needs. It will be engineered to produce aninternationally competent world class labour force, generating a high standard of living withimproving environmental and social standards. The Job Guarantee will achieve these goals bygiving unemployed people skill-enhancing jobs to do. By gradually perfecting their skills
whilst working on the federal minimum award wage on the Job Guarantee, jobseekers raise
their value to employers while delivering valuable services to their communities. The Job
Guarantee is also integrated with the Public Employment Service, facilitating direct contact
by employers with people who are demonstrably proficient in the simulated skill sets mostclosely approximating those the employer is seeking in prospective staff.
Its governance structure will need to be highly sensitive to local sentiment and the needs ofthe vulnerable, in order to identify and respond effectively to unmet and highly localised
need. It must also respond sensitively to concerns that it might displace or impair existing
private and public sector activity. It therefore features a requirement that activities proposed
for a given local government area be submitted (in a detailed job specification plan) for local
council approval, thereby providing for local democratic adjudication as a protection against
Commonwealth insensitivity to local concerns. An additional requirement is the regularholding of a community consultation forum, chaired by a local government counsellor, atwhich managers of the local Job Guarantee services answer questions and receive suggestions
pertaining to all aspects of the service from interested members of the community. The
minutes of the consultation would also be required to be tabled at the next local council
meeting. By these means, affected parties could alert local government representatives to
disadvantages they see in the implementation of a proposed Job Guarantee service, which
could prompt the council to require a modification before granting approval. Suggestions for
new job guarantee services would be received from any quarter.
The Job Guarantee system would thus harness Commonwealth spending and taxing powers to
support delivery of flexible services to communities by people who would otherwise be
unemployed or underutilised, impoverished and socially excluded.
The basic Job Guarantee elements are:

All Australian residents, not in full time education, to be guaranteed the opportunity of
however many hours of employment they want, up to a combined total of Job
Guarantee and other work of 35 hours per week, paid at the minimum award wage.
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Work performed which is of benefit to the community, not otherwise undertaken by
the private or public sector to an extent that meets community need, and so designed
as to entail the formation of skills valued by local industry.

Core operational and development staff (technicians, trainers, counsellors,
coordinators) would operate Job Guarantee Enterprises located across each region,
providing a range of services in their communities aimed at maximising social
inclusion, equality of opportunity, and improving free public amenity. Anyone seeking
work could apply at the JGE of their choice, where counsellors would discuss
vocational interests and experiences, and offer a broad selection of mixable andmatchable employment opportunities. Trainers would then conduct orientation
processes to establish people in their selected roles, gradually reducing contact as theworker settles in. These roles would be designed to incorporate skill forming functions
designed with the technical and material support of the ISS, to increase the workers
value to the local and general labour market.

Contractions of the labour market would automatically give rise to the expansion ofskeletal Job Guarantee enterprises, which would organise people into Job Guarantee
teams. Members of teams may work individually or in any practical combination,
while groups of teams would collaborate on larger projects.

The Job Guarantee would be supported in the design and equipping of its numerous
workplaces and activities by the Industrial Simulation Service, according to the skills
formation strategy of the region.
Other institutional partners of the ISS
We foresee the following public institutions operating in partnership with the ISS:TAFE and Universities - These institutions would be actively supported by the ISS,through the provision of industry relevant experiential training opportunities, utilisingindustry-standard equipment and procedures structured to progressively raise student
skills to industry-standard levels of performance. Staff of both these institutions would
collaborate in the design and delivery of the experiential programme that would
complement the academic course of study.

Technical and professional roles would be included in the Job Guarantee offering
students up to 20 hours per week of paid (minimum wage) employment offeringexperience relevant to their area of study. These roles will support the autoconstruction implementation strategy (see below).



Schools - Special ISS school enclaves will provide high quality experiential
opportunities to primary and secondary students to extend their soft skills and capacity
to learn, and inspire interest in the world of work.

Rehabilitation Services - The rehabilitation of people following episodes of ill-health,or a criminal conviction, or other sources of social exclusion, could proceed withgreater precision, by giving rehabilitation workers the ability to tailor ISS and Job
Guarantee services to suit the precise workforce-entry needs of their clientele,effectively giving rehabilitation providers the ability to define any set of rehabilitative
activities as a paying “job”. The requirements of this “job” may then be progressively
altered to more closely approximate an ISS-determined industry standard.



CSIRO - The ISS would support field work, prototype development, proof of concept,
and short run production as opportunities for students and others to practice technicaland innovation skills.
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Self-construction implementation strategy
In real terms, the cost of building Australia’s skill formation capacity is the extent to which
resources of value to the rest of the community are consumed in the process, and the more
rapid and massive its deployment, the greater the impact we would expect to have. However,the speed of the ISS and Job Guarantee roll-out can be paced to minimise the impact on the
broader economy of its resource requirements.
The method of its construction is also significant. One area of work of community benefit, notcurrently performed by the private or public sector, will be the building of the ISS and Job
Guarantee infrastructure itself. The ISS System can be built in stages, using many available
resources, utilising the technical and professional skill in TAFE colleges, universities, andother institutions, coupled with a mobilisation of labour power that is currently under-utilised
throughout the community.
With the exception of an initial investment in key capital equipment and accommodation, theextent to which the ISS would consume resources already in use elsewhere in the economy
would be minimised through extensive self-construction. The initial focus of the Industrial
Simulation Service will be to analyse skills required by industry on a regional basis and, in
co-operation with other institutions, incorporate tasks requiring those skills in jobs designed
to be undertaken throughout the community.
Using the labour of JG participants and students, the ISS will build an inventory of capital
equipment, accommodation and other assets in an initial capital formation stage, which will inturn, be used to build further infrastructure. As the system steadily develops, more unutilised
labour will be brought into socially useful production using the assets produced in thepreceding phase.
The initial establishment of the ISS would include a significant investment in procuring
capital equipment (by purchase, lease, donation or self-manufacture) capable of producing themeans (tools, technical plans, workshops) of constructing the infrastructure to support thenext phase of implementation, which would construct the infrastructure for the next phase,and so on. With rigorous inventory management, significant output could be bracketed within
the confines of the Job Guarantee. Following the infrastructure building phase, output would
be increasingly directed to delivery of community and environmental services, raising publicamenity with each phase of development, enabling a wider group of Australian citizens toparticipate in the ongoing building of quality communities.
12.6

Conclusion

The current Federal Government obsession with budget surpluses must be rejected, and it
must be recognised that persistent labour underutilisation not only generates massive losses tothe society and to specific individuals, but it also undermines our future capacity. The Federal
Government has to take responsibility and ensure that its net spending meets the demands ofthe workforce for jobs now and the requirements in the future for an on-going supply of highskilled and productive workers. This proposal argues that in order to generate a socially
inclusive and skilled workforce, the non-employed should be given the opportunity toperform supervised skilled work, because this is how skills are formed.
1

KPMG’s Private Companies Survey (17/9/2008) found: ‘The skills shortage remains the primary concern for
private companies (92 percent), and in response over two-thirds have implemented attraction and retention
programs and nearly 40 percent of companies are bringing workers in from overseas, or considering this as analternative’ (KPMG, 2008: ).

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2

The AIG (2008) report states, for example, that while 51.5 % of surveyed CEOs considered cost an impediment
to upskilling their staff, 40.7 % cited staff departures from the firm following training as the next biggest
impediment.

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13
13.1

The Job Guarantee

Introduction

Following the abandonment of full employment as a primary objective of government policyin the mid-1970s, the role of the public sector as a significant source of employment was
sacrificed in pursuit of private sector efficiency in the use of public resources. A failure toacknowledge that an efficient public sector delivers social benefits that profit-seeking firms
do not, led policy makers to fallaciously equate reductions in public sector employment withefficiency (Mitchell, 2001a: 4). The absence of the public sector as an employer of last resort,
entrenched unemployment, undermined economic security and life aspirations of a generationof Australians, and severely damaged our economic capacity through the concurrent
scrapping of the public sector as a net producer of skilled workers (Mitchell and Quirk, 2005).
Central banks now focus on maintaining a buffer stock of unemployed to maintain pricestability. There is overwhelming evidence that the cumulative costs of this strategy have been
substantial in terms of lost output and other major economic and social costs. However, theeffectiveness of an unemployed buffer stock deteriorates over time, so ever larger numbers offresh unemployed workers are required to function as a price anchor that stabilises wages.
Such a policy is thus severely restrictive and provides no basis for achieving both full
employment and price stability.
Mitchell and Muysken (2008) draw on a body of work including Mitchell (1998), Wray
(1998) and Mitchell and Mosler (2002a) to argue that in the imperfectly competitive
macroeconomic framework in which modern governments operate, a better alternative is toutilise an employed buffer stock approach.
Most progressive economists are also opposed to the neo-liberal pursuit of supply-side
policies because the sacrifice ratios (the percentage increase in the unemployment raterequired to bring inflation down by one percentage point) are high and the distributional
implications are unsavoury. However, the typical progressive solution involves a generalised
fiscal and monetary expansion mediated by incomes policy (Davidson, 1994; Ramsay, 20023; Seccareccia, 1999; Kadmos and O'Hara, 2000; Sawyer, 2003, 2005). Under this approach
the government ensures overall spending is sufficient to purchase all available output with thegovernment itself purchasing goods and services at market prices, or by the government
providing incentives to profit-seekers to expand activity. Demand expansion in isolation isunlikely to lead to employment opportunities for the most disadvantaged, fails to address
spatial labour market disparities which are now common across OECD economies, including
Australia, and does not incorporate an explicit counter-inflation mechanism.
A policy proposal to restore the role of the public sector as a significant employer, and to do
so in a way that also controls inflation, known alternatively as the ‘Job Guarantee’ (JG) or the‘Employer of Last Resort’ (ELR), has been advocated for over a decade by economic policy
research centres in Australia (Centre of Full Employment and Equity – CofFEE, University of
Newcastle), North America (Centre of Full Employment and Price Stability – CFEPS,
University of Missouri, Kansas City, and The Levy Institute, New York) and Europe (CofFEE
Europe, University of Maastricht).

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The macroeconomic principles underpinning this proposal constitute an alternative economic
paradigm to that which has dominated economic policy-making in Australia for 30 years, andwhich has entrenched under-employment, fuelled private debt and destroyed the nation’s
skills formation capacity (Mitchell, 2001b). Mitchell and Muysken (2008) provide acomprehensive explanation of this alternative approach which they call the modern monetary
macroeconomics (see also Mitchell, 1998 and Wray, 1998).
The assertion that Australia currently has full employment, relies on the dominant use bypoliticians, media and others of the official unemployment rate as an indicator of the tightnessof the labour market. In fact, the official unemployment is a narrow measure of labour
underutilisation because it is a persons-based measure as opposed to an hours-based measure
and anyone employed for more than one hour per week is recorded as being employed rather
than unemployed. The fact that under-employment is now a larger problem than official
unemployment is indicative of the trend that nearly a half of all new jobs created in theAustralian economy are part-time, and increasingly these jobs are failing to offer enoughworking hours to satisfy the preferences of the workforce. So there is still significant slack in
the labour market despite the rhetoric to the contrary. As explained in Chapter 3 current hours
based estimates of labour underutilisation are in excess of 8 per cent of the willing labour
force (CLMI, 2008). A further smokescreen used to propel the full employment myth is the
spurious attribution of skill shortages to tightness in the labour market, as opposed toinsufficient investment in skill formation.
The debate between these rival economic paradigms is often very technical in nature, which
has tended to discourage media coverage or the engagement of a wider audience, despite theprofound socio-political implications. As a consequence, most Australians, including many
academics and public policy makers who would find the alternate paradigm extremelyinteresting and useful, are unaware that it even exists.
While the technical nature of the debate may have discouraged lay involvement, the failure of
the mainstream economics profession to engage in debate regarding the principles of themodern monetary macroeconomics is indicative of the sclerosis that pervades orthodox
economics. Mainstream macroeconomics continues to employ monetary theory that wasapplicable to the fixed exchange rate/commodity money worlds of the past, but is inapplicableto the modern flexible exchange rate world we live in today. A glaring example of thissclerosis is the constant statement that Government deficit spending needs to be financed andthe issuing of government debt (to finance the net spending) pushes up interest rates and/or is
inflationary. Both statements are erroneous and lead to faulty policy prescriptions, of the typethat have led to entrenched labour underutilisation and regional disparities (see Mitchell andMuysken, 2008 for an extensive discussion of this).
While much theoretical work has been published outlining the principles of modern monetary
macroeconomics, there has been less work published which details in practical terms the way
in which a JG could operate in Australia. This Chapter seeks to expand on the practicalaspects of designing and implementing a JG by providing for public discussion a draft
demonstration model, which links the theory to practice and clarifies necessary and optionalfeatures of the scheme.
This illustration of an operational JG is offered for an Australian context, and presumes nochange to its federal structure. Other possible modes of delivery are also discussed. Other
societies, with different federal structures, different levels of development, and different
political and socio-economic circumstances would need to adopt different administrative
arrangements to implement the Job Guarantee. The proposed design takes into accountquestions and concerns raised privately and publicly by numerous individuals, including227

critiques offered by Sawyer (2003, 2005), Andrews (2004) and others. We thank all thesecontributors, and welcome all suggestions for further refining our proposed JG administrativearchitecture.
13.2

The Job Guarantee

The JG proposal was conceived independently by Mitchell (1998) and Mosler (1997-98). It
has since been developed further by authors, including Wray (1998); Forstater (2003) and
Fullwiler (2005) and a comprehensive treatment of it appears in Mitchell and Muysken(2008). This Section is based on the latter.
The JG is based on a buffer stock principle whereby the public sector offers a fixed wage job,which we consider to be spending on a price rule, to anyone willing and able to work, thereby
establishing and maintaining a buffer stock of employed workers. This buffer stock expands(declines) when private sector activity declines (expands), much like today’s unemployedbuffer stocks.
The JG thus fulfils an absorption function to minimise the real costs associated with the fluxof the private sector. When private sector employment declines, public sector employment
will automatically react and increase its payrolls. The nation always remains fully employed,with a changing mix between private and public sector employment. Since the JG wage isopen to everyone, it will functionally become the national minimum wage. To avoid
disturbing the private sector wage structure, and to ensure the JG is consistent with pricestability, the JG wage rate should probably be set at the current legal minimum wage.
Under the JG, people of working age who are not in full time education and have less than 35hours per week of paid employment, would be entitled to the balance of 35 hours paid
employment, undertaking work of public benefit at the minimum wage. The aim is to replace
unemployment and under-employment with paid employment (up to the hours desired byworkers), so that those who are at any point in time surplus to the requirements of the private
sector (and mainstream public sector) can earn a reasonable living rather than suffer theindignity and insecurity of underemployment, poverty and social exclusion.
A range of income support arrangements, including a generic work-tested benefit payment,
would also be available to unemployed people, depending on their circumstances, as an initialsubsistence income while arrangements are made to employ them. This would rarely benecessary once the system was well established, because in most circumstances JG jobs
would be immediately available and offered instead of income support. Under the work-test,
any offer of a suitable job paying at or above the legal minimum wage, including a JG job,would terminate the income support payment.
JG workers will have considerable flexibility as to when they work within a range of core
hours, to maximise their availability for part-time or casual mainstream employment, for jobseeking, for caring responsibilities that have limited their employability in the private sector,
self-employment, study, or other pursuits. JG workers will be only paid for the hours in which
they work.
The public employment service (PES) (such as the Commonwealth Employment Service or
the Job Network) would treat Job Guarantee workers as employed but seeking an ‘improved
position’, directly notifying them of suitable mainstream employment opportunities as theyarise and arranging referral of interested JG workers to job interviews.
In the past, the Commonwealth Employment Service (CES) had three types of registration
status: Unemployed (UE), seeking other than full time employment (OE), and employed but
seeking an improved position (IP). Direct observation of JG workers at work would enable

228

their supervisors to provide PES staff with reliable appraisals of their current skills andabilities to inform their matching and referral processes, and with appropriate protocols andpermissions, to inform the hiring decisions of prospective employers.
The JG provides a platform for developing the national skills base, by comparing the observed
skills and competencies of the JG workforce with the emerging skills requirements of eachregional labour market. This would inform the provision of accredited training (both in-houseand via external providers such as TAFE), the indenturing of apprentices, and the design of
JG activities so that they include experiential development of skills expected to be in local
demand. In this way the JG would restore the role of the public sector as a net trainer ofskilled workers, minimising the likelihood of inflationary bottle-necks in labour supply.
The flexibility of the JG would extend to designing jobs to accommodate individuals withspecial physical, intellectual and behavioural needs through collaborative processes involving
the worker, their families, advocates, health professionals, etc… (Bill et al., 2004). It could
also be adapted to address the needs of rural and remote communities, and to reflect cultural
norms within indigenous and other non-Anglo Australian communities.
The JG is intended as a platform for doing several things:
1.

It would provide economic security and social integration for those whose labour iscurrently being under-utilised;2.

It would contribute to the quality of life of all by its contributions to a better
environment, public amenity and improved services to our most disadvantaged andneglected citizens;

3.

It would reduce social dislocation arising from unemployment and poverty.

As a minimum wage employer that accommodates the poaching of its skilled workers byother employers, and even facilitates this practice when extra workers are needed in theprivate sector, the JG is a superior price stabiliser than the present method that entails keeping
over a million people precariously unemployed and under-employed, and in a condition ofskill-atrophying idleness, social exclusion and poverty.
The introduction of a JG would mark an explicit return to the buffer stock employment
policies adopted after the Second World War to ensure full employment such that the least
advantaged workers had opportunities to earn a wage and to live free of welfare support at all
times. While it is easy to characterise the JG as purely a public sector job creation strategy, it
is important to appreciate that it is actually a macroeconomic policy framework designed todeliver full employment and price stability based on the principle of buffer stocks where job
creation and destruction is but one component.
13.3

Inflation control under a Job Guarantee

The fixed JG wage provides an in-built inflation control mechanism. Mitchell (1998) called
the ratio of JG employment to total employment the Buffer Employment Ratio (BER). The
BER conditions the overall rate of wage demands. When the BER is high, real wage demands
will be correspondingly lower. If inflation exceeds the government’s announced target, tighter
fiscal and monetary policy would be triggered to increase the BER, which entails workers
transferring from the inflating sector to the fixed price JG sector. Ultimately this attenuates
the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the
distributional struggle, the JG policy achieves this via compositional shifts in employment.
The BER that results in stable inflation is called the Non-Accelerating-Inflation-Buffer
Employment Ratio (NAIBER) (Mitchell, 1998). It is a full employment steady state JG level,
which is dependent on a range of factors including the path of the economy. There is an issue229

about the validity of an unchanging nominal anchor in an inflationary environment. The JG
wage would be adjusted in line with productivity growth to avoid changing real relativities. Itsviability as a nominal anchor relies on the fiscal authorities reigning in any private wage-pricepressures.
The JG introduces no relative wage effects and the rising demand per se does not necessarily
invoke inflationary pressures because by definition it is satisfying the net savings desire of theprivate sector (see Mitchell and Muysken, 2008 for more details). Additionally, in today’s
demand constrained economies, firms are likely to be able to increase capacity utilisation tomeet the higher sales volumes. Given that the demand impulse is less than required in the
NAIRU economy, it is clear that if there were any demand-pull inflation it would be lower
under the JG. There are no new problems faced by employers who wish to hire labour to meetthe higher sales levels. Any initial rise in demand will stimulate private sector employment
growth while reducing JG employment and spending.
However, these demand pressures are unlikely to lead to accelerating inflation while the JG
pool contains workers employable by the private sector. While the JG policy frees wage
bargaining from the general threat of unemployment, several factors offset this:1.

In professional occupational markets, while any wait unemployment will discipline
wage demands, demand pressures may eventually exhaust this stock and wage-pricepressures may develop. With a strong and responsive tertiary education sector, skill
bottlenecks can be avoided more readily than with an unemployed buffer stock;2.

Private firms would still be required to train new workers in job-specific skills in thesame way they would in a non-JG economy. However, JG workers are far more likely
to have retained higher levels of skill than those who are forced to succumb to lengthy
spells of unemployment. This changes the bargaining environment rather significantly
because firms now have reduced hiring costs. Previously, the same firms would havelowered their hiring standards and provided on-the-job training and vestibule training
in tight labour markets. The JG policy thus reduces the “hysteretic inertia” embodied
in the long-term unemployed and allows for a smoother private sector expansion;

3.

With high long-term unemployment, the excess supply of labour poses a very weakthreat to wage bargaining, compared to a JG environment (Mitchell, 1987, 1998).

A crucial point is that the JG does not rely on the government spending at market prices andthen exploiting multipliers to achieve full employment which characterises traditional
Keynesian pump-priming.
13.4

The Job Guarantee and regional development

Mitchell and Juniper (2007) outline a Spatial Keynesian framework to address regional
disparities in economic outcomes. They show that a generalised expansion will not be
sufficient as a stand-alone policy to target regions in need of employment creation and where
the industry employment base is declining. Further, aggregate policy cannot address feedbackor spill-over effects between regions where social networks and neighbourhood effects
transmit shocks from one region to another. This behaviour is illustrated by clusters of highunemployment regions or hot spots that form in OECD economies as a result of spatial
interdependency (Mitchell and Bill, 2006). Arestis and (2005: 11, 18) argue correctly thatthe industrial structure of a region and … variations in productive capacity as well as
in aggregate demand of the region … [drive these disparities and conclude] …
appropriate demand policies are required to stimulate investment and underpin full
employment.

230

But how can we be sure that the investment will provide jobs in failing regions? How are themost disadvantaged workers with skills that have been superseded going to be advantaged in a
generalised expansion? The JG is explicitly designed to provide opportunities for the mostdisadvantaged workers in the economy. A mixture of both generalised expansion and theimplementation of a buffer employment stock policy approach is likely to be optimal but ageneralised expansion alone is not preferred.
13.5

Implementation issues

Before proceeding to a detailed description of how a JG could be implemented in Australia,
and leaving aside the potential benefits of this scheme in terms of alleviating poverty, social
exclusion; skills shortages; regional disadvantage and improving the quality of life formillions of Australians; we need to acknowledge the practical challenges entailed in operatinga scheme of this type. For this discussion we will endeavour, as much as possible, to set aside
matters of macroeconomic theory discussed above and extensively addressed elsewhere(Mitchell, 1998; Wray, 1998; Mitchell and Watts, 2003; Mitchell and Wray, 2004, 2005;
Mitchell and Mosler, 2002a, 2002b, 2006b; and Mitchell and Muysken, 2008). Here we
confine ourselves to practical institutional and operational considerations that a successful JG
system would need to address.
Some of these issues have been raised by critics of the scheme and others have come from theminds of its advocates during the course of its theoretical development. The design andimplementation choices of any public policy can significantly determine its impact, the devil
being in the detail, so we will next endeavour to enunciate the concerns this proposed
implementation model for Australia is intended to address, and to make our reasons for
adopting one design element over another as clear as possible.
13.5.1 Real jobs?
Some of the theoretically necessary design features of the JG system are considered by someto undermine the likelihood that ‘quality work’ will be performed under the scheme. The
justification for creating a JG job is to provide work which is accessible to the mostdisadvantaged unemployed workers. But it is also intended that the work performed delivers a‘net social benefit’ or enables ‘greater utilisation of an individual’s capacity’. If these criteria
were used to determine the existence of supposedly ‘real jobs’ in the private and public sector,
many would be abandoned. But the existence of socially harmful and degrading jobs in these
sectors does not preclude the possibility of them also occurring under a JG, so the question of
how the value of these jobs will be determined is legitimate.
Whereas market-driven services are supplied according to how much people are prepared to
pay for them, and public services generally respond to usage levels, JG work is not intended
to increase or decrease in response to changing demand for the JG work itself, but toaccommodate falling and rising private sector demand for labour. This appears to disengage
the work performed under the JG from standard ways of estimating its value.
If it transpired that performing this work made little difference to the overall well-being of thecommunity, not only would it seem a waste of public resources that could have been more
beneficially expended elsewhere, but those engaged in performing the work could become
demoralised because their skills and energy were not being better utilised.

231Equally, while the value of the work to the community does not determine whether JG jobs
are created or destroyed, this does not preclude the possibility that the work could be of great
public benefit, although five additional theoretical parameters for the scheme could
potentially reduce the scope of the JG to deliver valued services.
1.

To serve its countercyclical function efficiently, the JG system must not displace
employment in the private or public sectors, which precludes it from delivering
services which either the market or the state currently deem worthy of delivery. Thismeans that JG services will address needs that are currently not profitable for theprivate sector to meet (because they are public goods or because potential recipients ofthe services cannot afford them) and which the state currently considers of such low
priority as to not warrant addressing. This does not preclude JG services from meeting
considerable unmet need in relation to the natural and social environment and among
the least powerful sections of society, particularly if the system is well-engaged at the
local grass-roots level, where the market and the state generally are not. The Local
Employment Initiative (LEI) job creation concept received considerable
developmental support from the Commonwealth in the mid 1980’s until its only pilot
proposals were rejected at the Expenditure Review Committee in 1988 (Gass,
1988:12-14). These differed to the JG model in that they expected public sector seedfunding of small scale market based activity that could generate significant levels of
employment. Both concepts recognise sensitivity to local need and local control is
crucial to identifying worthwhile and under-performed work (NAGLEI, 1987);

2.

The JG’s countercyclical function also requires that it does not retain workers when
the private sector requires them and can induce them with an appropriate job offer toaccept employment. The operation of the JG requires that the Government offers afixed wage job at the effective minimum wage and never seeks to compete withmarket wages for workers. The JG is a buffer stock at all times. If the relative
attraction of the JG work was its greater security, a sufficiently streamlined entry /exit
design (that enabled immediate re-entry to the JG) will lower resistance to accepting
offers of private sector employment by eliminating risk attached to the job notworking out. The successful transition from the JG into private sector employment
would be enhanced because the workers would maintain work-related physical andmental stamina, social skills, means of transportation, and the like, capacities which
are often lost during long spells of unemployment. This would further reduce theperceived risk of the scheme.
If the relative attraction of the JG work was that it required less effort, this would be
mitigated by the degree to which JG work achieved the standards of effort andprofessionalism of the private and public sectors. These standards are not solely
achieved within these sectors by either punishing sub-standard performance (forexample, demoting or sacking bad workers), or rewarding above-standard
performance (for example, promoting good workers). Although the JG’s fixed-wage
and the objective of eliminating unemployment limits recourse to these strategies, itdoes not totally preclude them, nor does it preclude recourse to other sources ofmotivation used in other spheres of collective human endeavour such as sport,
education, families, and voluntary associations. If the relative attraction of JG work isthat it is better managed, safer, more dignified or more satisfying than private sector
employment, the solution may be that private sector employers raise their standards inthese areas;

232

3.

The provision of new services that meet significant needs may raise an expectation ofcontinuance. If the withdrawal of a highly valued JG service threatened a public
backlash, governments would be under pressure to continue the service, perhaps as amainstream public service, which would permanently reduce private sector access to
those workers. From the Post-Keynesian theoretical perspective, some JG jobs will
always need to be undertaken to eliminate unemployment because the private sector
cannot do it alone. Those JG services that have the greatest demand for continuity,
such as new forms of support for the aged and disabled, would need to be prioritised
for retention over services (such as public works) that can be discontinued without
significant loss of amenity;

4.

Since the scheme is intended to offer all persons of working age a job to eliminate
their unemployment or underemployment, there is a presumption that JG jobs would
need to be kept simple to accommodate the ‘lowest common denominator’ of skill
level. Were this so, many workers would find JG work unchallenging and many of
their skills would remain underemployed. This issue has been successfully addressedin the past by labour market program providers by assigning different roles andresponsibilities to people within a given work group, according to need and ability.
This simply requires that jobs are designed with a range of options and thatsupervisors possess the skills to allocate work according to worker needs andcapabilities. JG jobs have an advantage in this regard in that they are not dependent onachieving a given level of productivity, thus allowing them to be tailored toaccommodate special needs, such as those of people recovering from mental illness.
This would best be undertaken through collaborative job design with the individual,
their health professionals and family. New forms of workplace support work are also
potential JG jobs. In many respects, the flexible potential for the JG to offer diverse
employment experiences has fewer limitations than existing sources of employment;

5.

Some socially useful services which address important social and economic objectives
may already be partially met through permanent public sector employment. Expansionof these services through the JG creates a tension between those employed underpublic sector conditions and those employed under JG conditions. Downgrading thewages and conditions of the public sector workers would be inequitable. This issue
can be addressed by quarantining this existing public sector employment andassociated conditions while the incumbent workers continue their employment in thesejobs. Once these workers retire or take up other positions, these jobs will revert to JG
pay and conditions. The general principle is that no person would be individuallydisadvantaged by the introduction of the JG. This is not the same as saying a class ofjobs might be restructured into JG jobs over time.

13.5.2 Protecting the public interest
Drawing a large population of hitherto socially excluded persons into active labour market
participation creates a significant challenge in ensuring that they and the general public are
not exposed to risks from incompetent, inappropriate, malicious or criminal behaviour. This isa basic duty of care expected of all private and public sector employers, but is likely to be agreater issue under the JG given that its charter is to employ anyone applying to it for work.
This requires protocols for checking criminal histories, independent monitoring of client wellbeing, genuine complaints processing, skilful assessment of worker capability and thoroughorientation training and supervision systems. Most of these requirements are familiar toemployers in the human services industry and to managers of past labour market programs
such as SkillShare, JobSkills, New Work Opportunities and LEAP.

233

Given that a guarantee of work for all can be expected to draw many people into theworkforce who have hitherto been excluded from participation, JG staff will needconsiderable skill in assessing, training and supervising people with complex physical andbehavioural issues. The design of the JG needs to promote regular contact and informationsharing among staff involved in similar aspects of its program, to build a comprehensive bodyof knowledge of problems and solutions emerging from its implementation as fast as possible.
It will be critical to extensively train JG administrative staff in Occupational Health and
Safety, assessment of worker capability, in thorough workplace orientation methods, in how
to manage a constantly changing population of workers, as well as ensuring they have thetechnical skills necessary to train and supervise others in the performance of a given task. In
short, it will need to embrace a training and development culture.
There is also a significant potential for corruption under the JG, given the power of JG
administrators to define what JG workers need to do to earn their pay, and the possibility thatworkers could be directed to perform services to the personal advantage of those in positionsof authority, such as improving the value of their properties, or acting as their personal
servants. The system will need to be particularly secure from rorting (for example, people
claiming pay for work not performed, people claiming under multiple names or people
working a combined total of more than 35 hours per week). Public accountability andtransparency, coupled with extensive monitoring and auditing systems will be essential
features of this system. It would be crucial that from the outset, attention was paid to creating
a culture that supported the economics and goals of the JG, embraced accountability, andreflected its socially constructive orientation because decision making is influenced byorganisational culture (Moynihan and Pandey, 2006).
13.5.3 Top heaviness and displacement effects
As we discovered in earlier chapters there are dangers involved in coordinating activities
between various levels of government when perverse financial incentives come into play. For
this reason it is imperative that the additionality provisions of the JG are effective andpreclude the ability of any level of government to substitute JG workers for the regular
workforce either in the short- or longer-term.
The employment and price stabilisation effectiveness of the JG will depend on its ability toquickly accommodate rises and falls in private sector demand for labour. This will require theoperational infrastructure of the JG system itself to be sufficiently flexible to rapidly expand
and contract as required. A core of administrative and expert staff will need to be retained
during buoyant economic times to facilitate the rapid recruitment and training of JG staff
during periods of economic downturn. In buoyant times, the training and supervisory staff
who did not take job opportunities in the private sector could be productively engaged inresearch and development of new training modes and “best-practice” pedagogy so that thecapacity of the JG to combine guaranteed employment with efficient skills development could
be maintained and improved. Other activities which could be performed during these periods
include project appraisal – assessment of proposed future projects which could absorb andproductively employ large numbers of workers when the next major downturn occurred.
These functions are akin to the maintenance functions performed in the private sector byskilled staff who are retained by firms when demand is low.
Though mentioned above as a potential limitation on the scope of JG work, avoidance of
displacement of existing private or public sector workers is critical to the viability of the
program as a means of responsively generating net employment growth when required. The
process of determining what services are to be conducted, and by what means, will need to besensitive to local private sector concerns, which can be democratically mediated by placing234

approval authority with local government, and providing effective ongoing mechanisms for
public consultation. At the same time, the risk of local government indulging in cost-shifting
can be minimised by the Commonwealth retaining control over the proposal development andimplementation process.
13.6

An illustrative model of an Australian Job Guarantee

Figure 13.1 provides a schematic of an operational plan that seeks to address the issues
outlined above. The function of each component and the interrelationships between thecomponents in the JG system sketched in Figure 13.1 is discussed in detail in this Section. We
will avoid prescription where several options are possible. This is not necessarily the best way
to implement such a program; rather it is an example of a model that is consistent with the JG
philosophy.
In this model, functionally differentiated local JG Enterprises (JGEs) create, train, and assign
work to supervised teams of JG workers. These teams deliver services that are designed
through a consultation process, managed by regionally-based Commonwealth Government
staff in partnership with and authorised by local government. The Public Employment Service
works closely with the JG system to broker connections between employers and JG workers.
JG Enterprises create, expand, amalgamate, and disband teams of workers as private sector
demand for labour rises and falls, preserving full employment while maintaining a skilled
labour supply which is available for private sector employment.
13.6.1 Commonwealth government
Mitchell and Mosler (2006b) and Mitchell and Muysken (2008) have argued that the dual
objectives of the Reserve Bank of Australia (RBA) - price stability and full employment would be more efficiently managed through the use of a buffer of JG employees rather than abuffer of unemployed people. Being a price stabilisation mechanism, these authors suggestthat the operation of the JG could be more appropriately housed under the authority of the
RBA, rather than as a component of a separate employment ministry. A variation of this
proposal may ascribe to the RBA the right to specify key operational parameters for thescheme. The above cited authors recognise that the RBA is not publicly accountable for theconsequences of its decisions. They argue that this is a major flaw in the recent neo-liberaltrend toward reliance on monetary policy at the expense of fiscal policy. The introduction of a
JG would see a reduced reliance on monetary policy as the principle counter-stabilisation
policy vehicle.
Given that public accountability by aggregate economic policy makers should be paramountin a system of open and transparent government, the proposal outlined here ascribes overall
responsibility for the JG to the Commonwealth minister responsible for employment. The JG
would occupy a branch of the employment ministry, either within or adjacent to that of the
public employment service (PES). Only the Commonwealth Government has the spending
and taxing powers to fund a scheme of this scale, and the benefit of close coordination
between the JG system and the PES justifies their direction by the same minister. The public
employment service may be a public sector organisation or a marketised system such as the
Job Network. We contend, however, that the principle motivation for creating an employment
services market was to overcome CES staff resistance to withdrawal of income support(‘breaching’) as a disciplinary device (Jose and Quirk, 2002), a practice that will be largely
redundant under the Job Guarantee. A well-administered public sector-based employment
services system would enable superior monitoring of shifts in labour supply and demand, andthe identification of looming skills shortages, thus enabling the JG to be deployed with greater
strategic effect.

235

Figure 13.1 An illustrative model of the Job Guarantee system

Commonwealth Government

Local Government

Minister for Employment

Department of Employment Central Office

Job Guarantee
BranchAuthorises local Job
Guarantee Projects
after consultation

Public Employment
Service BranchCommunity
Consultation
Forum

Job Guarantee/PES
Regional Zone Office

JG Environmental
Services EnterpriseSocial Security

JG Environmental
Services Enterprise
PES

Pensions, Benefits
to workers in
between jobs

JG Public WorksEnterprisePES
JG Human Services
Enterprise

GeneralLabourMarketPES
JG Cultural Services
Enterprise
JG Regional &Remote Services
Enterprise

PES

236

Central Office
The JG Branch would include a central office located in a capital city or a major regional
centre such as Newcastle. Indeed, the location of the central office could be part of a regional
development strategy designed to provide professional employment opportunities in declining
regions. The Central Office would not have to be located in Canberra. The Central Office of
the Department of Employment and Industrial Relations (DEIR) was located in Melbourne
between 1979 and 1988, to place senior staff close to the Australian Industrial Relations andArbitration Commission courts. This had the unintended consequence of exposing senior
management to the issues confronting CES staff on the ground, since there were greater
opportunities for two-way interaction with a large metropolitan CES network. CES staff
visited the Central Office for training, and Central Office staff frequently visited CES offices,many having previously worked in the CES. Following the formation of DEET in 1987, theCentral Office was moved to Canberra, which placed new people in the ranks of the senior
management who were without experience in employment services delivery. Their cloisteringin the relatively homogenous and affluent Canberra area reduced their exposure to theoperational realties of the service they were conducting, and possibly contributed to the
managerialist culture that subsequently proved so detrimental to the quality of employment
service delivery (Jose and Quirk, 2002). Small regional offices would provide a range of local
coordination and specialised support services. The model for the operation of these offices is
the DEIR zone offices of the post-Norgard CES (1979 – 1989).
The Central Office would undertake:

Policy development;

Systems development and management;

Budget management, including determining labour/capital ratios;

Auditing of system compliance;

Performance monitoring ;Research and development, including the conduct of qualitative public surveys of theoperation of the JG, to be used as discussion points at community consultation forums;Marketing;

Reporting;

Coordination and support of several functionally defined enterprise networks to which
local JG enterprises would belong. Support services would include negotiation of bulk
purchasing agreements with suppliers, research and dissemination of best practice,provision of legal and other technical assistance.

Central Office would determine national targets and accounting methodology for the ratio ofexpenditure on capital and labour for JG services according to JG enterprise type, enabling thedifferent capital requirements of, for example, public works services and human services to berecognised. Capital expenditure was not permitted to exceed 50 per cent under theCommunity Employment Program (CEP) that operated between 1983 and 1987. The
proposed JG model enables the Central Office to specify different ratios for different activities
over time. The establishment of a set ratio under CEP was appropriate to show an evenhandedness with community agencies which were required to submit costed proposals. As thebudget and design process of the proposed JG model remains with the Commonwealth,varying labour/capital ratios should not carry the same political risks as under CEP. For
example, different ratios could be established for different types of jobs (see Table 13.1).

237

These expenditure ratios would apply to regions (zones) as a whole, to allow deviation
between different services within them, so long as the region in total conformed to the ratio.
These ratios would probably alter over time as stocks of capital equipment accrued. Ratios ofcore staff to JG workers and other parameters could also be subject to prescribed ratios.
Table 13.1 Examples of labour/capital ratios under the JG
Enterprise type

LabourCapitalPublic works

50

50

Environmental rehabilitation

55

45

Human services

65

35

Cultural services

70

30

The regional hubs/zone offices
A zone/regional manager heads a team of specialists who develop, oversee and support theperformance of a cluster of JG enterprises. Each of these teams in turn services a group of
local government areas, liaising closely with local government and other individuals, groups
and authorities with a stake in the design and delivery of proposed services. Local PES
coordination and support would preferably be co-located at these offices to streamline
coordination of JG and PES systems. Each zone would consist of a team of auditors,
researchers, trainers, counsellors, job developers, IT and ancillary staff that would support theestablishment and operation of JG enterprises in each locality.
Zone offices would undertake:

Regional data collection and labour market analysis;

Determination of projected skill formation requirements in their region;

JG enterprise establishment and staff recruitment;

JG and PES information systems and other technical support;

JG enterprise and PES staff training and development;Community consultation in the development of JG service specifications for local
government approval;



Allocation of approved service specifications to JG enterprises;

JG enterprise budget development and approval;

Auditing and monitoring of JG Services;

Specialist JG job design;Provision of visiting specialist counselling and social work support;

Local marketing;

Reporting;

The establishment of a zone office would be the first stage in implementing the JG in a
locality. This group would organise the initial establishment of the JG enterprises that employ
Job Guarantee workers, and allocate services for them to perform. Budgets for services will
be negotiated with enterprises based on estimates of the numbers of jobs to be created and in
conformity with labour/capital ratios established by the Central Office238

Specialist job development, training and counselling staff would develop expertise in the staffof the JG and PES to identify and assist jobseekers/JG workers with special needs.
Counsellors would perform case-work at JG enterprises and PES offices and be available todeal with complex situations on JG worksites, including recommending transfers of workers
and modifications to job design. By networking with specialist staff performing comparable
roles in other zones, and disseminating their knowledge within the JG and PES systems, thevarious zone specialists will provide the critical mass of expertise that preserves corporate
memory as the system expands and contracts.
The service specification process in detail
Ideas or requests for services to be delivered by one or several JG enterprises may be directedto the JG zone office by anyone in the community, including from within local government or
the JG system itself. These would be investigated by job development officers at the zone
office who would:

Determine the strategic potential for the service as a vehicle for experiential
development of skills likely to be required in the region;Discuss draft proposals at the Community Consultation Forum;Liaise with members of the community who may be affected by the proposal to clarify
their concerns and mitigate them in the design process;Consult with those JG enterprises expected to conduct the service to gauge their views
as to implementation issues;

Consult with local government staff, other relevant authorities and community groups.

This process would culminate in the preparation of a service specification document settingout what service was to be performed, how it would be performed, what resources wereneeded, what authorisations were required from various authorities as it was performed,
monitoring and reporting standards, implementation time frames, priority, etc...
The service specification document would be tabled at a local government council meetingand the zone officer responsible for its development would provide additional information andundertakings as requested. Councillors would receive submissions from the community andan appraisal of the proposal by their own staff. Council would then either support or reject the
proposal, with the possibility of recommending modifications and re-submission.
Once approved, the zone office would coordinate the allocation of the approved service
request to one or several JG enterprises, which would negotiate a budget and implementation
plan with the zone office and commence implementation. Operations managers within local
JG enterprises would liaise to coordinate joint projects, and would organise the formation andprovisioning of appropriate teams of supervised workers to perform the service. Reports on
the achievement of service objectives would be forwarded to the zone office as required by
the service specification documentation.
Job Guarantee Enterprise
Figure 13.2 sketches the administrative relationships within a JG Enterprise. These enterprises
would perform the role of employer within the JG system, delivering a range of functionallyrelated services specified in authorising documents prepared at the zone office level andapproved by local government. We presume here that these enterprises are public sector
institutions, but they may also be non-profit agencies contracted under a system of grants, aswere the SkillShare providers. Recent experiments in contracted employment service
provision have consistently failed to ensure reliable standards of quality service provision,239

since the purchaser/provider model limits information flow, and observation and control on a
day to day basis (see also Marston and McDonald, 2006).
The size and distribution of JG Enterprises would depend on determining an optimal degreeof population and geographical coverage. The functional specialisation of enterprises (forexample, into human services, environmental, public works, etc…) would not limit the range
or scope of services provided by the JG as teams from different enterprises could be engaged
simultaneously on the one project. At the same time functional specialisation would
encourage:Formation of expertise throughout the enterprise, pertinent to the delivery of specificoccupational/industrial undertakings, which could include training expertise,supervision experience, technical skills, established community liaison links, etc…;



Development of appropriate capital equipment, inventories and maintenance expertise.

Each JG Enterprise would:Assist zone office staff to design and formulate budgets for new and ongoing services;

Recruit and train supervisors of JG workers;Organise premises, equipment and materials necessary to implement approved
services;Assess suitability of prospective JG workers, provide orientation and allocate them toappropriate teams;

Conduct formal and experiential vocational training;Supervise and inspect work undertaken;

Provide all standard HR functions including processing of timesheets, staff
counselling and performance appraisal;Conduct an ongoing skills audit of JG workers to provide data for regional labour
market analysis, and to inform supervision arrangements, job design and vocational
training requirements;

Liaise with the local PES to convey information of mainstream job vacancies to JG
workers, advise PES staff and clients of JG work opportunities, facilitate brokerage(provision of interview facilities, performance reports, etc…) between employers and
JG workers;

Contribute to the development of best practice among JG services within a national
network, for example, JG human services enterprise network; JG environmental
enterprise network; JG public works enterprise network; JG cultural services
enterprise network; JG remote and regional services enterprise network.

The growth and contraction required of the JG in response to changes in private sector
demand for labour will be facilitated by a system of discrete modularisation. JG enterprises
will organise workers into teams that can be flexibly expanded, contracted, amalgamated,disbanded and reconfigured in response to fluctuations in the numbers of people seeking JG
work, their particular skills, and the services the enterprise is engaged in delivering. As teams
are discontinued, their supervisors may themselves become JG workers in other teams until
they obtain other employment.

240

Figure 13.2 A stylised Job Guarantee Enterprise
General Manager

Admin Support

Operations Manager

Audit & Monitoring

Training Team

Team Coordination

Employment Officers

Team 1Team 2

Team 3

Team 4

Team 5

Team 6

Team 7

Team 8Team 9Team 10

Team 11

Team 12Team 13

Team 14

Team 15

Team 16

Team 17

Team 18

Team 19

Team 20

Team 21

Team 22

Team 23

Team 24

At its core, a (large) model JG Enterprise would consist of:

A general manager, with overall responsibility for the enterprise;Administrative staff, primarily for record keeping and processing timesheets;Audit and monitoring staff to ensure the enterprise operates appropriately;An operations manager who oversees:- A Team Coordination and Support unit that liaises with team supervisors on adaily basis to negotiate commencement arrangements for new workers,schedule access to equipment, procure materials, respond to emergencies,
provide backup supervisors, coordinate the allocation of teams to different
services and restructure teams;- Employment officers responsible for assessing suitability of applicants forwork within the enterprise, recommending their allocation to appropriate
teams, recommending modifications in job design to accommodate different
skill formation objectives or special needs, liaison with PES;

Training staff responsible for:- coordinating the on-going skills audit process;- design and delivery of orientation and vocational training for JG workers;- training of JG supervisors;- coordinating access to external training services for JG workers, that is, TAFE.

At the next level are multiple JG Enterprise Teams comprising:241

JG Supervisors (JGS);

JG Workers (JGW).

Each JG worker would work in a team under the direction of a JG Supervisor. Teams would
vary in size according to the nature of the work and the supervision needs of the workers.
Members of teams may work separately or collectively, in the same workplace or different
workplaces to one another, the basis of their categorisation as a team being only that theyshare the same supervisor.
These teams would be flexibly increased and decreased in number, expanded and shrunk insize, and combined or disintegrated under the direction of the Operations Manager according
to the number of people employed by the enterprise, their skills and supervision needs, andthe nature of the services the enterprise is undertaking to deliver.
Some services may be provided by multiple teams, even from different JG Enterprises. Scope
would also exist for teams to be established as enclaves within public institutions such as
schools, hospitals, local government other community agencies, while remaining employeesof the JG enterprise. These arrangements would need to satisfy concerns over any potential
displacement effects.
The JG Enterprise Team Supervisor will:

Operate under the direction of the JG Team Coordination Unit;

Direct workers under their authority to deliver services according to its local
government approved specifications;

Coordinate with other team supervisors on joint projects;Organise equipment and materials via the Team Coordination Unit;

Orientate new workers;



Record and report attendance of JG workers;

Allocate work appropriate to each JG worker’s abilities;



Provide on-the-job training and personal development;

Facilitate a safe, secure, equitable, positive working environment ;Facilitate PES vacancy circulation and facilitate brokerage activity by providing
assessment of workers abilities to PES and prospective employers;Facilitate skills audits under the direction of the Training unit.

13.6.2 Employment conditions
All JG workers would receive the minimum federal award wage and all conditions of
employment pertaining to permanent employees. This will include all accrued holiday
entitlements, superannuation, workers compensation coverage, and other allowances relevantto the maintenance of work clothing and such as allowed under the award.
Commonwealth guidelines on occupational health and safety best practice would be
mandatory in all JG enterprises. Industry standard site facilities would be provided in all work
areas. Membership of a relevant union would be optional and access to union representatives
and literature fully supported. The appeals process that pertains to all Commonwealthemployees would address concerns of discriminatory or unfair treatment.

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13.6.3 Conflict resolution
Team supervisors would be trained and professionally supported on the job to resolve
conflicts between workers and between themselves and workers. Should conflicts remainunresolved to the satisfaction of either worker or supervisor, a range of graduated options
would be available to both. These will include:Conciliation/counselling by another enterprise supervisor;Conciliation/counselling by a zone office counsellor;

Negotiated job redesign;Tandem supervision (in situations where the supervisor may require mentoring);

Unilateral or mutually agreed re-assignment to alternate teams.

Where the conduct of a JG worker is deemed inappropriate on the basis of safety or othervalid reasons, and job redesign or transfer to an alternate team does not resolve the situation,(despite JG Enterprises potentially having 100 teams to choose between), the operational
manager may approve a more extensive assessment of the JG worker’s optimal vocationalsetting, and for participation in this process to be considered employment within the JG
Enterprise. The assessment may result in a position being tailor-made to accommodate any
special need that is identified, including those pertaining to cultural norms or ethical beliefs.
Should the JG worker refuse to cooperate in this assessment process, and in the judgement of
the operational manager cannot be accommodated within the JG Enterprise, they will bedischarged and notification forwarded to the PES and Regional Office.
They will be entitled to apply to the PES office for a conditional discretionary interim relief
payment (at a pension or benefit rate) subject to a work test: that is, when this person isoffered suitable employment the benefit is discontinued. The PES may also propose that the(now unemployed) person undertake a more extensive vocational assessment to determine
their optimal vocational setting, or their suitability for alternative income support. This may
result in referral to a different JG enterprise, and/or the creation of a tailored position.
Should the person refuse to participate in this assessment process, the PES will have thediscretion to exercise any or all of these options:

Declare the person unfit for referral to the JG or other employment pending further
assessment (notifying the JG of the exclusion);

Decide whether to continue or discontinue their interim income support;

Refer the person to employment either within the JG or elsewhere, refusal of which
will terminate their income support;

Refer the person to social security (for example, Centrelink) for an alternate benefit;Request that the Regional Office investigate the conduct of the JG enterprise inrelation to the client.

In general we adopt the position that most unemployed workers are keen to work and are
unemployed because there is a deficiency in jobs available to them. We do not consider alarge proportion of workers would adopt strategic behaviour to avoid working in the JG while
they searched for higher paying job opportunities.
When there are reasonable grounds to question the conduct of a team supervisor, theoperational manager of the JG enterprise will order a review to be conducted by the Team
Coordination Unit or Audit Unit, depending on the nature of the concern. They may choose to243relieve the supervisor of their duties or assign a mentor to work with them while the review isunderway. On the basis of this review the operational manager may choose to:

Reinstate the supervisor;Re-assign them to another team;

Suspend them from supervision for a period;Dismiss them from supervision permanently;

Refer the case to the police.

Care would need to be taken in relation to the re-integration of the supervisor within the JG
system, either as a supervisor or a JG worker. Any appeals processes that pertain to any
Commonwealth employee would apply to JG workers and supervisory staff.
13.6.4 Managing flexible entry and exit
An initial consultation between the aspiring JG worker and officials at the regional zone
office would serve to assign the worker to a suitable JG enterprise based on past work history,
worker preferences, transport options and other considerations. The first time a person is
employed with a given JG Enterprise they would undertake an orientation and assessment
process, to ensure they know:How the system operates;Occupational Health and Safety;

Personal conduct requirements and other rules of the JG enterprise;

Who they can go to for advice and support;What work and training opportunities are available within the enterprise;

Having completed this process once, should they leave and return to the enterprise within aprescribed period (for example, 12 months) their re-registration and re-commencement of
duties should take a matter of minutes.
The possibility of frequent, contingent absences is a significant design issue for the JG. Beinga buffer stock of available workers to the mainstream labour market, even the steadiest andmost reliable workers will frequently be absent to attend job interviews, or leave at short
notice to take up mainstream employment. Additionally, some people may choose to work a
35 hour week, some may wish to work on a permanent part time basis (for example, on
specific days of the week), and some may wish to come and go depending on the availabilityof other work or other contingent responsibilities.
The team structure of the JG Enterprise is intended to accommodate this need for flexibility,by:

Establishing different attendance obligations for teams relevant to the nature of theservices being delivered. Casual teams would provide a basic job to anyone at anytime(between core hours, for example, 6am to 6pm) and involve work that can be started
and stopped without notice. Permanent teams would require greater specificity as towhen people intend to attend, and sufficient notice of non-attendance to facilitate
rostering, which if transgressed excessively may require transfer to a more casualteam. The more permanent teams would be able to offer workers greater
responsibility, autonomy and control over the work they do;

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

Designing useful jobs within each team that can be put aside and picked up later
without difficulty, so that relief staff are available to meet contingencies, or using
more than one person to deliver a service that would benefit from continuity (eg., twopeople take an infirm person shopping).

13.6.5 Public Employment Service (PES)
A public sector labour market broker that was closely integrated with the JG could constitutethe best employment service Australian industry has ever known.
The JG provides a unique opportunity to develop a detailed appreciation of worker’s skills
and abilities through observable performance. SkillShare was favoured by many employers as
suppliers of staff because they were able to report on observed skills and behaviours of their
participants, as opposed to relying on claims in references and resumes that may or may not
be accurate. With appropriate privacy protocols, interaction between JG and the PES would
provide up to date information on the skills and abilities of job seekers to enhance matchingeffectiveness. We consider this interaction would be most efficient if the PES and JG are fully
located within branches of the same Commonwealth department.
With a fully operational JG system the role of the PES changes markedly from that ofmanaging a demoralised long term unemployed and under-employed population with apunitive activity testing regime, to providing a securely employed population withinformation and access to improved private and public sector employment opportunities. Thischange of role dispenses with the need to link the incomes of PES agencies and staff to theirpropensity to punish their clientele, which was a significant reason for the marketisation ofAustralian employment services in 1998 (Jose and Quirk, 2002). The removal of the welfare
policing role also eliminates the need to desensitise staff to the circumstances and needs ofclients, currently engendered through the judgmentalism of the “mutual obligation”
ideological framework and the scarcity of adequate training in counselling and assessment
methods. PES staff would be highly trained in job seeker and vacancy analysis and remedialintervention.
The relative simplicity of a work-test in which unemployment benefits cease on thecommencement date of a JG job or the rejection of other valid offers of employment,
compared to that of the present activity test, would also free employment service resources
presently engaged in welfare administration. The PES would thus become more focused on
managing labour supply, collating local labour market intelligence, receiving and circulating
vacancies, facilitating communication between employers, JG workers and other job seekers,
while developing greater capability in recognising barriers to employment affecting workers
and workplaces and formulating remedial interventions. The Norgard formula of a highly
skilled staff with sufficient autonomy to deal with employers and jobseekers creatively andflexibly offers the greatest potential for quality service delivery. Norgard called for theabandonment of welfare policing, increased staff training and infrastructure upgrading. These
proposals served as a successful blueprint for the CES in the decade from the late 1970s(Norgard, 1977). A national network of local labour market authorities, such as the CES,
would seem the most practical structure.
13.7

Local government and community consultation forums

13.7.1 The role of local government
The viability of the JG will rest on its ability to retain strong public support, which willrapidly evaporate if it is perceived to be corrupt or mismanaged, or fails to achieve its
macroeconomic aims. Its survival will depend on its capacity to locate unmet need and245

recognise opportunities to improve the quality of local community life, which will require
acute sensitivity to the views of the most disengaged and powerless groups in society. A
highly transparent and responsive administration will be less inclined to countenance any
unethical or corrupt practices.
Local government has a significant role to play in the administration of the JG due to its local
democratic authority and its proximity to the community and environmental issues that the JG
would seek to address. While the burden of preparing the specifications of a new service
would rest with Commonwealth staff located at a nearby zone office, local government staff
would need to be intimately involved in the process because the legal authorisation for the
conduct of a specific JG service, (for example, a weed eradication program, a shopping
support service for the infirm; a carer respite service, etc…) will rest with local government.
Council meetings would be able to withhold approval pending supply of further information
or modifications being made to the plan. By this arrangement, local government will have thestrategic power to impose standards of service performance and responsiveness to local need,while service scale, including its withdrawal, will depend on the Commonwealth’s assessmentof how best to achieve its full employment and price stability objectives. Both tiers ofgovernment will have an interest in preserving a harmonious relationship.
Once a specified service has been approved, the responsible zone officer would allocate thevarious components of the service to the appropriate JG enterprises, acknowledging that some
services will involve more than one enterprise. For example, a park restoration project may
entail historical research for the provision of tourist information, public works to beundertaken in the form of installation of picnic tables or safety rails and environmental workin terms of recognizing and removing non native fauna and flora. JG enterprises would be
subject to audit by both Commonwealth and Local Government to ensure their compliancewith approved service specifications and other regulations.
13.7.2 Community Consultation Forum
Public empowerment in relation to the JG’s decision makers will maximise theiraccountability and sensitivity to community need. As a further public accountability measure,a representative of local government (a councillor or council nominee) would be the ex-officio
chair of a regular Community Consultation Forum in which staff from the JG zone office andresponsible officers of each JG enterprise, and the PES, would be mandated to attend andrespond to questions, criticisms and suggestions from the public. There would be mandatory
and non-mandatory agenda items. The minutes to these forums, and reports on action in
response to undertakings previously given would be tabled at local government council
meetings and made available on line. These forums could be one of many avenues whereby
the general public would submit ideas for JG services, and receive explanations as to how andwhy their ideas were or were not being implemented.
13.8 Transformation from the Job Network/Newstart system to a Job
Guarantee system
A large amount of the present employment services/welfare policing structure of the Job
Network and Centrelink would become redundant under this proposed JG model. The JG
eliminates the need for an army of employment service staff to enforce activity testcompliance, since the question of welfare entitlement would be determined by a simple work
test. This also eliminates the need to tie the economic security of employment service staff totheir propensity to impose punitive compliance measures on unemployed people, which we
contend was a significant motivation for adopting a purchaser/provider model. As discussed

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in Chapter 6 there is little evidence that purchaser/provider arrangements have delivered aquality employment service.
The existing DEWR regional office network would easily accommodate the proposed JG
zone staff, particularly with the re-assignment of contract managers and other staff engaged
directly and indirectly in activity test administration. Contract management becomes largely
unnecessary with the abandonment of purchaser/provider arrangements between thedepartment and its public outlets. Compliance programs such as ‘Work for the Dole’ and Job
Search training (in various forms) would clearly be redundant under the JG.
In terms of how the implementation process could proceed, a logical process would entail:Passage of enabling legislation;



Memoranda of agreement between Commonwealth and Local Governments;Central Office branches established;JG and PES Zone staff established;Community Consultation Forums established;Progressive establishment of JG enterprises;PES agencies established and operate concurrently with the Job Network for atransition period;Progressive replacement of Newstart activity test requirements with a work test;

Through a process of JG enterprises steadily creating new teams, full employment
would be achieved gradually, perhaps over several years.

13.9

Conceptual variations

The model thus far outlined is not the only way that a JG could be implemented. We offer it
to illustrate one possible application implied by JG macroeconomic principles, and to provide
examples of institutional arrangements that could diminish the risk of foreseeable problems
under such a scheme. Considering the variation in past job creation approaches (bothnationally and internationally), modern developments in technology, and public
administration, and considering the scale envisaged for the JG, the optimal design for such ascheme will emerge from further research and development and public consultation. To
illustrate this point, this section canvasses some other possible arrangements and modes ofdelivery that may be considered appropriate depending on the political and economic
environment in which the scheme is established.
13.9.1 Social Equity Commission
A JG scheme has been developed by the Indian Government, which was largely driven by abody empowered to conduct research and submit legislation to parliament with the objectiveof securing greater social equity. For example, the commission paved the way for Right toInformation legislation, minimum health care provision and the National Rural Employment
Guarantee Act 2005 (NCMP, 2004). Given that Australia has a Productivity Commission withpowers to audit the economic efficiency of public policy, perhaps a commission of similar
standing could exist to audit the social equity of public policy. It may then be appropriate forthis body to maintain a permanent independent ombudsman/auditor/advisory role, to the JG
system.

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13.9.2 Integration within a regional economic development system
The version of a JG we have illustrated has potential as an instrument for facilitating regionaland sectoral restructuring, by providing an employment vehicle to preserve communities andundertake necessary preliminary work during transitions between a declining or unsustainableindustry and a more (economically and environmentally) sustainable replacement. Thesetransition processes require research, consultation, planning, and coordination through various
levels of government and democratic engagement with the broader community, justifying thecreation of a specific agency to manage the process. Consequently, the JG could be an arm ofsuch an agency and thus might sensibly be operated under its auspices.
13.9.3 Direct provision of the JG through local government
The illustration model of the JG retains the financial and day-to-day operational responsibility
for the scheme entirely with the Commonwealth, and utilises the democratic authority of local
government as an adjudicator of local interests and concerns over how JG services areplanned and delivered through several mechanisms:
1.

There is a requirement that local government has a veto over the specifications of any
service proposed to be conducted under the JG in its LGA. This would oblige those
responsible for developing these proposals to thoroughly consult with local
government staff during their development;

2.

Local government representatives are the ex-officio chairs of the Community
Consultation Forum in which the Commonwealth-employed local managers of thescheme are accountable to the public;

3.

The Community Consultation Forum minutes and reports will be tabled in council forthe information of councillors and residents.

An alternative is to locate the scheme more fully within local government, through theallocation of Commonwealth funds tied to a set of specified performance criteria. The
provision of the JG would thus be made a permanent service of local government, alongside
the provision of libraries, garbage collection and so forth. JG Enterprises could be local
government agencies. Effective mechanisms for preventing substitution and displacement
effects would need to be devised in order to preserve the effectiveness of the JG as an
instrument of price stability and full employment. These effects were reported by Balkenhol(1981: 433) as becoming more pronounced in direct job creation programs of longer duration,
which is relevant here because the JG is not time-limited.
13.9.4 Purchaser/provider models
Australia has significant experience in the outsourcing of government business, including thecontracting of private and community based enterprises to deliver employment services to
employers and jobseekers. A JG System may be possible under such arrangements, although
the track record of purchaser/provider arrangements, including Public Private Partnerships, do
not recommend them for the implementation phase.
The implementation of a program with the scope and scale of the JG would need to proceedalong lines where day-to-day, micro-managed adjustments were possible, informed by asystematic and open pooling of information on problems and solutions encountered all acrossthe country. Any impediments to communication, any reluctance to share concerns or ideas
for commercial or legal reasons (for example) could do monumental harm to people and to
public support for the program. Comparing different ownership forms within the Job
Network, Considine (1999: 201) reports:

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Networking across organisations is minimal and agencies are deeply suspicious of one
another’s motives. Government officials attend most meetings overall, but community
agencies put greatest effort into external, non-government contacts. Firms mostly
network internally, relying upon in-house collaborations inside a multidimensional
employment service. Government case managers have the best overall performance,
are the most reliable, and are the most likely to try to implement more difficult policy
objectives such as sanctioning and care for special populations.
The superior performance of the public sector in terms of investing in staff skill formation is
also extremely significant to the establishment of so substantial a labour market initiative asthat which is proposed. Contractual and competitive boundaries to information-sharing need
to be minimised if the unchartered territory of a JG full employment society is to beeffectively navigated.
In the case of employment services, proponents of market-based methods of service delivery
claim services are delivered at lower cost, while opponents claim that cost savings arise
through either jettisoning services or compromising quality. There is no consensus.
However, the option would remain that in time, outsourcing of all or some elements of the
program could be viable. This should only be considered once the institution was sufficiently
established, and its operational parameters were clearly understood, with democratic
accountability mechanisms having proved to be sufficiently effective. We do not recommend
this option though.
13.9.5 Minimalist implementation
Another way of approaching the issue of implementing the JG is to allocate aspects of itsdelivery to existing institutional structures. Table 14.2 illustrates one way in which this may
be done. Implementing the JG by converting old parts of the bureaucracy into neworganisations with new missions (as opposed to creating everything from scratch) would needto address difficulties of changing existing organisational cultures (Arellano-Gault 2000).
Developing a new culture in the administrative and executive machinery of the JG would be apriority to avoid transferring extant organisational culture and practices which might corrupt
and overwhelm the new JG mission.

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Table 13.2 A minimalist implementation approach
DEEWR
Evaluate proposals and determine thenumber and occupational
composition of JG jobs for each areataking into account the level of
unemployment, local labour market
and community needs.
Assess potential JG brokers:

Ability to organise and oversee
placements in employment andformal training;
Ability to liaise with JG
employers, Job Network
members, training organisations;
Ability to manage funds, reportto DEWR and monitor
performance of JG employees inboth the on the job and formal
training;

JG Broker
Accept referrals from JN and placejobseekers in JG positions.
Select suitable JG employers
ensuring that JG jobs are additional
to the normal workforce andemployers are capable of supervisingand providing training andcomplying with OH&S regulations.
Organise appropriate off-the-job
training.
Enter employment relationship with
JG employees:-

Develop plan describing thetraining to be provided, both on
and off the job, and the duties tobe performed in the position;-

Supervise placement ensuring
appropriate OH&S standards,
supervision and OTJ training by
employer;-

Maintain employee records andpay wages.

Oversight contracts with Brokers:Provide funding to cover
Broker’s fees, wages,
superannuation, leave
entitlements, administration,
supervision, workers
compensation, materials andequipment, formal training feesand essential books andequipment;
Evaluate performance.

JG Employer
Provide employment in jobs
that benefit the community
and JG workers providing
appropriate supervision,
training and OH&S
standards.
Release employees forformal training.
Sign timesheets and forward
to JG Brokers to initiate
payment of employee
wages.

Training Provider
Establish and conduct accredited
training courses for JG employees
to JG Broker’s specifications.

Job Network Members
Refer jobseekers to JG
Brokers for placement in JG
jobs.

Provide additional tutorialassistance or counselling totrainees on a needs basis.

Continue to match toavailable jobs.

Maintain attendance records andreport to JG Brokers.
Evaluate training outcomes.

Liaise with JG Brokers.

Provide funding for supervision,equipment and materials to JG
employers.
Provide commencement, terminationand financial reports to DEWR.
Provide information on JG
opportunities to Job Network.

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13.10 Reactions of Job Network staff to the Job Guarantee proposal
The second function of the focus groups conducted with Job Network staff was to seek
reactions to, comments and suggestions on, the JG proposal from staff currently engaged in
employment services and who would be likely to be involved in implementation of the JG(see Chapter 6 for more detail on the focus groups).
The concept and operation of the JG was outlined at the focus groups and then the following
questions were displayed for general discussion:

Would the availability of a program such as the JG support the aims of the Job
Network?



How could the JG program interact with the Job Network?

What considerations would need to be taken into account in implementing such a
strategy?

There was wide-ranging discussion in all focus groups and numerous questions to clarify how
the JG would operate and how it would interface with the income support system and Job
Network. Several issues were identified as being crucial to successful implementation of sucha scheme. The issue of additionality was raised by two groups, with participants in one groupstrongly voicing reservations about how the scheme could ensure that there was no
substitution of existing employees. The following are indicative comments:
To put it in a nutshell, my only concern is the other workforce, the workforce that is out
there at the moment. … There is potential for substitution.
[T]hat’s where you’ve got the difficulty of taking jobs from people who are alreadydoing the job now.
The issue of ensuring additionality in the design of the JG was explained (see Section 13.5.3).
In the second group one participant commented that they felt the fact that the model dealt withadditionality was ‘really important’ and there was no further discussion of the issue.
Additionality was not raised by the third group.
Another group spent a considerable amount of time discussing whether the JG was suitable
for all clients and the majority expressed the view that for job seekers with severe
employment barriers such as drug and alcohol dependency it would be necessary to addressthese issues prior to placing the person with a JG employer and suggested that the Personal
Support Programme would be a suitable alternative until the person was job ready.
The fact that JG jobs were paid employment with the status of a real job was enthusiasticallywelcomed by many participants who envisaged that the JG would counteract the costs of
unemployment discussed in Chapter 3. Having a real job was recognised as an essential
component for full participation in economic and social life, for maintaining self-esteem, andproviding a positive role model for children. Moreover, the ongoing nature of employment
under the JG was seen as a positive component. Indicative comments included:
I like the concept; its positive…develops dignity and self-respect and then helps topreserve it. It develops self-worth and achievement; it has got a skills development
underpinning to it as well. I also like that it puts people into a real continuum.
emphasis needs to be put on the ancillary benefits; the role model for children, lesscrime, drug and alcohol, suicide rates etc…
The JG for it to be successful would have to be valued by the community and actually
the people who are getting involved in it and it is seen as a way of being able to, as a251

worker: “that my labour is valued; I’m paid a living; I’m paid a basic wage but I’malso being given the opportunity to improve my situation”.
The inclusion of a strong training component in the JG model was commented on by all focus
groups since it addressed many of the concerns raised earlier in the sessions regarding lack oftraining opportunities for clients through the Jobseeker Account or Work for the Dole (seeChapter 6. Skill enhancement of the labour force through the training component would
deliver efficiency benefits by supplying skilled labour to meet employer needs. When
combined with the labour market research and a forecasting function proposed as part of theJG approach to skill development, many participants viewed the proposal as a marked
improvement to the current situation. One participant commented on how skilled JG workers
could meet existing industry needs:
We’ve got a big horticultural company locally that can’t get enough workers andtrained people or people with the right attitude and capabilities. If there was a JG andthere was a project at the community nursery then that employer can come and have alook and say “Yep, I’ve got a job here, you know, you 5, or in fact, you 20 or you 100.
If they are on the JG programme they’re up and running already. They are in thesystem, they’re contributing, they’ve got the skills and they are in that mode so therefore
it’s a lot easier to transfer that individual to the private sector, than where they arenow.
The potential for the JG to facilitate labour market planning and provide training opportunities
prior to major new employment expansion was recognised. As participants noted:
Well you can actually put something in place a year before a large infrastructure
project is undertaken … accessing those jobs when they come on line.
You could take advantage of growth spurts more easily.
A major issue that was identified was the necessity to involve employers interested in the JG
and the benefits that it could provide in terms of increasing the supply of skilled labour. Tworoles were identified for business:
1.

It was suggested that employer representations to government to lobby for
implementation of the JG would be more successful than if the employment providers
themselves were the main lobbyists;

2.

The JG should establish and maintain strong links to local employers, anticipate futureskill needs and ensure that employers maintained positive perceptions of JG workers
and their abilities. In this way JG workers could progress to vacancies in the private
sector as they became available.

One participant suggested:
The Business Council of Australia; get them on side. Get them saying: “We can’t getworkers. You need to be putting more money into the system because we can’t getworkers”.…We’ve got to get the employers willing to see that its not a Work for the
Dole person because Work for the Dole has no status for our clients now in terms ofgetting into work…so if they’re a JG person then there’s got to be some status andrecognition from employers so I think the employer link and the industry body link is
critical for getting the government on side but also you know, making it work on the
ground.
There were several other benefits of the JG identified by the focus groups. One participant
commented that the JG would be an effective mechanism to increase the labour supply by252

absorbing marginally attached workers. In September 2007 there were 845,000 people outside
the labour force but with marginal attachment to the labour force (ABS, 2008c). These
included 67,100 people who were actively looking for work but not available to start work in
the reference week, and 778,000 people who wanted to work and were available to commence
work within four weeks but were not actively looking for work. Focus group participants
identified this group as potential future labour supply especially under a JG scheme thatguaranteed employment to all people wanting to work. One participant commented:
So many more people will become part of the labour market because there is an
incentive. There is the ability in terms of skill shortage to actually tap into thoseworkers that we’re not tapping into.
The fact that the JG model included supervision was appreciated by many of the participants,
especially those who identified lack of supervision as a major problem with other programmessuch as CDEP and Work for the Dole. One participant commented:
I love the fact that the supervision was in that model. They have made it really strong.
…I think there’s enough experience around with people that have seen both the good
and the bad from the CDEP situations to be able to see that this model doesn’t make thesame mistakes.
In one focus group there was a lengthy discussion regarding the problems associated with low
labour demand and high unemployment. One participant stated that the current expectationthat job seekers should be prepared to move to more buoyant labour market areas was
unrealistic due to attachment to place and substantial economic and social costs.
The government answer at the moment is move the job seeker…not let’s get some jobs
out there. … It’s taking people out of those areas and to basically accelerate the drainaway from regional areas.
When asked for an overall reaction to the JG concept as workers in the Job Network, someparticipants remained sceptical about the viability of the JG or the prospect of such a scheme
being implemented. One participant said:
That’s very nice. That’s very nice in theory. It’s too nice, too nice…I think It’s too
perfect, a perfect world…This guarantee of a job, I’m sorry I’ve been in the industry fora very, very long time. This thing of a guarantee of a job…at the end of the day, where
does it come from?
However, as some of the comments above indicate many participants responded positively to
the JG proposal. Some other positive comments included:
I’d rather be ensuring that somebody gets the JG than into Work for the Dole or coming
into our office...
You wouldn’t be working with the unemployed; you’d be working with the employed.
I think it’s a good idea. I think it’s a great idea.
I’d work there tomorrow. It would be fabulous…It’s like take away Work for the Doleand you’ll be paid a minimum wage and you’ll get your training…I think it would befabulous for my clients and it would be fabulous for the town.
In general, the Job Network staff who participated in the focus groups identified several
benefits of the JG proposal in terms of addressing skill development, enhancing the
productive capacity of the Australian labour force, encouraging greater labour market
participation and providing benefits to individuals due to participation in work and receipt of
the services provided by JG workers.

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13.11 Conclusion
To illustrate what advocates of the JG believe is macro-economically feasible, we haveprovided a description of how such a system could operate in the Australian context.
The scheme is underpinned by modern monetary macroeconomic theory (see Mitchell andMuysken, 2008 for a discussion) that is applicable to flexible exchange rate economies suchas Australia’s where the federal government has the monopoly over currency issuance (a socalled fiat currency system). This theoretical framework addresses the known deficiencies ofmainstream macroeconomic theory which is largely inapplicable to modern monetary
economies. Within a modern monetary economy, the JG shows how price stability can beestablished and maintained without the need to render hundreds and thousands of Australian’s
unemployed. So instead of imposing economic hardship, social exclusion, skill-atrophy anddespair of the most disadvantaged workers in Australia under a system of inflation targeting,which is unavoidable under current practices based on the prevailing macroeconomic
orthodoxy, the JG achieves price stability by maintaining full employment. We all have aninterest in preserving price stability, but only a privileged minority benefit from theunnecessary and barbaric practice of using chronic underutilisation of labour to do so.
Discussion of the JG proposal generates numerous questions including how to fund thescheme, how it controls inflation, how it would not undermine economic activity by drawing
on resources required elsewhere in the economy, how successful would it be in addressing
unemployment and how would workplace discipline be established. The answers to thesequestions derive from an alternate reading of how monetary systems operate, which differsfrom orthodox descriptions at several crucially significant points. This alternate view leads tothe conclusion that under specific monetary system arrangements (which currently exist in
many countries, including Australia), the degree of labour under-utilisation (unemployment,
under-employment, labour force marginalisation) is entirely a question of political choice. For
the past thirty years, the choice of successive governments has been to maintain a pool ofAustralians in a condition of poverty and social exclusion, even to publicly denigrate them, topunish unsuccessful competition for jobs and thereby engender a greater willingness in theworkforce to accept conditions of employment on offer. This is a poor strategy for controlling
wage inflation because it necessarily makes large numbers of people less employable, andtherefore less competitive. The 500,000 Australians on activity tested unemployment benefits
are not alone in needing and wanting more employment, and yet immigration is being
increased to address a reported skill shortage that is fuelling inflation (Mitchell and Quirk,
2005).
Some Job Network staff who attended focus groups took some time to comprehend fully the
implications of a JG for the operation of the Job Network and the labour market as well as theimplications for clients. Feedback from Job Network staff indicated that the JG would provide
clients with valuable employment experience, opportunities for skill enhancement andimportantly, enable them to participate in economic and social activities and thereby reducethe damaging effects of unemployment that involve skill atrophy, loss of dignity and social
exclusion.
In short, the JG provides a mechanism for macroeconomic stability that is superior to thecurrent use of unemployment fluctuations, provides meaningful employment to all thoseseeking work and supplies socially valuable outputs that enhance the lives and opportunities
for the most disadvantaged.

254

14

Investing in a Job
Guarantee in Australia

14.1. Introduction
In this chapter we provide detailed investment estimates that would be required to run
a national JG. While some readers may interpret this chapter as conducting a costing
exercise, we caution against this interpretation. The nominal entries that are recorded
in budget statements are not “costs” in any real sense. The real costs of the JG would
be the extra resources (for example, food, capital equipment etc…) that are required
to change the system from its present state to that with a JG. When we ask a question
like - Can the government afford this? – We are really asking whether there aresufficient real resources to underpin the programme. The nominal outlay shown in thebudget statement is an accounting entry and does not necessarily reflect the real
resource investment.
In terms of fiscal policy, there are only real resource restrictions on its capacity toincrease spending and hence output and employment. If there are slack resources
available to purchase then a fiscal stimulus has the capacity to ensure they are fully
employed. Further, in a JG scheme, the government spending to fund the JG wage
would not be at market prices because by definition there is no market bid for theworkers in question. The real resource costs would be the extra food, clothing andtransport resources that the JG workers might consume, given that they now earn theminimum hourly wage, rather than receiving unemployment benefit, the disability
support pension or no income at all. Given that the minimum wage should be alignedwith community expectations of what constitutes a reasonable standard of living, theextra resources that the JG workers would consume could not be considered
excessive. If there are overall real resource constraints imposed by the consumption of
extra resources by JG workers, then we advocate making these resources available byredistributing from other workers. However, we do not anticipate that this latter
situation would be the norm.
But with these caveats in mind and in the interests of transparency, this chapter
presents a thorough assessment of the nominal investments that the Federal
Government would have to make to introduce a JG in Australia.
14.2. Determining required resource outlays
14.2.1 Interviews with local government officials
As a derivative study to the national local government JG survey, interviews wereconducted with relevant local government officials to allow us to more accurately
assess the resource investment needed to mount a national JG.
Initially, it was planned to elicit both quantum and cost information from the national
local government JG survey. For reasons outlined in Chapter 7, questions relating tocosting of potential jobs were eliminated as a result of analysis that was undertaken in
the pre-testing phase.
255

The alternative strategy was to engage some experts from a few local governments inin-depth face-to-face interviews to more fully probe the costing issues.
These interviews gave us information about:Annual labour costs associated with employment of a worker on the Federal
Minimum Wage. We were able to get breakdowns for “typical JG jobs” by:- Wages;- Leave entitlements;- Superannuation;- Workers compensation;- All other direct costs.

How many workers are usually required to form a work team in areas such as
road work;The resource outlays necessary to provide the standard protective clothing or
equipment per person in an array of JG-type jobs;

The resource outlays necessary to provide standard on the job training(including OH&S and induction training) per person;

The types of formal training that could be combined with work experience andon the job training to increase the skill level and employment prospects ofworkers in these jobs;



The typical ratio of supervisory to operational staff that would be required toorganise and manage these jobs;



Any additional labour cost per supervisor that would be required;

The resource outlays necessary to provide capital equipment that would be
required to perform the typical “JG-type” jobs;



Information about typical purchase or rental costs of standard equipment, theannual cost of depreciation and insurance premiums to furnish the capital
equipment, and the rates of utilisation of the equipment;

The average costs of raw materials per annum consumed in the typical “JGtype” jobs; andAny extra administrative and operational costs that might be involved (travel,
rent, cleaning, utility charges, payroll and administration, strategic
management and strategic planning, purchasing etc…).

14.2.2 International experience
We also conducted a literature survey to ascertain realistic parameters for capital andtraining costs.
In the early 1990s, the city of Berlin linked an ambitious energy saving policy with
the need to generate work for unemployed engineers. A consortium comprising theBerlin Environmental Ministry, the Ministry of Labour, local government authorities
and environmental interest groups established what became known as the Energy
Team project. It aimed to create energy saving schemes by refurbishing public

256buildings. The project also had the potential to train and employ unemployedengineers.
All projects were appraised according to their job creation and energy saving
potential. At least 20 per cent of the work week was devoted to vocational training.
The estimated share of 73 per cent went towards labour costs and 23 per cent towards
material and management costs (Senatsverwaltung für Stadtentwicklung und
Umweltschutz, 1995).
Subbarao (1997: 681) analysed a number of public works-oriented, labour intensive
job creation schemes in poorer countries and concluded that in ‘most programmes, theshare of wages to total cost of programmes varied between 0.3 to 0.6 … In most road
construction activities, the share of wages to total cost ranged between 0.4 to 0.6.’
Frey (2008: 148) evaluated public works programmes in Hungary. Initially the
programmes were focused ‘on manual jobs in maintenance and provision ofcommunity services that required a low education level or none at all.’ However, thescheme was broadened to include ‘not only core services but also optional council
services’, which demanded more skill. Analysing the overall cost of the scheme, Frey(2008: 149) reported a wage to non-wage split per job of 66/34.
Piggott and Chapman (1995) analysed the Job Compact in Australia which was a suiteof labour market programmes introduced after the 1991 recession to deal with theburgeoning unemployment. While not a JG-type scheme, one element of the Compact
did involved the New Work Opportunities public sector job creation programme forthe long-term unemployed whereby an individual could be placed in governmentfunded community jobs concentrated in disadvantaged regional areas. Piggott andChapman (1995) estimated that the wage/non-wage split was 72/28, which is inaccordance to other international studies of labour intensive job creation schemes.
In a comparison of South African public works programmes, Haddad and Adato(2001) compute labour to non-labour cost splits averaging 12/88 for capital intensive
large-scale construction projects to 86/14 to labour intensive projects. The average
was 39/61.
International evidence from India (MRD, 2005) suggests that public works schemes
can be run under a “labour to non-labour” expenditure ratio of no more than 1.5.
Other sources suggest a 60/40 rule where 60 percent of total costs are consumed by
wages and the remainder being non-wage costs.
14.3. Job Guarantee employment types
From the interviews with local government finance officers, the results of the national
local government JG survey, and the information derived from the literature review
we devised 3 stylised JG employment categories, differentiated by their labour
intensity and wage to non-wage cost rules:

Low capital intensity – 75/25 rule;Medium capital intensity – 60/40 rule; andHigh capital intensity – 50/50 rule.

So a 75/25 rule says that 75 per cent of total costs will be absorbed by wages with theremaining 25 being classified as “non-labour costs”. All other costs are included in257

non-labour costs, which take into account the wages of supervisors, administrative
costs, materials used and capital depreciation.
Table 14.1 Job potential by employment type
Low

MediumHigh

Caretaker
Builders labourer
Bus driverChild care worker
Environmental remediation Fencer
workerCleaner
Fire prevention
Handyperson
Coding clerk
Paving/surfacing labourers
Trapper
Community arts officer
Rail track worker
Community development
officer
Event organisation
assistant/promotion
Family support
worker/mentor
Gallery/museum attendant
Garden labourer
General clerk
Health promotions officer
Indigenous education
workerInspector/regulatory officer
Interviewer
Kitchen hand/food
preparation assistantLibrary assistant
Personal careassistant/home support
workerRailway assistantRefuge support worker
Sales assistantSecurity officer
Sports development
assistant
Teachers aide
Tourist information
Trekking guide/bushwalking guide
Youth support worker

258

Table 14.1 summarises the types of jobs in community development that wereidentified in the national local government JG survey arranged in terms of degrees ofcapital intensity (low, medium and high), as defined above.
Table 14.2 shows the percentage distribution of potential JG employment bycommunity development category and capital intensity. From the national local
government JG survey, the majority of jobs identified as being suitable for low skill
workers were in the low capital intensity areas of work, although this varied acrossthe specific need areas (transport amenity; community welfare services; public healthand safety; and recreation and culture). Eighty three (83) per cent of the potential jobs
identified in transport amenity (either infrastructure development or services) were in
the high capital intensity class whereas 81.2 per cent of potential jobs identified inpublic health and safety were considered to be low in capital intensity.
Table 14.2 Percentage distribution of potential JG employment by community
development category and capital intensity
Capital intensity ofpotential JG
employment

Transport Community Public
Recreation % of total
amenitywelfarehealth and and culture potential JG
services
safetyjobs by% of total% of total
intensity
TA jobs% of total % of total
RC jobs
CWS jobs PHS jobs

Low

12.4

44.2

81.2

51.5

43.3

Medium

4.6

55.8

5.9

47.0

40.2

High

83.0

0.1

12.9

1.5

16.5

Total

100.0

100.0

100.0

100.0

100.0

Note: TA is transport amenity; CWS is community welfare services, PHS is public health and safety
and RC is recreation and culture.

14.4. Current levels of labour underutilisation
In May 2008, nearly 477 thousand workers were officially unemployed out of alabour force of 11,155 thousand. Sixty six point four (66.4) per cent of theunemployed were seeking full-time employment. Part-time employees worked anaverage of 16.9 hours per week and full-time employees 41.7 hours per week.
We use the figure of 2 per cent for the target rate of unemployment, so that we
identify full employment with a modest rate of frictional unemployment, rather than arate of unemployment associated with stable inflation which has been considered to
be politically feasible.
We argue that persistent labour underutilisation led to skill atrophy and subsequently
skill shortages appeared to intensify, as labour utilisation increased. As aconsequence, many researchers conflate the measurement of structural unemployment
with demand deficient unemployment at times of high unemployment, so that thesustainable rate of unemployment is considered to be somewhat higher. The solution
to high unemployment is job creation and associated on-the-job training, rather thanan endless series of training programmes that are disconnected from current job
vacancies. The creation of such a large number of jobs and the acquisition of therequisite level of skill by the newly employed will take time, but our calculations
ignore this transition process to full employment.
259

The aggregate labour force participation rate is pro-cyclical, so that an estimate ofhidden unemployment (HU) must be included in the computation of the additionaljobs required to achieve the target unemployment rate.
The CofFEE Labour Market Indicators (CLMI) reveal that the increase inparticipation associated with the target unemployment rate of 2 per cent wasconsistent with a level of hidden unemployment (HU) in May 2008 of approximately
145.8 thousand, of whom 99.5 thousand are seeking full-time employment. Thus toachieve an unemployment rate of 2 per cent requires (NJ) new jobs where NJ = 0.98
(LF + HU) - N = 396.8 thousand and LF, N denote the prevailing labour force andemployment, respectively.
The bracketed term represents the labour force associated with 2 per cent
unemployment. We assume that the 2 per cent of the labour force who are
unemployed are spread pro rata across the current official unemployed, a highpercentage of whom are in receipt of the Newstart Allowance, and also the HU(associated with the May 2008 unemployment rate).
Following the Welfare to Work legislation which came into effect in July 2006,
recipients of the Disability Support Pension who could work at least 15 hours a week
were shifted onto the Newstart Allowance. It was anticipated that in the following 3
years 75,700 DSP recipients would be affected of whom 17,800 would make thetransition in 2008/09. Consequently we use this latter figure to indicate the number ofthe hidden unemployed who are receiving DSP. For simplicity we assume that theseformer DSP recipients would choose to work part-time. This represents the lowest
impact of DSP recipients on government outlays and receipts. (The alternative is to
assume that DSP recipients are not part of HU and would be full-time under a Job
Guarantee).
In total 327.1 thousand full time equivalent jobs would need to be created to achieve a
2 per cent rate of unemployment, taking into account the hidden unemployed and theofficial unemployed. This is based on the assumption that part-time employees
undertake 17.5 hours of work per week, namely 50% of full-time hours, which is
marginally above average hours worked by part-time employees. 1
Finally additional hours of work must be created for the underemployed. The ABS
publication Underemployed Workers (Cat. 6265.0, September 2007e) reports that472.2 part-time workers sought an average of an extra 14.4 hours of work per week,
which is equivalent to 194.2 thousand FTE workers. We consider that these figures
are a reasonable representation of the labour market conditions prevailing in May
2008.
These underemployed workers are grouped across 6 ranges of hours actually worked
and 4 ranges of additional hours sought. Using the mid-points of each range, we findthat the implied average additional hours sought by those desiring more than 30
additional hours (an open ended range) is less than 30! Consequently we adjust
downwards the other 3 figures of average additional desired hours, so that the top
range is consistent with 30 additional hours. The other adjustment is to rule out
individuals securing a total of more than 35 hours per week, that is current plus
desired additional hours. The effect of this adjustment is to reduce the full-time
equivalent additional hours to 162.4 thousand.
The difference between the level of labour underutilisation prevailing in May 2008
and this benchmark of 2 per cent unemployment defines an initial Job Guarantee pool260

of 489.6 thousand full-time equivalent workers, although clearly once the policy was
introduced, the stimulus to the private sector would also erode the pool. We assume
that as employment expands each category of underutilised labour (except theunderemployed) is reduced pro-rata, so that JG employment and induced privatesector employment is spread evenly across these categories.
14.5. Gross Domestic Product and labour productivity
Nominal Gross Domestic Product for the May quarter 2008 was $293.4 billion.
Average full-time equivalent employment was 9268.8 thousand over this period. Thusannual productivity per full-time equivalent employee was about $111,000.
The level of foregone output associated with the prevailing level of unemployment
and underemployment is proxied by a direct measure of output per worker that is in
turn, multiplied by the number of additional employees.
We assume that the productivity of the newly employed full-time equivalent workers
in the private sector is $80,000, reflecting the lower skills of the unemployed andpossible capital shortages resulting from the higher level of economic activity. We
assume that on-costs in the private sector are 66 per cent for all the scanarios.
On the other hand, JG hires are paid the minimum wage which we set at $28,600 for a
35 hour week, representing an hourly wage of $15.71 that lies marginally above thecurrent minimum wage of $543.78 for a 38 hour week, namely $14.31. Wage earners
are assumed to have a marginal propensity to consume (MPC) of 0.8 out of changes intheir disposable income, whereas profit earners have an MPC of 0.6.
14.6. Government outlays and revenue
If a JG were to be implemented, government outlays would increase through thepayment of income to newly employed workers and the associated on-costs which aredescribed in Section 14.2. We utilise current DSP and Newstart benefit rates for
single individuals which are $562.10 and $449.30 per fortnight respectively. The
income test is applied to both benefits in computing the net increase in gross income
associated with taking up part-time and full-time employment in the public andprivate sectors. We also make allowance for the fact that of the official ABS
unemployment of nearly 477 thousand, approximately 429 thousand are registered
Centrelink recipients of benefits.
In addition to reducing benefit outlays, the Federal government will receive higher
levels of tax receipts. The income tax scales associated with the 2008/09 financial
year are employed. Account is also taken of the Low Income Tax Offset which has amaximum value of $1,200, which makes the effective tax free threshold for low
income earners of $14,000. 2 The 15 per cent tax rate then operates up to $34,000 andthen 30 per cent. The corporate tax rate is set at 30 per cent.
Using the table of actual and desired hours of work of the underemployed, describedabove, we apply the income tax and LITO rates for each of the 24 categories tocapture the impact of hours already worked on additional net tax paid.
In addition, we measure indirect taxes by noting that the ratio of GDP at factor cost to
GDP at market price over the last 4 quarters was 0.8977. We do not take account of
any of the likely savings in government outlays which currently are designed toaddress the high social costs of unemployment, notably higher crime rates and theincidence of ill-health. Also in the scenarios that we examine in Section 14.8, we do
261

not take account of the administrative employment which is generated by theemployment of JG workers and is reflected in the non-wage costs.
14.7. Job creation requirements to reach full employment
Table 14.3 shows the basic features of the Australian labour market in May 2008
which are used to compute the required investment outlays. The data allows us toestimate that to achieve a full employment level (consistent with 2 per cent official
unemployment, no hidden unemployment and no time-related underemployment), an
extra 559.2 thousand jobs would be required.
Table 14.3 Basic features of the Australian labour market, May 2008
May 2008
Labour market aggregate
Labour force (000’s)

11155.7

Employment (000s)

10678.7

Official unemployment (000s)

477.0

Hidden unemployment (000s)

145.8

Average full‐time hours per week

41.7

Average part‐time hours per week

16.9

% unemployed seeking full‐time work

66.4

Average hours sought by part‐time underemployed workers

11.9

Part‐time seeking more hours (000s)

616.3

Full‐time as a percentage of hidden unemployment

68.2

Full employment requirements
Full‐time jobs for official unemployed

201.8

Part‐time jobs for official unemployed

102.1

Full‐time jobs for Hidden unemployed

55.7

Part‐time jobs non‐DSP Hidden unemployed

25.9

Full‐time equivalent jobs for underemployed

162.4

Part‐time jobs for DSP Hidden unemployed

11.3

Total jobs required to achieve full employment (000s)

559.2

14.8. Five Scenarios
We consider 5 scenarios below to provide an indication of orders of magnitude ofdifferent forms of expenditure associated with the achievement of full employment as
defined in Section 14.7. The first is associated with a private sector expansion. The
remaining scenarios are based on the operation of the Job Guarantee subject to the 3262

levels of capital intensity, outlined in Section 14.3, with the final scenario being
associated with the combination of JG jobs outlined in Table 14.2. In all cases thecapital intensity in the private sector is assumed to be medium corresponding to the
60/40 rule.
We emphasise that the operation of the Job Guarantee is based on “loose” full
employment because the JG hires are paid the minimum wage, whereas an expansion
initiated by the private sector or by a conventional fiscal expansion entails hiring
additional workers at market wages. The measure of change in employee income ineach table takes account of the loss of benefits, following employment.
Scenario 1
The first case we consider is when there is a private sector expansion of employmentof nearly 560 thousand, initiated by an increase in aggregate demand which is
sufficient to achieve full employment (2% unemployment).
Table 14.4 Parameters defining a private sector recovery to true full employment
Parameter

Estimated change

Δ Output (billions)

43.6

Δ Public sector output (billions)0

Δ Private sector output (billions)

43.6

Δ Public sector employment0

Δ Private sector employment

559.2

Δ Employee Income (billions)

15.6

Δ Profits (billions)

3.5

Δ Government Outlays ($billions)-3.1

Δ Unemployment benefits-3.0

Δ Disability benefits-0.1

Δ Employment expenditure

0.0

Δ Government Receipts ($billions)

8.0

Δ Taxes on wages

2.5

Δ Taxes on profits

1.0

Δ Indirect taxes

4.5

Δ Net government expenditure-$11.2 b

Notes: Δ denotes change. Δ Employee Income denotes the increase in gross income, after adjustment
for loss of Unemployment Benefit and Disability Support Pension. Output is measured at market
prices.

263

Table 14.4 shows that if 2 per cent unemployment were to be achieved by an
exclusively private sector recovery, along with the removal of all underemployment,
the increase in output at market prices (that is, taking account of indirect taxes) would
be approximately $43.6 billion. This represents about 3.7 per cent of nominal annual
GDP. The government reduces its outlays on DSP and unemployment benefits of$3.1b and gains extra revenue of $8b, comprising the increase in taxes on wages andprofits and indirect taxes. In this scenario, of course, there is no JG job creation.
Scenarios 2, 3 and 4
Table 14.5 shows the results of the simulations for Scenarios 2 to 4. Scenario 2
involves the implementation of the JG with the JG jobs associated with low capitalintensity that is, using the 75/25 rule (a rate of on-costs in the public and private
sector of 33 per cent).
Table 14.5 Implementation of JG to achieve true full employment
Parameter

Estimated change

Δ Output (billions)

20.6

Δ Public sector output (billions)

11.7

Δ Private sector output (billions)

8.9

Δ Public sector employment

445.0

Δ Private sector employment

114.2

Δ Employee Income (billions)

12.1

Δ Profits (billions)

0.7

Capital Intensity

75:25

60:40

50:50

JG distΔ Government Outlays ($billions)

11.9

15.7

19.4

14.7

Δ Unemployment benefits

-2.8

-2.8

-2.8

-2.8

Δ Disability benefits

-0.1

-0.1

-0.1

-0.1

Δ Employment expenditure

14.8

18.6

22.3

17.6

Δ Government Receipts ($billions)

3.7

3.7

3.7

3.7

Δ Taxes on wages

1.4

1.4

1.4

1.4

Δ Taxes on profits

0.2

0.2

0.2

0.2

Δ Indirect taxes

2.1

2.1

2.1

2.1

$8.3 b

$11.9 b$15.7 b$11.0bΔ Net government expenditureNotes: JG dist denotes the combination of jobs associated with different capital intensities outlined inTable 14.2.

The employment of JG workers gives rise to increased disposable income andincreased consumption demand which leads to additional private sector output,
264

employment and income, which in turn leads to further increases in consumption
demand, as is depicted by the multiplier process. Thus the increase of employment of
559.2 thousand is made up of both JG and private sector employment. There are moremodest savings on government outlays, because nearly 80 per cent of the addition
jobs are paid at the minimum wage. The change in employment outlays represents thewage and non-wage costs of employing the JG workers. In the low capital intensity
scenario, the net additional expenditures by government total $8.3b. The shift tomedium or high capital intensity JG jobs merely increases JG employment
expenditure by government to $18.6b and $22.3b, respectively which leaves net
additional expenditures of $11.9b and $15.7b, respectively.
Scenario 5
In this scenario, we assume that the composition of JG jobs conforms to the shares
outlined in Table 14.2. This is equivalent to a 63.6/36.4 rule that is just below
Medium capital intensity. Consequently the net change in government expenditure is
below that associated with medium capital intensity, namely $11b.
14.9. Conclusion
In this Chapter the objective has been to compute the investment required to introduce
a national Job Guarantee. We have adopted conservative assumptions about behaviour
and estimated the orders of magnitude of expenditure, income and output that would
be associated with such a policy change.
Even under the assumption of all JG jobs being associated with high capital intensity,
the additional government expenditure is less than the reported cost of the Sydney
Olympics, but, if incurred annually 3 , will convey long-term economic and social
benefits to the most disadvantaged members of society.
Again it should be emphasised that the net increase in government expenditure does
not represent real costs, unless greater benefits to society can be gained by analternative use of this expenditure, but none have been articulated in the publicdebate. At present the (full-time) equivalent of about 559 thousand workers are being
underutilised. It is important to note that the calculations do not include theemployment of any the 3.5 million individuals of working age, who are not in thelabour force, and others who have a marginal attachment to the labour force (ABS,2007f).
1

It could be argued that average part-time hours worked significantly understate desired average parttime hours, as revealed by the extent of underemployment. However, a significant percentage ofunderemployed workers who currently work more than average part-time hours (and a small number
who work less than average part-time hours) would be classified as full-time workers should they
secure the additional hours of work. Removal of these employees from the calculation of average parttime hours worked would tend to offset the impact of the inclusion of additional hours associated with
underemployed employees who still wish to work part-time.

2

The LITO is set equal to the level of taxes for an income lying between $6000 and $14000. For higher
incomes the $1200 diminishes at a rate of $4 per $100 between $30,000 and $60,000.

3

Capital costs which are represented as part of non-labour costs should diminish over time.

265

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