Date created: 28 November 1996
Last modified: 18 November 1997

Maintained by: John Quiggin
John Quiggin

Community services the key to more jobs

The Canberra Times

Jun 14, 1994.

With the unemployment rate falling below ten per cent, and the White Paper in place, it appears that the government believes that no further response to unemployment is warranted. Many in the government assume they can safely disregard unemployment, at least until the next recession. For those who like to regard themselves as hardheaded realists, it has become an axiom that unemployment only matters when it is rising. The idea is that Australians are only concerned about unemployment when they fear the loss of their own jobs, and that this fear will disappear once unemployment starts falling.

This cynical calculation is politically unsound, as well as morally justifiable. In recession and in recovery, there are many fewer secure jobs in the Australian economy than there were in the past. Headlines such as 'More jobs will go at Qantas, says chief', 'Nissan to vote on redundancy', 'ANZ to shed 2500 staff in cost-cutting drive', 'Another 6000 rail jobs will go' and 'Commonwealth Bank to cut 7500 workers' are a feature of this era. As the violent reaction to unfair dismissal legislation has shown, more and more employers now regard retrenchments as an essential tool for responding to fluctuations in demand or changing the direction of their enterprise. Voters (and politicians) who continue to regard unemployment as 'somebody else's problem' may find that it is in fact their own.

The decline in unemployment has been very weak. At the same stage in the recovery from the 1981-83 recession, unemployment was already below 8 per cent, and falling much faster than at present. Despite this comparatively rapid rate of decline, and a near-record seven years of expansion, the minimum level of 5.9 per cent, reached in mid-1989 was higher than all but the worst years of the seventies. Moreover, the fall in unemployment this year has been due in large measure to a decline in participation rates. This implies that hidden unemployment has risen as the ABS measure of unemployment has fallen. Declining participation also implies that despite the rhetoric of recovery and the record profit levels being enjoyed by business, job-seekers are finding the market just as tough as it was in the depths of the recession.

With the current slow rate of employment growth, it seems unlikely that unemployment will fall much below 7 per cent in the course of the current expansion. In the event of a serious or even a moderate recession the stage will be set for yet another upward ratchet in the structural level of unemployment.

The recent White Paper presented a projection showing that, if 4.75 per cent growth could be maintained until the year 2000, unemployment could be reduced to 5 per cent, that is to a little below the level attained at the end of the expansion of the eighties. But this projection merely shows how improbable is a major reduction in unemployment under current policies. If anyone seriously believed that even 4 per cent growth for the rest of the century was a likely outcome of current policies, the current debate over the deficit and debt reduction strategy would be pointless. With such a long period of high growth, the government would find it an easy matter to reduce its debt to record low levels, deliver the promised tax cuts, and meet such additional obligations as the cost of compensation for native title. The debate over the deficit and debt is based on the assumption that the present period of growth will run for about six years, with the cyclical peak being reached around 1998. Once growth falls below about 2 per cent, unemployment can be expected to resume its upward trend.

Can anything be done to prevent such a dismal outcome? It would of course be sufficient to ensure that the economy stayed permanently out of recession, but in the absence of startling innovations in macroeconomic policy, there is no way of achieving this. The alternative is to make growth more employment-intensive by focusing on those areas of the economy that provide the most jobs per unit of output. In essence, this means the service sector and particularly directly provided community services such as health, education, and law and order.

Unfortunately, it is precisely these services that are being cut back under the prevailing orthodoxy, frequently referred to as 'economic rationalism'. A large proportion of community services are in the public sector, and therefore continuation of rapid employment growth depends on expanding public outlays, and therefore on a community willingness to accept higher levels of taxation. A major reason for the growth of unemployment during the last two decades has been the severe restrictions on public outlays. Total Commonwealth funding for the states-which are the main providers of community services-has fallen from 9.5 per cent of Gross Domestic Product 'GDP' in the mid-seventies to 5.4 per cent now. This massive reduction is the main reason for the cutbacks to services which all state and territory governments have been forced to make.

The measures announced in the White Paper will go some way towards reducing long term unemployment. However, in the absence of strong employment growth, this will simply amount to 'reshuffling the pack'. Only by reversing the current contractionary orientation of policy, and accepting the need for improved community services at all levels can such employment growth be generated in the long term.

John Quiggin is Professor of Economics at James Cook University and author of Great Expectations: Microeconomic reform and Australia, published by Allen & Unwin.

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