Date created: 28 November 1996
Last modified: 18 November 1997
Maintained by: John Quiggin
John Quiggin

Sacrifices needed to beat the jobs crisis

Canberra Times,

Jan 4, 1994

At the end of 1993, nearly one million Australians were unemployed. Another million were underemployed or had given up the search for work. This unemployment does not result from a situation where there is no useful work to be done. Indeed, we seem to be less and less able to meet basic social needs. School and hospital closures are threatening standards of education and health care. Provision for many of the most vulnerable members of our society, including the mentally ill and young people, has declined to the point where many have been virtually abandoned. The growth of crime, caused in large measure by unemployment and its concomitant forms of social breakdown, has reached the point where many Australians do not feel safe in their own homes and many more are afraid to walk the streets at night. Yet we cannot, it seems, afford an adequate police force. Funding for cultural institutions such as the ABC and for research bodies such as the CSIRO has been cut repeatedly.

In the past, concerted action by government, backed by a strong social consensus, has proved sufficient to eliminate mass unemployment. The most notable event in Australia's economic history was the White Paper on Full Employment, published in 1945. This set out the social and economic framework that would lead to 25 years of full employment.

Following the policy framework set out in the White Paper, Australia maintained full employment and rapid economic growth from the end of the Second World War until the early seventies. As productivity growth reduced the numbers employed in primary and secondary industry, increased employment in the services sector took up the slack.

The experience of the sixties and early seventies suggests that the main area of employment growth over the last decade should have been in community services. The demand for services such as education and health, police and urban amenities, environmental protection and the arts tends to rise with income, and to increase as a proportion of total demand as income rises. These services are highly labor-intensive and have been relatively little affected by technological change. For instance, despite massive changes in the content of education, the average classroom is little different now from that of fifty or a hundred years ago. Efforts to improve the quality of education have generally focused on increasing the ratio of staff to students.

In many respects this is also true of health care. Although there have been changes in equipment, these have generally not been labor-saving. The introduction of more sophisticated equipment and new medical procedures has generally required an increase in the employment of labor.

Labor-saving technological change has been similarly limited in other parts of the community services sector, such as police services, environmental protection and the arts. This phenomenon was analysed in the sixties by the leading American economist, William Baumol. Baumol observed that productivity grew more slowly in the services sector than in other sectors such as manufacturing. He argued that, if it was desired to maintain services output at least as a constant proportion of total output, resources must be progressively transferred towards the services sector.

Until the late seventies, Baumol's analysis was borne out. During the period from 1966 to 1980, employment in mining, agriculture and manufacturing fell from 35 per cent of the workforce to 26 per cent. This decline was largely offset by an increase in the proportion of the workforce employed in community and public services from 13 to 19 per cent of the workforce.

The decline in employment in primary and secondary industry continued steadily during the eighties, declining to the current level of 18 per cent. However, employment in community and public services grew very slowly, rising only from 19 per cent to 21 per cent. Continuation of the previous trend implies that about 25 per cent of the labor force should be employed in community and public services today and perhaps 30 per cent by the year 2000. If such a trend had continued, the outlook for unemployment would be considerably less gloomy.

A similar picture is obtained from data on expenditures. Outlays in the main areas of public service good provision (defence, education, health, housing, energy supply, transport and communications) remained static from the seventies onwards, declining slightly from 18.6 per cent of GDP in the early seventies to 18.3 per cent in 1990-91.

The slowdown in community service employment during the eighties reflects decisions in the late seventies and early eighties to halt and roll back the growth of public expenditure. The most explicit of these was the Hawke 'Trilogy' commitment of 1984. Since most community services are either directly provided by or largely financed by public expenditure, these decisions led naturally to the funding crises being experienced today.

These crises can only be overcome if the Australian community is willing to pay higher taxes in return for more jobs and better community services.

A national economic policy program for full employment would consist of the following major elements:

The biggest single element of the program proposed here is an expansion of employment in publicly financed community services. This would not be targeted directly at the unemployed, although there would be an attempt to design new jobs that would permit a transition into the permanent workforce from direct job creation and training schemes. The primary employment objective would be to raise the aggregate demand for labor and thereby improve the prospects of all workers. If expansion of community services were financed by higher taxes on middle and upper income earners, there would be some reduction in private demand. However, much of this would take the form of reduced demand for imports, thereby strengthening the balance of payments and permitting the adoption of a more expansionary macroeconomic policy.

The largest areas of expansion in community services would be health, education and public safety. But the range of community services is far broader than this. It encompasses services to the very young such as child care and baby health centres; services to youth including the provision and staffing of community centres and sports facilities; services to the aged (provision of increased support to allow older people to remain in their own homes where they wish to is a high priority here); and services to groups with special needs including Aborigines, ethnic communities and the disabled. Other social goals include the provision of housing for all, support for a vibrant Australian culture through assistance to literature and the arts and the expansion and adequate staffing of our system of national parks, to provide a well-managed system representative of all major ecosystems.

All of these areas of expenditure are currently subject to severe pressure as a result of increasing demands and the expenditure cuts of the last decade. Indeed, much of the 'expansion' proposed here would simply involve preventing cuts in services that would otherwise take place, particularly at the state level. If the program of expanded public employment proposed here were implemented entirely through grants to the States, it would only restore them (in real, per capita terms) to the level prevailing in 1983-84.

The economic policies pursued in Australia and other industrialised countries for the past two decades have failed to meet what should be their most important objective - the provision of socially useful work for all. Only by restoring full employment as the pre-eminent goal of government policy can this failure be remedied.

There is no shortage of socially useful work to be done. All that is needed for all members of the community to accept personal and social responsibility for the achievement of full employment.

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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