1. Creating a new paradigm in employment policy

1.1 The problem

In the midst of the on-going debates about labour market deregulation, minimum wages and welfare reform, policy-makers have ignored the key fact that actual GDP growth in the last 28 years has rarely reached the rate required to achieve and maintain full employment. Discretionary monetary and fiscal policy decisions have 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 the preferences of those who are employed. This is starkly shown in Figure 1. As a consequence, many socially useful, labour-intensive projects have not been undertaken to the detriment of all.

Figure 1 Unemployment rate and the Employment Gap, Australia, 1945 to 2002

Source: Mitchell and Carlson (2001a) with updates from ABS, The Labour Force, Australia, 6203.0.

The cumulative costs of foregone output and unemployment are huge and dwarf the costs of alleged microeconomic inefficiency. The solution to unemployment lies in producing more work. Policy makers must address this fact before they turn their attention to anything else.

Full employment should be a major macroeconomic goal of the Australian Government because it maximises output. In addition, high and persistent unemployment acts as a form of social exclusion and violates basic concepts of membership and citizenship. The costs of unemployment are significant and include not only income and output loss, but the deleterious effects on self confidence, competence, social integration and harmony, and the appreciation and use of individual freedom and responsibility (Sen, 1997: 169). For example, recent Australian research (Chapman, Weatherburn et al., 2002) found a strong positive relationship between criminal activity and the extent of long-term unemployment among young males.

1.2 The solution - creating a path to full employment

This Report proposes a workable and effective solution to two of the most serious aspects of unemployment: youth unemployment (15-19 year olds) and long-term unemployment (spells longer than 52 weeks).

The proposal is based on CofFEE's Job Guarantee (JG) model, which is an integral part of our proposed macroeconomic policy strategy. While the current proposal considers a subset of unemployed persons, the arguments and analysis presented apply equally to the introduction of a Job Guarantee for all those who are unemployed.

As shown in Summary Box 1, CofFEE's Community Development Job Guarantee (CD-JG) would require that two new employment initiatives be introduced to significantly augment the current labour market policies of the Federal Government:

1. a Job Guarantee for all long-term unemployed (people who have been unemployed for longer than 12 months); and
2. a Youth Guarantee, comprising opportunities for education, technical training and/or a place in the Job Guarantee program for all 15-19 year olds.

Under the proposal, the Federal Government would maintain a "buffer stock" of jobs that would be available to these targeted groups. Any unemployed teenager (15-19 year old) who was not participating in education or training could expect to receive a full-time or part-time job under the policy structure outlined in this proposal. Equally, any long-term unemployed person would be entitled to immediate employment under this scheme. CD-JG positions may also be taken on a part-time basis in combination with structured training.

Summary Box 1

The Community Development Job Guarantee

The CofFEE Community Development Job Guarantee (CD-JG) proposal requires: a Job Guarantee for all long-term unemployed (people who have been unemployed longer than 12 months); and a Youth Guarantee where the Government will guarantee all 15-19 year olds either: A place in upper secondary level education; A place in technical training, which leads to a certificated qualification (equivalent to a trade certificate); or A place in the Job Guarantee program that is also available to all long-term unemployed and which may be combined with formal training. The proposal is to be introduced and funded by the Federal Government and made operational at a local level.

1.3 The need for a buffer stock of low skill jobs

In the period spanning the immediate post-war years through to the mid 1970s, Australia, like most advanced western nations, maintained very low levels of unemployment. This era was marked by the willingness of governments to maintain levels of aggregate demand that would create enough jobs 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 the face of fluctuations in private sector spending. Unemployment rates throughout this period were usually below 2 per cent.

While both private and public employment growth was relatively strong, the major reason that the economy was able to sustain full employment was that it maintained a "buffer" of jobs that were always available, and which provided easy employment access to the least skilled workers in the labour force. Some of these jobs, such as process work in factories, were available in the private sector. However, the public sector also offered many "buffer jobs" that sustained workers with a range of skills through hard times. In some cases, these jobs provided permanent work for the low skilled and otherwise disadvantaged workers.

Importantly, the economies that avoided the plunge into high unemployment in the 1970s maintained what Paul Ormerod has described as a "�sector of the economy 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" (1994: 203). Ormerod acknowledges that employment of this type may not satisfy narrow neoclassical efficiency benchmarks, but notes that societies with a high degree of social cohesion have been willing to broaden their concept of 'costs' and 'benefits' of resource usage to ensure everyone has access to paid employment opportunities. He argues that countries like Japan, Austria, Norway, and Switzerland were able to maintain this capacity because each exhibited "�a high degree of shared social values, of what may be termed social cohesion, a characteristic of almost all societies in which unemployment has remained low for long periods of time" (1994: 203).

The CD-JG proposal recognises that a stock of jobs providing opportunities for the less skilled must be maintained by the public sector if there is to be a true path to full employment. This type of cohesion is a pre-condition for strong communities.

Why did Australia relinquish this cohesion over the past 28 years? In the 1980s, we began to live in economies rather than societies or communities. The concomitant focus on the individual began to erode a sense of social cohesion. In the same period, unemployment persisted at high levels in most OECD countries. The two points are not unrelated. Unemployment ultimately arises due to a lack of collective will to make political choices which favour maintaining adequate levels of demand and a buffer stock of jobs.

As part of this trend, the Australian public sector began to shrink in absolute terms and as a proportion of total employment. Mass privatisations of public enterprises saw the transfer of public sector employment to the private sector. However, the growth of private sector employment has not been sufficient to offset public sector job losses (Mitchell, 2001a: 194).

The goal of the CD-JG is to restore the buffer stock capacity to the Australian economy and to ensure that, at all times, the least advantaged workers in our community have opportunities to earn a wage and to live free of welfare support. While public sector job creation, via the CD-JG, will restore such capacity, this does not require a return to the "buffer jobs" of old. Many of the areas within the public sector that once provided such jobs have been restructured, outsourced or sold, with the aim of improving efficiency. Although we might question the balance sheet that has generated "efficiency gains" at the expense of massive "unemployment losses", the CD-JG philosophy accepts that corporatised entities such as the water, gas and electricity utilities or the railways are no longer suitable arenas for the creation of CD-JG jobs. Nor do we aim to create jobs that substitute for private sector employment.

In fact, an explicit aim of the CD-JG is to create a new order of public sector jobs that support community development and advance environmental sustainability. They should be designed and offered only if they satisfy these broad criteria. Specifically, CD-JG workers could participate in many community-based, socially beneficial activities that have intergenerational payoffs, including urban renewal projects, community and personal care, and environmental schemes such as reforestation, sand dune stabilisation, and river valley and erosion control. The work is worthwhile with much of it labour intensive requiring little in the way of capital equipment and training. It will be of benefit to communities experiencing chronic unemployment.

We discuss how these jobs fit into a community development paradigm in Section 1.5.

1.4 What does a buffer stock of jobs mean?

The buffer stock of jobs is designed to be a fluctuating workforce that expands when the level of private sector activity falls and contracts when private demand for labour rises. Instead of forcing workers into unemployment when private demand slumped, the CD-JG would ensure that all those in the target groups would have immediate access to a public sector job at the safety net wage. The specific details about the wages and conditions pertaining to CD-JG jobs are set out in Section 7 and the Technical Appendix.

The cyclical nature of CD-JG jobs presents an operational design problem for the administration of such a scheme. CD-JG jobs would have to be productive yet amenable to being created and destroyed in line with the movements of the private business cycle. While challenging, this task is far from being impossible. The 2000 Sydney Olympic Games, for example, demonstrated that the public sector could mobilise a diverse range of resources and successfully complete thousands of tasks within a tight and complex schedule.

To simplify the design task, we would split the buffer stock into two components:

1. a core component that represents the "average" buffer stock over the typical business cycle given government policy settings and trend private spending growth; and
2. a transitory component that fluctuates around the core as private demand ebbs and flows.

The existence of a stable core, which might change slowly and predictably as government policy settings change, would allow CD-JG administrators to more easily allocate workers to jobs. Many of these core jobs would be more or less permanent. More ephemeral CD-JG activities could then be designed to "switch on" when private demand declined below trend. These activities would not be used to deliver outputs that might be required on an ongoing basis, but would still advance community welfare. For example, CD-JG jobs in a particular region might be used to provide regular shopping or gardening services for the frail aged, to support the desire of many older Australians to remain in their own homes. It would not be sensible to make the provision of these services transitory or variable, and they would thus be provided from the core buffer.

It is difficult to be precise about the size of the typical average buffer stock over the course of a business cycle. However, in recent years the national unemployment rate has fluctuated around 6.5 per cent, reflecting the stance of fiscal and monetary policy and levels of private spending. This implies that if a full Job Guarantee (JG) was introduced (where all unemployed could access a public sector job under the conditions outlined for the CD-JG) then around 4 per cent of the current labour force would be employed in core buffer stock jobs, given the mildly expansionary impact of this policy. However, if the government decided to play a more substantial role in the economy by expanding their commitment to areas like public education, public health or environmental sustainability, then the core "buffer" would fall substantially.

In earlier modelling of a full JG proposal (where all the unemployed could access a public sector job), CofFEE estimated that the core buffer stock would be around 600 thousand jobs, given current macroeconomic policy settings (Watts and Mitchell, 2001). We show in Section 7 that to implement the more limited CD-JG proposal would require 134 thousand jobs for young people and 120 thousand jobs for the long-term unemployed aged 20 years and over, in the first instance. These parameters were computed for August 2002, a month in which private demand had fallen slightly off the previous peak. It would thus be reasonable to assume that a somewhat smaller number of jobs would constitute the core buffer stock.

This type of modelling can provide a guide to the "steady-state" jobs that would be initially offered under the CD-JG scheme. Administrators would then prioritise work allocations from a broad array of community enhancing activities. In this way, it is unlikely that any important function or service would be terminated abruptly, due to a lack of buffer stock workers, when the private demand for labour rises. Thus, the design and nature of CD-JG jobs would reflect the underlying notion of a buffer stock. This stock would, in turn, have a "steady-state" or core component determined by government macroeconomic policy settings, and a transitory component determined by the vagaries of private spending. In the short-term, the buffer stock would fluctuate with private sector activity and workers would move between the two sectors as demand changes. Longer-term changes in the size of the average buffer stock would reflect discrete changes in government policy.

Given that unemployed people are already supported by the public sector welfare system, the CD-JG would require only a low level of additional public investment to allow currently unutilised labour to perform a range of useful activities of benefit to the broad community.

By ensuring that there are always employment opportunities for people within the target groups, the CD-JG strategy would help to reduce poverty. It is a policy direction that facilitates social inclusion, not exclusion, and the focus on community development recognises the multi-faceted nature of the problems confronting areas of high unemployment. The CD-JG would also serve to reduce regional disadvantage. The policy would not eliminate inequality between geographical regions on its own. However, it would help communities in disadvantaged areas to maintain continuity of income and labour force attachment, without recourse to welfare dependence.

Importantly, the CD-JG strategy also acknowledges the strains on our natural ecosystems and the need to change the composition of final output towards environmentally sustainable activities. Environmental projects are ideal targets for public sector employment initiatives as they are likely to be under-produced by the private sector due to their heavy public good component. If a portion of CD-JG jobs were used to repair and restore the environment, the workers would re-gain personal dignity, and society would gain from the increased provision of goods and services which support sustainability. It is not increased demand per se that is necessary but increased demand in sustainable areas of activity.

Summary Box 2

Take the CD-JG test

Have a look at the following list of jobs that could become Community Development Job Guarantee opportunities: assisting in the maintenance of rivers and waterways; helping in re-forestation and the removal of noxious weeds; working on sand dune and coastal stabilisation; being part of urban renewal projects; providing people who are frail, ill or disabled with meals, assistance with shopping, transport to appointments, and help in the garden; providing elements of community and neighbourhood safety; assisting in the provision of emergency services and fire prevention activities; maintaining community sporting facilities and being part of community sports schemes; and looking after parks and playgrounds. Now answer the following questions: Would this work be productive? Could young and long-term unemployed workers perform these tasks if given the opportunity? Is the provision of these services and activities a legitimate role for government? Is the private sector likely to offer thousands of jobs in these areas? Will the work contribute to community and environmental well being? Many environmental tensions emerge in regional communities with limited employment opportunities. The introduction of the CD-JG would provide a "safety-valve" for these communities, allowing them to appraise activities with the potential to damage the environment, such as logging, in a different light. By removing the urgency to provide employment, a more realistic cost-benefit analysis could be undertaken. In this sense, the CD-JG would be an important element of an overall "green" strategy for regional Australia.

1.5 What do we mean by community development?

What do we mean by community development? The foundations of community development require that all citizens who are able to work have access to paid employment opportunities. Within communities, chronic joblessness is a major source of hardship, division and insecurity. It follows that an essential pre-condition for strong and cohesive communities is access to paid work through which people can realise their desire to contribute to community well being, and sustain their own destiny. This is not to say that properly targeted welfare is not an essential aspect of community health. But to provide people, who are willing and able to work, with welfare payments rather than employment opportunities abrogates the responsibility of governments for full employment, and undermines the notion of welfare.

Critics of the CD-JG proposal may question how we can argue for community development as a worthy new paradigm in public policy, while advocating a "buffer job" of CD-JG jobs that would contract when economic activity was strong and expand when it was weak. If the jobs that the CD-JG workers are doing are useful, and necessary for community development, why should they be cyclical in nature? This criticism confuses two different issues.

On the one hand, there is intrinsic merit in ensuring that everyone who wants a job can get one. For the most disadvantaged unemployed, this requires the maintenance of a buffer stock of jobs in the public sector. On the other hand, the type of activities that these jobs encompass would have to reflect the possibility that they would be ephemeral. However, this does not mean that the activities would be worthless, or would not support the development of the communities in which the workers live.

It is critical that we distinguish between CD-JG activities of benefit to communities and a fully-fledged community development strategy. Political choices are being made constantly. The CD-JG does not preclude a strong public sector commitment to broad social expenditure in areas like education, hospitals, aged care, environmental reconstruction and recreational services, all of which could, arguably, underpin the revitalisation of communities. The spending would create a number of employment opportunities for skilled workers and expand the income of the regions. A full commitment to regional and community development program would thus include this type of discretionary government spending in addition to the CD-JG scheme. The latter is the essential "floor" to healthy communities.

By advocating a CD-JG we are not suggesting that it is the solution to community development. The CD-JG is a solution to unemployment and would offer essential employment opportunities to the most disadvantaged and vulnerable workers in the labour market. It would ensure that such workers can maintain an attachment to paid employment and not be forced, by systemic job shortage, into welfare dependency. Through creative job design, the activities that CD-JG workers do would also enhance community and environmental well being.

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