Executive summary:

Creating a new paradigm in employment policy

Creating a path to full employment

1. This Report develops a proposal that represents a workable and effective solution to two of the most serious aspects of unemployment in Australia: youth unemployment (15-19 year olds) and long-term unemployment (spells longer than 52 weeks).
2. These two groups have been targeted because of the severe economic and social costs that result as the period of unemployment lengthens, or when unemployment occurs at the beginning of a person's working life. Material hardship and physiological and psychological damage tend to increase as the duration of unemployment lengthens. Unemployment among the young increases the probability of future joblessness, and is closely associated with crime, drug abuse, and vandalism. It promotes patterns of behaviour that are detrimental to the development and well being of young people, and is damaging for society as a whole.
3. The proposal for a Community Development Job Guarantee (CD-JG) has been developed by the Centre of Full Employment and Equity (hereafter CofFEE) and requires that two new employment initiatives be introduced: a. A Job Guarantee for all long-term unemployed (people who have been unemployed longer than 12 months); and b. A Youth Guarantee, comprising opportunities for education, technical training, and/or a place in the Job Guarantee program for all 15-19 year olds who are unemployed. These initiatives would significantly augment the current labour market policies of the Federal Government.
4. Under this proposal, the Federal Government would maintain a "buffer stock" of jobs that would be available to the targeted groups. The CD-JG would be funded by the Commonwealth but organised on the basis of local partnerships between a range of government and non-government organisations. Local governments would act as employers, and CD-JG workers would be paid the Federal minimum award. Any unemployed teenager (15-19 year old) who was not participating in education or training would receive a full-time or part-time job. Equally, all long-term unemployed persons would be entitled to immediate employment under this scheme. CD-JG positions could be taken on a part-time basis in combination with structured training.

The current debate

5. In December 2002, the Government released a consultation paper titled Building a Simpler System to Help Jobless Families and Individuals. The paper proposes reform to the income support system for people of working-age, in order to promote participation and improve incentives to work. Modernising the social security system in order to simplify the payments structure and ameliorate poverty traps is a worthy objective. However, an effective social support system can only "encourage and support people to participate in the life of the community through paid work" (DFACS, 2002a: i) if there are jobs available.
6. There are currently six unemployed people for every job vacancy in Australia (Cowling and Mitchell, 2002a: 5). A Community Development Job Guarantee would attend to the demand side of the economy and is the essential analogue to the reforms proposed for the income support system. CofFEE agrees that paid work "enhances both self-reliance and social inclusion and that policies to enable paid work benefit the whole community" (DFACS, 2002a: ii) but a policy agenda that aims to achieve these ends must create opportunities, as well as incentives, for paid employment.
7. Alternative proposals to reduce unemployment have centred on freezing safety net increases in award wages and replacing these adjustments with tax credits for low wage earners in low-income families. These proposals misconceive unemployment as a labour market or individual problem rather than a problem of deficient aggregate demand. The effect of medium term wage freezes on the rate of unemployment is likely to be relatively small and is unlikely to create employment opportunities for the current pool of long-term unemployed (Borland, 2002: 10).
8. The CD-JG proposal detailed in this report is a safer path to full employment than the wage cutting approach. While the CD-JG proposal provides certainty in two dimensions: (a) guaranteed employment, and (b) guaranteed income; the wage cutting methodology provides certainty in neither. It does not directly address demand deficiency and relies on questionable assumptions about elasticities, and lack of interdependence between wage income and spending, to generate its job growth projections (Mitchell and Watts, 2002: 109-110).

The problem

9. 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.
10. The evidence of policy failure is overwhelming. The low point unemployment rate has ratcheted upwards over successive economic cycles, and the average duration of unemployment, which was 3 weeks when data was first collected in 1966, is now around 50 weeks (ABS, 6203.0) Despite a sustained period of economic growth since the recession of the early 1990s, the unemployment trend in Australia remains positive. In December 2002, there were 143,700 individuals who had been unemployed for 52 weeks or more (22.9 per cent of total unemployment) and the youth unemployment rate stood at 17.0 per cent (ABS, 6203.0).
11. The picture is even worse when broader measures of labour underutilisation are considered. In August 2002, CofFEE estimated that 11.2 per cent of Australia's willing labour resources were being wasted. This estimate takes account of the hours desired by the unemployed, the underemployed (part-time workers who would prefer more hours), and the hidden unemployed. The cost to the Australian economy of tolerating this level of labour wastage was estimated at $39 billion in 2002, in lost potential output. This is around 6 per cent of current GDP or $143 per week per Australian family (ABS, 5206.0 and 4102.0).
12. Given that economic policy should be concerned with the efficient use of resources, we must address the macro inefficiency associated with unemployment. The gravity of the problem posed by unemployment - and its deleterious effects on self-confidence, competence, and family and community life - can no longer be overlooked.
13. The current policy framework, in which active labour market programs aim to make people 'employable' should there be jobs available, has been largely ineffective. The poor employment outcomes for participants in existing programs like Work for the Dole and Intensive Assistance point to the futility of preparing the unemployed for jobs that are not there. The solution to unemployment lies in generating more opportunities for paid work. A new paradigm in employment policy is needed.

A new paradigm in employment policy

14. Prior to the mid 1970s, the Australian economy was able to sustain full employment. A key reason for the attainment of this outcome was the existence of a "buffer stock" of low skill jobs, many of which were in the public sector. These jobs were always available and provided easy access to employment for the most unskilled workers in the labour force. These workers had employment and income security during hard times.
15. The goal of CD-JG is to restore this buffer stock capacity to the economy to ensure that, at all times, the least advantaged workers in the community have opportunities to earn a wage and to attain independence. A strong community is one in which all members feel that they have a meaningful stake. The achievement of higher levels of employment under this proposal is likely to promote social cohesion.
16. While public sector job creation via the CD-JG will restore the buffer stock capacity of the economy, this does not require a return to the "buffer jobs" of old. The CD-JG philosophy accepts the political reality that corporatised entities such as 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.
17. The aim of the CD-JG proposal is to create a new order of public sector jobs that support community development and advance environmental sustainability. 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; much of it is labour intensive requiring little in the way of capital equipment and training; and will be of benefit to communities experiencing chronic unemployment. It is in this sense that the proposal represents a new paradigm in employment policy.
18. Given that unemployed people are already supported by the public sector welfare system, the CD-JG requires only a low level of additional public investment to allow unutilised labour to perform a range of activities of benefit to the broad community. The policy would not eliminate inequality between geographical regions. However, it would help communities in disadvantaged areas to maintain continuity of income and labour force attachment, without recourse to welfare dependence.
19. 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.

What do we mean by community development?

20. 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 the individuals can realise their desire to contribute to community well being, and sustain their own destiny.
21. 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. Some may ask why CD-JG employment should be cyclical in nature, if the work undertaken is productive and supports community development We would answer this question in two ways.
22. First, there is intrinsic merit in ensuring that everyone who wants a job can get one, given the substantial economic and social costs that unemployment imposes on individuals and communities. While it will be a challenge to design productive CD-JG jobs that can be created and destroyed in line with the vagaries of the private business cycle, this is far from an impossible task. The 2002 Olympic Games showed that the public sector can quickly mobilise a diverse range of resources, and accomplish thousands of tasks requiring complex organisation. While many CD-JG jobs would be ephemeral in nature, this does not mean that the activities would be worthless or of little benefit to the communities in which the workers live. We estimate that a core of about 500 thousand CD-JG jobs would be available, irrespective of the flux of the private sector over the business cycle given other likely federal macro policy settings.
23. Second, the CD-JG proposal distinguishes between activities that benefit communities and a comprehensive 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. Such a commitment could serve to revitalise communities, and the spending would certainly create a number of employment opportunities and expand the income of the regions. A full commitment to promoting regional and community development would thus include this type of discretionary government spending, in addition to the CD-JG program. The latter is the essential "floor" to healthy communities.
24. Thus, in advocating the CD-JG, we are not suggesting that it is the solution to community development. The CD-JG is a path towards full employment and offers essential job opportunities to the most disadvantaged and vulnerable workers in the labour market. It ensures that such workers can maintain an attachment with paid employment and not be forced, by systemic job shortage, into welfare dependency.
25. The CD-JG recognises that if there is to be a true path to full employment, the public sector must maintain a stock of jobs that provide opportunities for the less skilled and the less qualified. Through creative job design, the activities that the CD-JG workers perform can support environmental sustainability and enhance community life.

Investment and Results

26. To implement the CD-JG Proposal at a national level would require an estimated net investment by the Commonwealth of $3.27 billion per annum. The net investment required to employ all unemployed 15-19 year olds under the Youth Guarantee component of the proposal would be $1.19 billion. On the other hand, $1.96 billion is required to employ all long-term unemployed persons aged 20 and over. The impacts of the proposal on output, revenue and expenditure and employment are set out in the table at the end of the Executive Summary. Clearly, the stronger is the private sector activity the lower this public investment becomes.
27. The creation of 265.3 thousand CD-JG jobs would be required to eliminate youth unemployment and to provide jobs for people aged 20 years and over who are long-term unemployed. As a result, national output would rise by $7.71 billion; private sector consumption would rise by $2.38 billion; and an additional 68.7 thousand jobs would be created in the private sector. The full implementation of the CD-JG proposal would thus yield an additional 334.0 thousand jobs. The unemployment rate would fall to 3.9 per cent, after taking account of the labour market participation effects.

A CD-JG for the Hunter Region

28. The paper also estimates the investment that would be required to implement the CD-JG proposal in the Hunter Region of New South Wales, which incorporates the Local Government Areas of Cessnock, Dungog, Gloucester, Great Lakes, Lake Macquarie, Maitland, Merriwa, Murrurundi, Muswellbrook, Newcastle, Port Stephens, Scone and Singleton. The Hunter has consistently experienced a high rate of unemployment relative to other regions. To fully implement the CD-JG proposal in the Hunter Region would require net investment by the Commonwealth of $119.6 million per annum.
29. As shown in the Table overleaf, about 9.6 thousand unemployed people in the Hunter would be the direct beneficiaries of CD-JG jobs with a further 2.5 thousand jobs being created in the private sector. Output in the Hunter Region would rise by over $284.4 million and private sector consumption by $85.2 million.
30. The Community Development Job Guarantee - the bottom line:

    Impact	National			Hunter
    	Youth unemployed (15-19 yrs)	Long-term unemployed (>19 yrs)	Total CD-JG	Total CD-JG
    Extra GDP	$2.76b	$4.69b	$7.71b	$284.4m
    Extra total employment ('000)	163.0	156.3	334.0	12.1
    Required CD-JG jobs ('000)	133.8	120.0	265.3	9.6
    Private sector employment ('000)	29.2	36.3	68.7	2.5
    New unemployment rate (%)	4.9	4.9	3.9
    Net government expenditure	$1.19b	$1.95b	$3.27b	$120.4m

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