Work And Welfare: Challenges For The Next Labor Government


The next Labor government faces a new set of challenges that are in some ways more difficult to solve than those facing its predecessors. 

The sobering conclusion to be drawn from the global political economy since the Global Financial Crisis is that reliance on markets is no guarantee of faster employment growth.  Financialised economies have been driven by debt, not productive investments, with lasting effect on inequality and living standards, only made worse by austerity measures. These measures have been a complete failure and must be abandoned if growth is to recover.

At the same time, clear signs of accelerating climate change mean that Labor must commit over the long term to ‘green growth’ and ‘green full employment’ via massive reinvestment in clean energy, low carbon production, and public transport systems.  This in turn requires an industry policy that promotes training and investment in science and technology, and supports a labour force and education programs for the emerging green economy.

The greatest success of the Rudd government was its energetic stimulus package of 2009, saving Australia from severe and protracted unemployment. But emerging problems in Australia’s labour market are disturbing.

There is no sign that the Abbott government’s ‘scorched earth’ industry policy and indifferent response to structural unemployment offer any hope. Recent ILO data shows that while Australia’s unemployment rate was lower than comparable OECD countries through the GFC, its underemployment rate was substantial, measured at an additional 7 percent of the labour force in 2010. Present low growth will not be enough to prevent rising joblessness.

A foundation of Australia’s welfare state has been the ‘basic award wage’ inherited from the traditions of the Harvester judgment in the early 20th century. This successful model for intervening in market wages has meant that Australia’s full-time workers had some degree of protection against poverty.

Enterprise bargaining and award modernisation have stripped away the role that awards play in the regulation of wages – they are becoming increasingly a set of minimum standards, especially when combined with underemployment and inflated housing costs.

Two trends can be distinguished. Workers traditionally dependent on now slimmed-down award wages are doing relatively badly on pay; according to recent OECD statistics, almost one-in-five full-time workers are now ‘low paid’ – if two-thirds of the median full-time wage is used as a benchmark.

In the post-Work Choices era, minimum wage growth has slowed: increases look more like basic CPI adjustments. In 2001, the minimum wage was near 60 percent of the median wage, and in the rest of the Anglo-world, it averaged around 40 percent.

Wage increases by progressive parliaments in New Zealand, United Kingdom, and the US increased wages to 45 percent by 2012. Australia’s minimum had slipped over the same period to around 53 percent. The labour movement will need to aggressively campaign for its restoration; without that, social policy will be the only tool available to adjust to the creeping impact of falling minimum wages and underemployment. Social policy reform is needed, but without more properly-paid jobs, it won’t be enough. 

High minimum and award wages are worth protecting. ‘Pre-distribution,’ as it is sometimes called, eases the pressure on states to compensate for the failings of labour markets even when firms are profitable. At the same time, Australia might look to the Nordic experiment in so-called ‘flexicurity’ for further inspiration as long as the right lessons are heeded, and reforms do not amount to a soft version of neoliberalism. Australia already is much more deregulated than the labour markets of the flexicurity countries of Europe. Indeed, as a union economist, Ronald Jannsen, has recently pointed out, Denmark’s celebrated labour market isn’t very deregulated after all.

Job protections available through union-based collective bargaining are one of the ‘secret’ ingredients to recent Denmark’s success. So are two other measures: heavy spending on labour market programs and a social security system that combines work and welfare without generating stigma and voter resistance. Here, Australia can learn most.

Although in recent times the taper at which people lose unemployment benefits has been loosened, Newstart remains a poverty-generating benefit, one poorly equipped to assist displaced workers re-entering tough labour markets. Our unemployment benefit for singles is near the bottom of the OECD tables for its replacement rate – that is, how much the benefit represents of average wages.

Newstart needs to be raised so that living standards for unemployed and under-employed people are better protected. One logical way to increase the benefit is to alter indexation arrangements to allow catch-up with age pensions, which were placed on a more generous indexation track by the Howard government in 1997. This would restore Newstart by some $60-70 a week. At the same time, rent assistance must be adjusted to conditions in local rental markets.

Of course, without investment in low-cost housing, generous rental provisions may inflate rents. Still, rental assistance may be one way to reframe greater generosity to Australia’s unemployed without prompting populist attack. These combined measures might cost the budget around $3-4 billion and would lift Australia’s total expenditure on the unemployed modestly above 1 percent of GDP.

Evidence increasingly suggests that deregulated labour markets don’t generate significant gains in quality employment over time, but they certainly increase inequality and insecurity.

If Australia is to restore its promise to be a ‘wage-earners’ welfare state’, a combination of public investment, collective bargaining, and more closely integrated education, labour market assistance and industry policies are needed. Casual workers should have greater rights to sick pay and leave arrangements with increased legal avenues to better tenure. Stimulus measures are also needed to generate jobs to deprived areas, perhaps by automatically financing local government jobs in areas with high joblessness, as my colleague, Ben Spies-Butcher, has suggested.

There is also the potential to transform the poisonous politics of getting ever-tougher on the unemployed in times when labour markets are failing to produce enough decent jobs. A broader reform to Newstart would ‘lock-in’ a larger constituency of support for the benefit as more people gained from it and voters saw it functioning differently.

Public resources presently wasted on excessive policing of poor people would be channeled into a new round of job support measures.  Resurrecting job-subsidies first developed under Working Nation in the 1990s might offer people work without necessarily losing benefits if those jobs were insufficient to produce living wages.

One related area of labour market performance is Australia’s ordinary performance on women’s participation rates. Lower-income women are ‘priced out’ of work by a combination of inadequate wages or expensive and poorly accessible childcare. Australia has travelled far down the road of setting up quasi-markets for many public goods, including childcare, subsidising consumers through tax subsidies and benefits rather than by directly funding providers.

This approach has many admirers in Labor and beyond, but it is now showing signs of greater dysfunction. Deborah Brennan and Elizabeth Adamson from the University of NSW very sensibly propose the abandonment of the tax subsidy in place of a more generous child care benefit (see page 6). In the longer term, they propose a universal low-cost childcare system.

To this end, increased direct funding to local council childcare centres might be one way to expand low-cost and high quality services; it would use the public sector to regulate the market, providing quality services where there are none and acting as a ‘competitive pressure’ on expensive private childcare providers in better-off areas.

Local councils, of course, are tempted to privatise these services, so a large injection of direct investment into local childcare providers would be needed to produce a more efficient and fairer system than the present one, which, by subsidising private consumers, is leading to ever-higher fees. 

by Shaun Wilson


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