“Subsidised jobs help, but they’re no panacea”: History shows there’s no quick fix for unemployment

By Peter Davidson, UNSW

Suddenly, the idea of a “job guarantee” is back in vogue.

Lawyer, academic, land rights activist and founder of the Cape York Institute Noel Pearson has come out in favour of it, University of Newcastle labour market specialist Bill Mitchell has a document before the prime minister, and the Per Capita think tank is pushing for a youth-only guarantee.

The idea is that the government would make an unconditional job offer at a minimum wage to anyone willing and able to work. There would be no need for the Newstart unemployment benefit (now called JobSeeker).

The buffer of jobs on offer would “normally be small and would shrink as private sector activity recovers”.

It is not widely known that it’s been tried before, by the Keating government in 1994. The scheme then was limited to the long-term unemployed, making it more manageable than a scheme that offered employment to everyone who was unemployed.

Working Nation

The centrepiece of Working Nation, unveiled by Prime Minister Paul Keating in February 1994, the so-called “Job Compact” guaranteed subsidised employment for six to 12 months to everyone who had been unemployed for more than 18 months.

This article draws on my research into what happened, including interviews with senior government officials from that time.

By late 1993, 300,000 people had been reliant on unemployment payments for more than 12 months.

The idea was that if this cohort was able to access paid work experience in regular jobs it would improve their chances of securing unsubsidised jobs by renewing their confidence and skills, and instilling confidence in employers about their ability to work.

We started off wanting to guarantee the long-term unemployed a job. We thought that’s what this agenda was all about. (Official, Department of Prime Minister and Cabinet)

The original plan was for most of the job placements (70%) to be offered through a private-sector wage subsidy scheme, Jobstart, which had a good record for placing people in ongoing jobs.

When fewer private employers than expected took on Jobstart wage subsidies (134,000 in 1995) the job guarantee could only be fulfilled by expanding public and community sector jobs (to 123,000 positions). The other jobs would be provided through the New Work Opportunities program (which offered community organisations a 100% wage subsidy to employ people full-time for six months) and Jobskills (which offered a combination of part-time paid employment and training run by community organisations).

As has been the case in other overseas public-sector job creation schemes, these jobs often turned out to be very different to mainstream jobs, reducing transitions to unsubsidised jobs.

And as the number of subsidised jobs ballooned, their quality declined. And instead of case managers matching jobs and experience to needs, the process became a conveyor belt.

There was some dissatisfaction even within the Department of Prime Minister and Cabinet about how it was going. It appeared to be going the [old] way of not treating people as individuals, just putting people into any program that was coming along. (Official, Department of Prime Minister and Cabinet)

And the language of the program became increasingly punitive.

You often start with a great idea and later it gets modified. Focus groups showed the public were really down on the unemployed and sole parents. That got reflected back in the ‘reciprocal obligation’ language, which was not how we originally had it. (Official, Department of Prime Minister and Cabinet)

Only one third of the participants were in unsubsidised jobs three months after the subsidies ended. The official evaluation of the “net impact” of the program (the extent to which it increased the probability of employment) was a 28% improvement from Jobstart, 11% for Jobskills and 4% for New Work Opportunities.

‘High cost, low outcomes’

The Job Compact was expected to reduce the number of people on unemployment benefits for more than 18 months by 50% in its first year, but the actual decline was less than 20%.

The official evaluation pointed to its “high cost and low outcomes”, and concluded it was “not the most appropriate strategy for assisting the long-term unemployed”.

It said subsidised public sector jobs should be created only to help “the most disadvantaged clients who may not meet the job readiness requirements of many private employers”.

Right now, 700,000 people have been on unemployment benefits for more than a year, making a strong  case for some sort of large-scale investment in paid work experience and training.

Subsidised jobs can help reduce long-term unemployment, as shown by the success of the Future Jobs Fund in the Britain and small-scale wage subsidy schemes in Australia.

Britain’s conservative government has just announced plans to generate 350,000 subsidised community jobs for unemployed young people.

But Australia’s experience with the Job Compact shows guarantees are no panacea.

Subsidised jobs help, but they’re no panacea

When subsidised jobs schemes are scaled up to offer jobs to everyone who is unemployed, their costs increase and their quality and their impact on future employability diminish.

We will need large-scale programs to create jobs, and we should offer the 700,000 people who are already long-term unemployed all the help they need to secure them.

But that needn’t always mean subsidised jobs. Many who are unemployed will benefit from training, others from their employment service provider partnering with an employer to skill them up.

Higher unemployment is a price we’ve paid to control the virus. It will take a mix of measures to ensure that cost is only temporary.

This article was first published from The Conversation.

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