20 December 2002

Unemployment: A multidimensional problem

Russell Ross, University of Sydney

Peter Saunders, The Ends and Means of Welfare: Coping with Economic and Social Change in Australia Cambridge University Press, 2002 (272 pp). ISBN 0-521-52443-1 (paperback) RRP $39.95.

Peter Saunders and Richard Taylor (ed.), The Price of Prosperity: The Economic and Social Costs of Unemployment University of New South Wales Press, 2002 (280 pp). ISBN 0-86840-541-8 (paperback) RRP $39.95.

These two books from Peter Saunders—one as author and the other as co-editor—are compulsory reading for anyone interested in the multifaceted nature of unemployment and its consequences for economic and social well-being in Australia. This is because, taken together, they provide a thorough report card on the major developments in unemployment and social welfare in Australia over the last two decades.

The central message is that despite much economic progress, including a reduction in the aggregate unemployment rate, unemployment is still a major concern in Australia. Some, including Saunders, argue it is an even greater problem today than it was twenty years ago. Although the unemployment rate has fallen, like all economic statistics this hides more than it reveals. Behind the decline in the unemployment rate are, I believe, several disturbing trends. These are well documented in the two volumes. More people are unemployed now than was the case two decades ago. This has occurred simply because the working age population has grown faster than the number of jobs. Further, there are a significant number of people who have remained unemployed for sustained periods. Known as the ‘long-term unemployed’, these people present a special challenge, one that has not yet been successfully met by any Australian government.

Over the past two decades, governments have sought to control unemployment by tightening eligibility criteria for welfare payments, thereby putting more responsibility onto those at the lower end of the income distribution to find alternative sources of income. Saunders provides considerable evidence that these policies have produced grim results. Australians on low incomes are at greater risk of being in poverty. The long-term unemployed are at greatest risk, but the message from Saunders is that many low-paid workers are also at risk. Put simply, these Australians are missing out on the benefits of economic prosperity.

The labour market plays a central role in people’s lives. It is the major source of income for most people, and a person’s employment status is often linked to their social status. As Saunders states in The Ends and Means, ‘Access to employment is one of the most effective guarantees against poverty and the income it generates is, for the vast majority, one of the most important determinants of economic well-being’ (p. 87). Based on the evidence in these two books, it is surprising he does not include social well-being in the above sentence. To state that employment is an effective guarantee against poverty is perhaps overly optimistic. The casualisation of employment and rising income inequality means that employment is a buffer against poverty but it does not guarantee a poverty-free life.

In The Ends and Means of Welfare, Saunders argues that Australia still has considerable income inequality and, more seriously, that there is an on-going problem of poverty at the bottom end of the income distribution. In the second half of the book, he sets out his solutions to the twin problems of income inequality and poverty.

Unemployment is an even greater problem today than it was twenty years ago.

The Price of Prosperity, co-edited with Richard Taylor, is a set of thirteen essays, each written by leading researchers in their areas of expertise. Each presents a different perspective on unemployment and its consequences; ranging from an overview (Saunders), a statistical picture (Stephen Bell), unemployment and families (Janet Taylor), youth unemployment (Bruce Chapman and Matthew Gray), indigenous unemployment (Boyd Hunter and John Taylor), retrenchment in declining industries such as textiles, clothing and footwear (Michael Webber and Sally Weller), regional unemployment and community life (Lois Bryson and Ian Winter), health (Richard Taylor and Stephen Morrell), psychology (Bruce Headey), and crime (Don Weatherburn). The thirteenth chapter, by John Nevile, presents proposals for solving, or at least reducing, the unemployment problem.

The thread that links these books is the intersection between employment, lack of employment (and especially long-term unemployment), income (or the lack thereof), poverty, and welfare. As Saunders notes in The Ends and Means of Welfare, ‘lack of employment remains the single most important determinant of poverty’ (p. 96).

If there is an unifying theme to these books, it is that the impact of unemployment is highly asymmetrical, and that those who suffer most from unemployment tend to miss out on the benefits of economic growth and endure long-term costs way beyond simply being unemployed. As Bell argues, the effects of unemployment ‘are not always obvious’ (p. 13). Many people are unaware of the true depth of unemployment because it is concentrated amongst a small minority of Australians. It is felt most by those who are in long-term unemployment (defined as being continuously unemployed for twelve months). These people are the ones most at risk of poverty, and of bearing an unfair burden as the economy and society adjust to micro- and macroeconomic reforms without finding jobs for them.

The importance of understanding long-term unemployment is illustrated by the fact that all thirteen contributors in The Price of Prosperity focus on it. Eleven discuss long-term unemployment at length, another (Headey) addresses it indirectly in referring to the psychological impact of recurring spells of unemployment, and the last (Weatherburn) argues that ‘where unemployment is not seen as a transient phase and a young person has few personal or social resources to cushion the impact of poverty, crime may emerge as the only viable alternative to work’ (p. 234).

The overall impact of The Price of Prosperity is to establish clearly that the social impact of unemployment is much greater than it was two decades ago, even though the level of unemployment is no worse. To understand the reasons for this, one must read all thirteen chapters as an integrated whole.

One point that is often forgotten in economic debates is that while unemployment is a personal problem, poverty is a family one. It is individuals who are unemployed, but families who suffer the costs of unemployment. As Janet Taylor notes, ‘A key question in considering unemployment in families is: Whose Unemployment?’ (p. 65). She argues that the effect of unemployment on families depends on which member of the family is unemployed. If it is the main breadwinner, the impact is likely to be different to when it is the ‘second’ income earner, a sole parent or a young person. That is, the family circumstances of the unemployed person are an important determinant of the costs. Taylor notes that there is a ‘high level of consensus that unemployment places severe strains on families’ (p. 66). She also reports research that confirms an intergenerational dimension to unemployment. Young people who have unemployed parents are more likely to themselves become unemployed than those with one or more employed parents.

While unemployment is a personal problem, poverty is a family one.

Saunders also explores the economic and social impacts of unemployment in The Ends and Means of Welfare. He does so in the context of the relationship between economic liberalism and social policy. Much attention is devoted to the impact of long-term unemployment on the welfare system. Saunders notes that a welfare ‘system that may provide an adequate safety net for a period of weeks or even months is not able to fund the purchases of new furniture, clothes and other items that inevitably arise if joblessness is long-term’ (p. 35). This means that the long-tem unemployed are likely to be stuck in a poverty trap. There is evidence that employment-scarring occurs for those in long term unemployment. The longer they are unemployed, the lower their chances of being viewed as employable by potential employers, and so they remain unemployed even longer.

The focus in The Ends and Means is not just on unemployment. Saunders points out that many more workers face the threat of becoming unemployed. Rising unemployment is often argued to be a more serious problem than high unemployment. The logic is that ‘while those affected by the level of unemployment is known’, it is also relatively few. For example, an unemployment rate of eight per cent means that 92 per cent of those who want a job have one. However, when unemployment is rising, every worker is ‘potentially at risk’ of losing their job (p. 36).

Saunders notes that the casualisation of employment means that workers have less job security, and therefore less certainty about their future incomes. As he also points out (p. 87), the length of the typical working life is declining. Not only are workers retiring earlier than in the past, many younger workers are delaying employment by spending longer periods in formal education.

In addition, micro- and macroeconomic reforms have meant that ‘the structure of the labour market and the kinds of jobs it offers is changing rapidly in response to changes in economic structure’. This has caused increasing uncertainty among those employed by ‘raising the fears of job insecurity and unemployment’ (p. 87).

The latter part of The Ends and Means is devoted to Saunders’ proposals for alleviating unemployment and poverty, and more generally reducing income inequality.

He promotes a more progressive taxation system in which the top five per cent of income earners pay a higher proportion of taxes than they currently do (p. 252). He also suggests greater efforts to crack down on tax evasion, a proposal no doubt to be welcomed by the ATO. He also promotes greater use of public sector jobs in the services sector as a means of reducing income inequality (pp. 255–6).

Saunders also proposes reforms in the way jobs are distributed. He advocates a return to greater use of labour market programs to better target employment creation. He proposes the use of direct wage subsidies to stimulate employment in the private sector. There is also support for a cap on weekly hours of work, designed to redistribute some employment away from people working ‘excessive’ hours to those working no hours, i.e. the unemployed (pp. 260–1).

These proposals are not new. However, Saunders’ enthusiasm and conviction in presenting and defending them make them hard to ignore. Whether one agrees with his proposals or not, The Ends and Means of Welfare is a thought-provoking book and, along with The Price of Prosperity, is a welcome addition to the literature on the welfare debate in Australia.

Russell Ross teaches labour economics at The University of Sydney. He has published extensively on the labour market, and is co-author (with Keith Whitfield) of The Australian Labour Market, Perspectives, Issues and Policies (HarperEducational).