Budget 2017: We need full employment, not victim blaming

12 May 2017

by Warwick Smith

Punitive measures against the unemployed don’t help anyone.

There are many more job seekers than there are jobs in Australia. Simple fact. It’s been that way for since the mid 1970s. Given that, what purpose does it serve for this year’s federal budget to punish the unemployed for breaching their mutual obligations or for taking drugs?

Similarly, how can we justify unemployment benefits that are below the poverty line and insufficient to live on, particularly in our capital cities?

There has never been any evidence that forcing unemployed people to engage in ‘mutual obligation’ activities reduces the rate of unemployment. When there is little prospect of getting a job, the mindless hoop jumping required in order to keep the dole is humiliating and demoralising.

Putting in endless job applications for jobs you know you won’t get not only wastes your time but recruiters’ time too.

Between the Second World War and the early 1970s, unemployment in Australia averaged around two per cent. For two and a half decades governments of both persuasions considered the maintenance of full employment to be one of the top priorities of government. They saw unemployment as a collective problem requiring a collective solution.

Today, by contrast, the government sees its job as kicking the unemployed when they’re down, humiliating them and blaming them for their plight. This is classic victim blaming.

If the government and business interests can convince us that the only reason people are on the dole is because they’re lazy junkies then maybe we won’t wake up to the fact that unemployment levels are high because the system is designed that way in order to keep wages down.

That’s right, this is no conspiracy theory, just a simple statement of fact.

There’s this thing with a crazy name that only an economist could come up with: the Non-Accelerating Inflation Rate of Unemployment (NAIRU). The NAIRU is, supposedly, the level of unemployment that we need to avoid rising inflation. The International Monetary Fund has Australia’s NAIRU at about 5.5 per cent, but the truth is that nobody really knows how to calculate it because it’s just a made-up thing.

The theory says that if unemployment drops below the NAIRU then labour will have too much power to demand wage increases. If wages rise faster than labour productivity then prices must rise because labour costs go up and people have more money bidding for the same amount of goods and services.

You don’t have to fully get all of that to get the take home message, which is that a big pool of unemployed people pushes down wages by increasing the risk of the biggest bargaining chip that workers have: to walk away. If you know that it’s hard to get another job then you’re less likely to push hard for wage increases or better conditions.

Going back to the post-WWII days, governments back then acknowledged that a tight labour market would put upward pressure on inflation but they saw that as a risk worth taking to achieve full employment. They used much more sophisticated ways to manage inflation than we do today and, while inflation was more volatile back then, it wasn’t out of control.

The 1950s and 60s are often referred to as the post-war boom. Unemployment was low, wage growth was high and inequality was falling. I suspect that last part was the undoing of the post-war boom. If inequality was falling then the proportion of economic output going to wealthy was falling.

Well, the wealthy fought back. They came up with a new economic system and then they waited for the post-war boom to stumble. The stumble came in the form of the OPEC-induced oil shock of 1974. This externally caused inflation spike was used to paint the old Keynesian economic system as a failure and to usher in a new paradigm: ‘economic rationalism’ or ‘neoliberalism’.

Neoliberalism emphasises individual over collective action and responsibility. They call this liberty, but the simple reality is that rich individuals are always a lot freer that poor ones.

In the post-war boom days it was openly acknowledged that a market-based capitalist system will, by its very nature, produce winners and losers and, if we are to embrace the benefits of such a system, then we must collectively take responsibility for the costs. A commitment by government to creating full employment was one of the ways this was done.

Today we are far more Darwinian. If you become unemployed and struggle to find another job then you will be called a dole bludger, a leaner or a ‘taxed not’ and forced to run endlessly in the Kafkaesque mouse wheel of ‘mutual obligation’ activities to qualify for your below poverty-line unemployment benefits.

This attitude towards the unemployed is going to become even more untenable as hundreds of thousands, perhaps millions of jobs in Australia are replaced by robots and artificial intelligence over the next 15 years.

Unemployment benefits are kept intentionally low to motivate the unemployed to get jobs. Again, never mentioned is that there are far more job seekers than jobs; meaning hundreds of thousands of Australians are kept in poverty in order to motivate them to get jobs that don’t exist.

The land of the fair go? Yeah right.

This article first appeared in The New Daily, 12 May 2017