No worries mate! (As long as you don’t want to eat)

If people in the UK think the government aren’t tough enough on unemployed benefit claimants, they should look to Australia for ideas. But they should be very careful what they wish for.

There is a virulent stream of political rhetoric in Australia, feeding and fed by public opinion, suggesting that benefit claimants are nothing but lazy cheats. The same voices are heard in the UK of course. The Australian experience shows the inherent dangers of allowing rhetoric to become policy.

The Abbott government is currently recontracting all their outsourced employment services and their “bludgers” rhetoric and mindset is evident in both contract design and associated benefit entitlement. Their plans for changes in relation to ‘young’ people (a term which they’ve extended to include everyone under the age of 30) represent a dramatic shift in policy and, if passed into legislation, will have deep, wide-ranging social impact. The UK’s Department for Work and Pensions were here two weeks ago, listening to the arguments.

Of all the countries in the world, the UK and Australian approaches to welfare benefits and unemployment are probably closest. There is a life-long entitlement to financial support if you are out of work. However, as long as you are deemed ‘active’ (i.e. capable of working) then this comes with some sort of requirement to look for work, and/or willingly receive assistance to find work, and then to take the job being offered (this is referred to as ‘conditionality’).

The biggest difference between the two systems is that in the UK there is still a public employment service: Jobcentre Plus. Jobcentre Plus both manage the administration of claims and payments, and have responsibility for jobseekers in their first six to 12 months of declared unemployment. Only around 10% of all those who claim Jobseekers Allowance are still signing on after twelve months, and they are then referred by the Jobcentre to an externally contracted service. This currently means referral to the Work Programme.

In Australia, the whole public employment service was outsourced in 1998. No in-house provision was maintained. A government agency, Centrelink, administer the claim and on day one jobseekers are referred out to an outsourced provider. The contracts under which all these providers operate are about to be retendered, with the new five-year contracts (and a very new service) going ‘live’ in July 2015.

There are strengths in the new contracts. They recognise a need to shift from the existing, very bureaucratic, mostly fee-for-service contracts, which are simply processing jobseekers. Payments to contractors will be attached to outcomes (i.e. sustained jobs) and contractors encouraged to innovate in their service models in order to maximise their performance. The contracts are not being competed on price but on track record, service offer, coverage and quality.

In defining what the service providers must do, the government also define what the jobseekers must do. How often must they attend? What jobsearch or training must they engage in? How often and for how long must they ‘work for the dole’, i.e. work for between 15 and 25 hours a week on some sort of public or community project.

The legislation underpinning the proposed changes was rapidly withdrawn this week. The changes, as they relate to unemployed people under the age of 30, were deemed to be a breach of human rights by a parliamentary committee. However, within a day of announcing its withdrawal, the bill was split in three, to be re-presented in separate pieces. The government remains committed to the policy.

The contentious proposal relates to a dramatic reduction in benefit entitlement for young people. Someone under the age of 30 and declaring themselves unemployed will not be entitled to ANY financial support for the first six months. They will, however, still have to attend the offices of one of the contractors and look for work. If they fail to follow the contractors’ directions, the six-month period without cash will be extended.

If they have ‘behaved’, then after six months they will start to receive unemployment benefit, but they will have to go on Work for the Dole. This will consist of 25 hours a week community work. They will do this, ideally alongside some job search, for six months. If they have not found work, they must continue to attend as directed by the contractor for job search, but this will be ANOTHER period of six months WITHOUT any benefit payments.

Six months later, and still unemployed, their benefits will be paid. But they will return to Work for the Dole. And so the cycle will continue, with six months without cash, but of supervised job search, followed by six months of paid ‘voluntary’ work.

The stated objective of the policy is to reduce the financial burden on the state, with the annual cost of welfare at $119billion. It appears to reflect public opinion (in some quarters at least) and is therefore politically attractive. It will almost certainly reduce the number of young people claiming benefits and will force many of them into jobs. It will give employers the staff that they say they need for growth. It is, however, almost totally blind to all evidence and experience on the relationship between unemployment and employment, as well as any consideration of human psychology.

It is reasonable to assume that there will be a reduction in claims for benefits by young people. The onflow will be reduced, or at least delayed, with the new rules acting as a deterrent. The threat of an extension to the six months without benefits is unlikely to work as a driver of behaviour for those who do sign on – the ‘reinforcement’, or punishment, is just too remote from the action it is seeking to influence. Tomorrow never comes.

When Work for the Dole finally kicks in, and benefit money is paid, there is now an incentive for the young person to remain on the dole. They are, after all, finally getting some money in. The off flow will reduce.

Assuming it forces more to take work (and that it is legal work), the labour market will be fed with an increase in potential employees. But they will have low intrinsic motivation and the poor skills base that contributed to their unemployment in the first place.

Employers will have no incentive to strengthen the terms and conditions of their employment in order to make it attractive. Despite the low quality of the labour on offer, it will be a ready source, and for some employers high turnover is preferable to higher salaries. It has been suggested that young people should be able to negotiate a salary lower than the minimum wage, which would simply further erode the stability of that employment.

Precarious employment and underemployment is nearly as dangerous as unemployment, and is often a hidden risk. The Brotherhood of St Laurence report, Barely Working: Young and Underemployed in Australia, shows that:

  • More than 15 per cent of 15-24 year olds in the labour market are underemployed, young people are more likely to be in this limbo situation than at any time since 1978 when the data was first collected;
  • The proportion of employed people between 15 and 24 years of age who are underemployed is now twice that among the overall working-age population;
  • Young people are more likely to be employed precariously, on casual or fixed term contracts. For every year but one between 2001 and 2012, the proportion of employed young people in non-permanent work was more than 50 per cent, while for all age groups it ranged between 30 and 35 per cent.

(http://www.bsl.org.au/fileadmin/user_upload/files/media_releases/Barely_Working.pdf)

If the legislation goes through, and has its desired impact, the saving to the state is estimated at $1.2billion over a four-year period. This is a reduction in the total welfare bill of around 0.25%.

The whole thing is driven, in Australia as in the UK, by the rhetoric that describes people as unemployed by choice. It is a lifestyle choice to live on benefits rather than to take a job.

While this may be true for some young benefit claimants, it is a serious and significant threat to social cohesion to build policy around this minority. The reality for the majority of people on benefits, such as the 13% of the Australian population living in poverty, or the 1 in 200 families without a home, is that benefits are a lifeline. Just as they are for the 20% below the poverty line in the UK. They are a way to put food on the table.

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