Lessons From The Long-Term Unemployment Conference2016

by Damian Penston

The 2016 Long-Term Unemployment Conference was held in Brisbane on 1-2 December and I participated as one of the speakers on the first day. The theme for this years conference was 'finding solutions', so I gave a presentation on how to eliminate involuntary unemployment without needing to increase taxes or borrow money by doing what we used to do in this country for decades - creating transition jobs.

The economics is simple! The Government has already overtaxed the private sector so that they have space the buy what they want without causing hyperinflation, along with a buffer between current total spending and the hyperinflation threshold. That buffer is made up of all kinds of goods and services that can't be bought because there's no longer enough spending power to buy them.

One of the things in the buffer is labour (unemployment is labour which hasn't been bought), so we simply make a switch from using unemployed people as a buffer to using employed people as a buffer. Other countries (Japan, Norway, India, South Africa, etc.) are doing it right now, we used to do it before and there's no reason why we can't do it again.

While everyone in attendance was clearly genuine in their desire to solve long-term unemployment, I came away from the conference feeling frustrated. All of the keynote speakers I saw on the first day described unemployment as a supply-side issue. Their approach to understanding the problem was to ask businesses why they weren't hiring more people, and the response they received was that the unemployed lack the required skills.

Armed with this insight, the organisations who work to solve the problem of unemployment direct their efforts towards providing skills training, thus reinforcing the idea that it's the unemployed who aren't good enough.

This approach isn't good enough!

How Unemployment is Viewed

By focusing on ensuring the supply of skilled workers, these organisations are looking at the problem of unemployment from the perspective of employers rather than from the perspective of the unemployed.

If businesses said that they were focused on colonising Mars and couldn't hire unemployed workers because they're not qualified rocket scientists, would the solution to unemployment be to train them the be rocket scientists? It's a ridiculous uphill battle that seeks to solve someone else's problem ahead of that of the unemployed, and people today have been duped into exactly this way of thinking.

I didn't hear anyone at the conference suggest that the Government could create jobs for the unemployed that would leverage their current ability to be productive! They already have the spending power (not one extra cent in tax needs to be collected to fund this!) thanks to the RBA.

Are We Making Things Worse?

Placing the onus on the private sector to end unemployment is unfair because their spending power to create jobs has been drained away through taxation. While things like a budget surplus may intuitively sound great, in reality, this involves taking money away from the private sector - the Government gets more money by taking it from the rest of us.

Add to this the fact that the Government wants to have a buffer to protect us from hyperinflation, and you're left with a situation where hiring people in one part of the economy will mean that people will get pushed out of their jobs somewhere else because the buffer won't be allowed to shrink (i.e. unemployment is a policy decision).

The Way Ahead - Repeat Our History

If we are to make any progress in eliminating involuntary unemployment, these organisations must first recognise the fact that they're persisting with the very thinking that ended Australia's full employment era in the 1970's. We had full employment for three decades after the Second World War because the Government recognised that unemployment was caused by a lack of jobs rather than a lack of skills or motivation, and that the cost of creating jobs for people was less than the cost of leaving them unemployed.

During World War II,the British threw caution to the wind and made funding available to put every unemployed person to work to support the war effort. The results were so positive that they couldn't believe they'd been so wasteful during the 1930's by allowing people who were capable of being productive to sit idly by, so they wrote the White Paper on Employment Policy which outlined their approach for converting the successful wartime model into one that could be used during peacetime.

Seeing this, the Government of Australia had H.C. Coombes write the White Paper on Full Employment in Australia in 1945. What followed was 30 years without involuntary unemployment. We had programs which ensured that anyone who wanted a job could have one.

This all ended when, in October 1973, the first oil crisis occurred. The price of oil quadrupled, which had a ripple effect on prices throughout the entire economy. Economists mistakenly thought that the price inflation meant that there was too much money being used in transactions, so they set about reducing the spending power of the private sector (by increasing taxes and cutting spending). With less money available with which they could conduct trade, businesses shrank and workers lost their jobs.

Older Australians may remember how, almost overnight, we went from a policy framework of targeting unemployment to one of targeting inflation. We went from recognising that unemployment resulted from a lack of jobs to saying that it resulted from laziness, underskilled workers and over-generous welfare. That last point would have required quite a shift in the attitudes of Australians in a very short space of time.

Who Benefits?

By creating transition jobs, the Government would kill two birds with one stone by ending involuntary unemployment (again) while injecting money into the private sector. As consumers would have more money to spend, businesses would find it much easier to make sales. This additional trade would enable them to grow and create more jobs, so workers in these Government jobs could then transition into the private sector (that's why I call them transition jobs).

By now, it should be clear that it's in the interests of Australian businesses to demand that their industry associations lobby for the creation of transition jobs. We're not living beyond our means - we're living below our means! Our Government already has all of the tools they need to make Australia the most prosperous nation in the World, and this should be the first step they take in leading us there.

Anyone who in interested in learning how eliminating involuntary unemployment through public policy would benefit their business is invited to engage with Fair Money Australia. We can provide an overview in plain English as well as introductions to World renowned economists who have been conducting research in this area for years.

The content of Fair Money Australia's presentation at the conference was largely based on the research of Prof. Bill Mitchell and scholars from the Centre of Full Employment and Equity (CofFEE) and the Melbourne Institute of Applied Economics and Research.