Jobless Cancer Set to Spread Under Beazley
Mr Beazley is right, unemployment should be the top political issue in the current election campaign. He is also right to set a target unemployment rate of 5%.
Unfortunately, his solutions are largely a collection of policies that were tried and failed in the past and will fail again.
Unemployment has clearly reached unacceptable proportions. Over the last 25 years the unemployment rate has increased fourfold from 2.1% in 1973 to 8.3 %--- with the rate peaking at a higher levels with each successive business cycle.
Few see any hope for change under existing policies. Even the most optimistic forecasters do not see the unemployment rate falling too far below 8%. Most expect the rate to rise to a higher level with a slowing economy.
The problem is not so much the rate of unemployment as its composition. Unemployment is concentrated amongst the unskilled---particularly unskilled youth---and in select regions---such as Tasmania which has an unemployment rate of nearly 14%. Moreover, unemployment is increasingly becoming a permanent state for many unemployed---the average duration of unemployment has increased from 8 weeks in 1973 to 56 weeks in 1998. This compares to 13 weeks in the open US labour market.
In other words, we are creating a low-skilled, regionally-concentrated, permanently-unemployed underclass. This is a cancer which must be stopped. Although the cumulative effects of twenty-five years of bad policy will take years to erode, it can be done.
This requires further fundamental deregulation of the labour market. However, Mr Beazley proposes to do the opposite. Mr Beazley will increase the powers of the Industrial Relations Commission including giving it the anti-secondary boycott provisions of the Trade Practices Act, increase the range of conditions to be included in awards, beef-up unfair dismissal laws, place additional limits on individual contracts and give priority to collective bargaining. Mr Beazley plans increase the centralisation of wage fixing and thereby diminish the ability of regions and State to vary wages and condition according to their needs. Tasmania is a cheaper place to live than Sydney, and wages should reflect this.
Another essential element in any successful job creation program is low minimum wages, particularly lower youth wages. One of the main reason for the rise of unemployment amongst the unskilled has been that they have priced out of the market by excessive minimum wages. Recent research has shown that employers of inexperienced school leavers are now effectively paying 40% more than they did 20 years ago. Unsurprisingly, their unemployment rate is now much higher---30% now compared to 18% then.
Of course, allowing wages to move freely so people can get jobs is not part of Labor's plan.
A limited---to restrict the job-destroying side-effect of taxes---carefully targeted---to ensure they deliver real net benefits---set of training and job creation programs with strong incentives to participate are probably necessary given our large pool of long-term unemployed lacking basic work skills.
Unfortunately, Mr Beazley's plan gives no sign of such targeting. Nor does it provide the serious institutional reform which is needed to fix the long-standing structural problems in our labour market.