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'The employment challenge': Keynote address to third conference of Labor economists 1979, Adelaide

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T H I R D C O N F E R E N C E OF L A B O R E C O N O M I S T S 1 9 7 9


"T HE E M P L O Y M E N T C H A L L E N G E "


B I L L H A Y D E N MP .



M A Y 1 8 - 2 0 1 9 7 9

Although this is the Third Conference of Labor Economists, it is the first that I have been able to attend.

It gives me particular gratification, therefore, to be able to join you today.

It is also gratifying to see the Conference of Labor Economists emerge as an established force in the analysis of economic is-sues in Australia. .

The inaugural Conference and the 1978 Conference were held in Brisbane.

It is appropriate that Adelaide should be selected as the . venue for the third Conference, because of its influence as a centre of economic studies and in particular for the encouragement this city has given to the development of . radical analysis of political economy.

You have asked me to speak today on the keynote theme: ’-The Unemployment Challenge*. .

I don't want to get into areas of economic policy which will -be treated in-specific sessions at your Conference by my Parliamentary colleagues, Mick Young, Chris Hurford and Ralph Willis. :

I apologise in advance if this makes what I have to say somewhat, discursive. · .

Unemployment is-a theme of great fascination if we approach it historically as an issue of political economy.

In our present context of economic development, the logical starting-point" is the famous White - Paper on. 'Full Employment in Australia*, published in 1945. '

In retrospect, it' is surprising how slight this seminal . document seems when compared with the present documentation of public policy review.

In .a. scant 19 pages the White Paper did precisely what the Labor Government wanted it to do: it set out a rationale for full employment in Australia and it suggested how this might be achieved.

If looking back after 35 years we find the expression simplistic and the methodology somewhat crude, it is worth asking why the White Paper was so influential.

In recent years, we have witnessed a sequence of vast compendiums compiled by expert inquiry into contemporary economic and social problems.


There is no denying the value of reports such as the Crawford Report, the Williams Report,'the Collins Report or the Henderson Report. .

They assemble a vast amount of information in an accessible format, they make detailed recommendations, and some of them are implemented.

Much of this vast documentation is quickly left to gather ' dust in the pigeonholes.

It is surely a subject for a thesis in historiography that the present wave of reports are named after their Chairmen, while the White Paper gets its title from its subject: 'Full Employment in Australia'.

This tells us much about the evolution of public policy in . .Australia since the War.

Whatever their merits, the present documents have lost the sense of fervent commitments that permeates every page of the White Paper. ■

The White-Paper states with magisterial authority, and I quote: '"The maintenance of conditions which will make full employment possible is an obligation owed to the people of Australia by Commonwealth and State Governments'.

Is it even remotely conceivable that the Fraser Government would ever make such a statement of basic belief?

The faith that a substantial measure of full employment is part of the -Australian birthright has been lost.

Such a statement of principle as the White Paper on full employment is viewed with cynicism or indifference.

There is a resigned acceptance that the present levels of unemployment are immutable, that there is nothing that can be done-to-reduce them or to create new jobs.

This in turn leads to fantasies about a widespread shift to alternative life styles funded in large measure by Government.

-1 want to make it plain that I reject this defeatist creed.

I believe that unemployment can be reduced and reduced substantially by the intelligent application of public policy.

Our policies must be dictated by the overwhelming need to return to full employment every worker who now x^ants a job.


Furthermore, we must expand job creation programs so as to absorb the hundreds of thousands of young workers who will come onto the labour the next few years.

We can do this only if we revive the spirit of the White Paper, even if we cannot implement it to the letter.

It is a matter of history that the objectives of the White Paper were achieved with the tremendous economic growth of the years between 1945 and 1970, when the overall unemployment rate averaged one to one and a half percent. .

True, there were lifts above 2 percent in 1952-53 and 1961-62.

It is a matter of bitter irony in the present context that these brief surges of unemployment created serious political problems for the then Government.

It was accepted throughout these years that the rate of one to two percent was essentially full, employment, allowing for . seasonal and structural factors, and given the rate of new job creation. · ·

The first, signs of a change in this long-term trend emerged in the early 1970's when the then McMahon Government made a sudden switch to contractionary policies to correct balance of payments and inflationary -problems.

This should have sounded a warning to the Labor Party, . particularly as these policies-were reversed rather hastily with .an-eye to the 1972 elections. · . . .

Certainly, the Labor Party policies which were approved by the electorate in Γ972 were postulated on the basis that full ; employment would continue. .

Certainly, we should have been more cautious in our first year of Government in the face of clear evidence that our predecessors had manipulated the economy for electoral advantage.

There was a lack of guile in our approach and this was reinforced by the favourable employment picture throughout the 1973 calendar year.

It was in this context of an over-heated economy that the Government was more venturesome than it would have been otherwise in its economic policies;, for example, the 25 percent tariff cut and .

the restrictive monetary policies. . , '

I don't want to trace the history of economic policy in 197.4-75 . ;

If I remember correctly it was treated in some detail at the first Conference of Labor Economists.


I do want to make the point that the policy gyrations of those years were designed to prevent the growth of unemployment.

This applies to the expansionary measures at the end of 1974, the retention of a substantial deficit in the 1975-76 Budget — even the loans affair. .

With unemployment surging across the mystical two percent barrier, the Government was under tremendous pressure to contain it·.

There were threats by trade union leaders to withdraw support if unemployment touched 2.5 percent.

-One Minister said that the Government should resign if it went above 200,000.

These dramatic responses should be contrasted with the present tacit acceptance of an unemployment rate of 6.5 percent with . every likelihood of it rising higher.

These years, which marked the end of long-accepted ceilings on unemployment, were painful, indeed tragic, years for the Labor -Party. .

If our Government had been prepared to be as ruthless about . unemployment as the Fraser Government, then \

We tried to protect jobs, and we paid a heavy political price for it. . .

Undoubtedly we can be indicted for some failures, but there was a determination to seek solutions! oruremployment. and to divert resources to. re-training, job creation and the basic support of those without jobs.

This contrasts with the complaisance of the Fraser Government in the face of much higher levels of unemployment. .

It contrasts with what can only be described as an atmosphere of fatalistic acceptance in the community.

Attempts to formulate the policies needed to grapple with difficult levels of unemployment and to give them urgent implementation have been replaced by ceaseless reiteration of the problem. .

Such theorists usually conclude by saying that they have no solutions, which implies that there can be no solution.

Far too many of our leaders shoxi a willingness to defer the problem of unemployment, to call for more research and , documentation, to grasp at the straws of utopian panaceas.


Where once the trade unions threatened to withdraw support from’ a Labor Government if unemployment went above two percent, the present mood is much less bellicose.

There is lip service to the principle that we cannot live with five to six percent unemployment, but there is a lack of stomach to do anything much about it.

Such a lack of urgency in public policy terms is reflected in visionary concepts directed to the development of■alternative living patterns as a solution to mass unemployment.

To my mind, it is fanciful to assume that great masses of people and young people in particular, can be lured into utopian solutions of this sort. .

Whether rightly or wrongly, they want a stake in the present society, which has tremendous faults, but exerts a magnetic pull on most of" its members. .

These ingrained attitudes won't. be changed by Government exhortation or deliberate encouragement of-alternative living through the provision of land or other facilities.

While research into these areas should be encouraged, I reject completely the notion that it should have a priority call on the public purse, particularly in the present dire economic circumstances.. ; .

1 submit that the basic motivation of most Australians is that they want to work. .

The concept of dole bludging is perhaps the most squalid of . the many myths propagated by the Fraser Government.

.Certainly-, we. must take account of planning for increased leisure and look at alternative life styles for those who want them, but .these aims must be completely subordinated to the provision of more jobs in the here and now.

We cannot escape from the basic truth that work is a necessity for the overwhelming majority of Australians: their physical, so'cial and psychological well-being depends on having a job.

A dissection of the present unemployment figures discloses some disturbing trends.

It emerges quite clearly that youth unemployment, that is the 15 to 19 age bracket is an intransigent problem, as we· might have expected. .

Furthermore, there is alarming evidence of accelerating unemployment among the ranks of the relatively young. .


Between February 1976 and February 1979, there was a 46.8 percent increase in the number of unemployed between 15 and 19. ,

Unemployment among those aged from 20 to 24 increased by 64 percent, raising the alarming implication that youth unemployment is strongly entrenched and is extending over an ever increasing span. ' '

Unemployment for those aged between 25 and 34 also increased sharply during these three years by 56.3 percent.

In the next two age brackets which broadly constitute a middle- aged group, the increase for those aged between 35 and 44 was 33 percent, and for those aged between 45 and 54, it was 26.2 percent.

In the next age group of workers over 54 it rose steeply by 58.7 percent. . . .

I would draw two conclusions from these figures; both in aggregate terms and in terms of percentage increase.

The youth unemployment problem is as severe as we might have suspected, and there are unmistakeable signs that it is carrying over into the ranks of young workers in their 20’ . s and early 30’s. . .

There seems to be greater stability among the middle-aged workers, although aggregate numbers and the rate of increase are still much too high.

It should also be remembered that this will always remain a· problem area because of constricting opportunities for those displaced, even when unemployment is relatively low.

These problems, of course, are intensified for those in the over-54 age group, where unemployment is also increasing very rapidly.

There are other marked structural problems with unemployment which I. won’t elaborate here; the peculiar problems of unemployment in rural areas and lack.of opportunities for disadvantaged groups, such as migrants, married women and

aborigines. .

It is also plain that there are increasing bottlenecks in the workforce as manufacturing industry picks up and there . . are insufficient skilled workers to perform essential functions in Industry.

More people are now out of work in Australia than there were three years ago, and they are out of work for a longer period.

Three and a half years ago, the average term of unemployment was three and a half months. . '


Now it is almost six and a half months.

These indicators of unemployment, are drawn from the figures for registered unemployment.

They take no account of hidden unemployment, which the Melbourne Institute in its most recent publication has estimated at about 300,000 people, or about 5 percent of the workforce in 1978.

In policy terms, I would suggest three conclusions from this materials.

Firstly, it is important that training and re-training programs should be expanded and funds should be diverted to support them.

Secondly, it is important that there should be a much greater creation of jobs across a broad area of. economic activity by increasing Federal spending on capital works. .

And thirdly, it is important that there should be much greater attention to the stimulation of employment opportunities for youth. . .

With regard to training and re-training programs the policies of the' Fraser Government are thoroughly unsatisfactory. .

At a time when these programs should be expanding, the Government has acted to contract them.

There is clear evidence of this contraction, although the Government’s motivations and its future intentions remain "unclear.

-With the NEAT Scheme, trainees under the normal on-the-job provisions of NEAT fell by '26 percent between the end of January 1978 and the end of January this year.

The Government established a Special Youth Employment Training -Scheme, whose numbers have declined from a peak of around 39,000 at the end of August 1978 to just over 15,000 at the end of January this year. .

Mr Viner has offered a number- of technical reasons for these dramatic reductions, including the disengenuous explanation · that NEAT training reflects the state of the job market, because it is only offered where there is a reasonable chance of , employment when training ceases.

Presumably, the worse the job market gets, the fewer opportunites there will be under NEAT, so.that the vulnerability of the scheme to abuse has negated the efforts of firms which have made an honest effort to train young workers under the scheme. .

The number of training opportunities will decrease in inverse proportion to the need, a classic statement of Mr Fraser's . basic law of social welfare. . .


The so-called SYETP program has become just as much a disaster for the Government.

There is considerable evidence that its provisions have been abused by some employers who have displaced permanent xvorkers and filled their jobs with young workers under the scheme.

A scheme xrtiich was designed to create job opportunities for young workers, has produced the contrary effect of increasing unemployment among older workers, another stirring example of pragmatic Fraserism. .

The SYETP scheme has given an element of subsidy to firms that have exploited its provisions, although to be fair to,:the Government, it does not seem to have directly intended this result.

It is an example of incompetence rather than deliberate malice, directed at the unemployed.

To be fair also to the Government, it has sought to correct the rapid deterioration of its training and re-training programs.

Mr Viner on 28 April issued a press· statement expressing the . Government's concern and calling on employers to assist disadvantaged young people. . '

No doubt this will have an electrifying effect on youth unemployment;

There have been unconfirmed reports that the Government plans to merge its NEAT and SYEPT training programs with the TEAS allowance'for university students, thus producing a universal training-program. . '

'Such a lumping together- of three, clearly distinguished needs -­ tertiary education, training of young xvorkers, and re-training of older workers — would be irrational. .

It would be the antithesis of what is required to develop adequate training and re-training programs, and to give them the funding that they require.

The second -point I mentioned, xvas the direct creation of jobs in the building and construction industries by increased allocations for capital spending. .

Frequently over the past few months, I have outlined a program for the injection of an extra $450 million into capital works programs through the annual Budget.

In strict terms, this proposal was part of the Alternative Budget which I outlined for 1978-79. .


It is just as relevant to the forthcoming Budget and we will present it again as part of our strategy in response to the Government's fiscal policies.

I think it safe to predict with reasonable certainty at this stage that the Government will again neglect capital spending ■ and impose even tighter clamps on public sector outlays.

It is not possible to estimate with any precision the number of additional jobs that this additional capital spending would create. .

On the most accurate estimates that I can obtain from the building and construction industries, and from Government sources in Canberra, a rough rule of thumb holds that each

additional $54,000 of capital spending creates an extra five jobs — two directly in the building and construction industry; two from. -support industries, and another from extra consumption induced by the additional spending.

On this admittedly crude basis, it would be reasonable to expect the creation of around 40,000 jobs from a direct stimulus to capital spending.

The. third proposal I made was for direct Government action to absorb a substantial part of youth unemployment, that is, young school leavers in the 15 to 18 year age bracket who are still looking for their first job.

During the past six months, the Fraser Government has made an abortive- effort to establish a voluntary community service -program-f or.. such young workers. .

It sought" volunteers with charitable and other community service groups with no payment other than the -standard "unemployment benefit.

It raised the-threat of substituting volunteer labour for paid labour, with agencies which employed union labour, and service groups which had their own training programs showed no interest in it. .

At best, such a community scheme would have absorbed a meagre 5,000 or so young workers from the 158,000 who are now unemployed.

I am convinced that it would be possible to establish in Australia a community service corps on a voluntary basis for young workers.

A community service corps would get away from the dole mentality which pervades the outlook of the Fraser Government to any youth employment program.


What we would propose is that young workers who joined a community service corps of this sort would be paid a wage in line with junior wage scales acceptable to State Governments and to the unions.

It would not be possible to use the unemployment benefitras;a basis and supplement it with an additional payment.

I doubt whether this would be acceptable to either State Government or the unions., and certainly it would transgress I.L.O. principles and probably the letter of some I.L.O. conventions.

Payment of a wage according to accepted scales is central to the concept that I have in mind.

I stress again that the principles adopted with regard to . wage payments would have to be completely acceptable to State Governments, and the unions. . . ·

Turning to the sort of work that such a corps could do, there are any number of models which could be used. ,

There is- considerable OECD documentation of schemes that have been tried- around the world, flowing from a conference on youth unemployment held in 1977. ' · .

In particular,- there are a number of American federal schemes which recruit young workers for a variety of conservation and community projects.

One of these programs can trace its history back to Franklin Roosevelt's. new deal programs of the early 1930's — by Australian- standards a remarkable record of continuity for .a-federal assistance program.

Certainly there is no lack of projects in Australia which could be used-by a community service corps. ·

There is a tremendous range of national conservation projects, maintenance of national parks, water conservation projects, . * community development projects, whether through local government or community groups.

At the community level, the program could dovetail into the . job creation program through local initiatives, which my colleague Mick 'Young will outline to you at a later session.

I stress again that at this stage a community service corps is very much a concept that I have been mulling over in my mind.

It will be necessary to investigate all of its ramifications in considerable detail before refining it into a specific set of proposals. . ,


The work I have done so far has convinced me that it is a ■ feasible proposition and that it could be implemented without undue strain on the economy.

The costs involved would include wages and some provision for accommodation and transport allowances.

In these areas it might be possible to use facilities of the defence forces, which were either not in use or were under utilised. .

It would be the aim of such a program to keep administrative costs at a very low level; perhaps a ceiling of 10 percent . of total spending could be applied.

Where projects required supervision, it would be possible to recruit unemployed workers in older age groups who had been displaced from regular employment, although they possessed special skills. '

A substantial part of the cost of such a scheme would be offset by reduction in the payment of unemployment benefit.

Such a scheme requires a lot of additional work before any accurate costing could be provided.

I. am convinced that it would be possible to fund a program designed to provide jobs for up to 50,000 young workers within the admittedly' difficult:constraints of present fiscal policy.

This would provide jobs for about a third of young workers now on unemployment benefit. .

It is my intention to develop this proposal and to put a paper . on it to the Federal Caucus as soon as possible.

There is nothing radical about such a proposal, and I am sure, its principles would be acceptable to Australians from all political parties.

Similar schemes have worked successfully in other countries and there is. no reason why the Federal Government should not take the initiative and develop a community service corps program

for Australia.

I want to conclude by looking briefly at a controversial aspect of the unemployment challenge, one which I am sure will receive plenty- of attention in your discussions. .

This is the question of where lies the ultimate responsibility for the high levels of unemployment in Australia.

Is it a product of deficiency in the level of aggregate demand, or is it a factor of the level of real wages — the wage overhang argument? · . .


This is a controversy that has been waged with considerable vigor in the financial press and in academic journals.

Although I have not yet had time to absorb the material in the latest review of the Melbourne Institute, I remain convinced that unemployment is due to defective aggregate demand.

As a politician, this is an argument that I have to translate . into political terms. .

Day to day economic management is.a vastly differently exercise from the more cerebral examination of these issues which is familiar to academic economists.

I have tried to make it implicit in the preceding discussion about unemployment, and what might be done to mitigate its consequences, that I endorse an approach based on defective aggregate demand. .

The Government, Supported by the. Federal Treasury, adheres to the view that wage., increases have got out of step with productivity increases. .

They argue that unemployment can only be reduced by clamping down - hard.· on wages. . .

This argument has been resurrected once again for the present round.of national wage indexation hearings, despite the growth of evidence that wage overhang is not a significant factor.

The wage overhang argument depends on showing that if it applies to all workers, then it should apply also to specific groups of workers-xvhen the aggregate figures are broken up. ·

The facts show that it. does not, and I am indebted to Ken Davidson’s analysis in a recent article in the AGE for showing this. .

In particular, comparing the growth of overtime for men and women, and comparing, it with the number of jobs available for men and women, yields some interesting results.

Between 1972-73 and 1974-75, male employment rose by 2.2 percent, while female employment rose by 8.2 percent.

During the same period, female award wages rose by 75 percent and.male award wages by 52 percent.

In the period from 1974-75 to 1977-78, female awards continued to grow faster than male rates, yet male employment fell by 2.1 percent and female employment rose by 4.5 percent. ,

During the same period, award wage rates have increased by broadly similar amounts from State to State, yet there has been a marked variation in changes in the level of employment.


There are some contradictions in international experience of unemployment.

In Sweden, where there was a marked wages overhang between 1972 and 1976, there,was a decline in unemployment, while in the same period West Germany, with a .very low wage overhang,

experienced a sharp growth in unemployment. .

It seems to me that the wages overhang is much too simplistic an explanation for continuing high levels of unemployment.

In view of' the accumulation of hard evidence pointing to lack of demand, I find it unconvincing. .

The latest figures show that actual output is some 8 to 12 percent below its potential, and there is no logical way of attributing this shortfall to supply constraints. . .

The utilisation of capacity in manufacturing industry is now around 80· percent.

I have already stated the unemployment figures.

With regard to wages, the imposition of partial indexation has eroded" the-.-spending power of workers.

If a worker on average weekly earnings were to be restored to his relative after-tax position of. December 1975, he would have to get an extra $8.50 a week.

The last Budget re-inf.orced. this erosion of aggregate demand with a series of increases*in Government charges.

Most importantly, over the past three years the Government has persistently reduced public sector demand through its fiscal- policies.

Undoubtedly, the revival in farm income will give some impetus to demand, but I doubt that it will suffice to fill the vacuum . that deliberate Government policy has created.

Furthermore, there is clear evidence that this constriction < of demand has a most inequitable way.

The profitability of the corporate sector is at present very buoyant, and there is no doubt that this has been underwritten substantially by the squeeze on wages. .

The corporate sector has gained immensely in profitability because of the differential between partial and full indexation.

Profits are showing the benefit of higher productivity which has been encouraged by Government investment allowance and taxation policies. . ;


Coupled with lower wages, these factors have produced a cycle of fewer workers, higher productivity, higher profitability and higher investment.

Unless Government policy.provides a circuit breaker such a cycle can only lead to further erosion of aggregate demand and the relative status of the workforce.

""Employment in manufacturing industry reached a peak in 1974.

Since then it has fallen by some 300,000 or around 20 percent, although industrial output has fallen only marginally by around 2 per centj

This implies an annual increase in productivity of around 6 percent.

The Australian workforce is deriving no benefit from productivity, and because of the Government's failure to control inflation, the workforce will derive no benefit from its very substantial compliance with partial, indexation.

"Hopes that the sacrifice involved in relinquishing full indexation would bring reductions in the cost of living have been dashed by the recent CPI figures.

There is no doubt in my mind that continuation of present policies will.bring further reductions in the level of aggregate demand, and. this in turn will lead to' higher unemployment, whatever the incidence of wage overhang. · .

Most-of· my-remarks today have been directed to Government policies which are designed to overcome the impact of cyclical unemployment.

I -have“tried to suggest specific remedies for the creation of jobs to-absorb"present level of unemployment. .

There, is, of course, an even more urgent problem facing us in the medium, and longer term: the impact of structural change and rapid technological advance on job creation in future years.

These are issues which have been canvassed in considerable detail in the Crawford Report on structural change and the Williams Report on-education, training and employment. .

Your Conference has allocated specific sessions to the consideration of the issues raised by structural adjustment and technological change.

I do not propose to raise them in any detail here, but I do want to make some broad points about our attitude to them.

It would be wrong to pretend that we have absorbed all of the implications of these crucial — perhaps decisive — issues, . or that we have evolved policies to mitigate their impact.


There are some broad principles which have always dictated the formulation of Labor Party policy and which I feel can be re­ stated in the light of medium and longer term needs.

The first principle is that we have a duty not only to those who are now unemployed, but to those who will become unemployed in future years because of structural and technological changes. .

This reinforces the point I made in relation to cyclical ■unemployment: it is a matter of some urgency that xve stimulate aggregate demand so that overall growth rates are achieved that

are high enough to generate more jobs in the years ahead.

In short, we have to look at job creation, both in relation to immediate unemployment and in relation to future unemployment that will arise because of rapid change.

The second principle is that future policies will be formulated on the basis of a much greater level of Government intervention in economic activity than is tolerated today. ■

To put it bluntly, we cannot leave the direction of future economic development and creating more jobs to market forces.

It has been shown repeatedly over the past three and a half years that market forces cannot provide enough jobs even in the short term. . ■ .

How can market forces provide the levels of jobs that will:he needed in future years because of change?

In my comments .on cyclical unemployment I outlined some limited measures-for Government intervention to creat jobs immediately.

We will have to accustom ourselves to an even higher level of Government intervention to create, jobs over the next twenty or thirty' years. .

The private sector won’t be able to do it. .

The third .principle can be stated briefly: future levels of employment will depend very much on increased levels of public sector spending.

The Crawford Report has shown quite conclusively that it will not be possible to cope x^ith meeting the demand for jobs in the years ahead if the present policies of xvinding do’ wn the public sector are maintained or intensified..

The final principle is a summation of the three preceding principles accepting that market forces alone xtfill not create the jobs that are needed, that higher public sector spending is inevitable and that the Federal Government is responsible

for providing employment for future generations, then the threat the employment raised by structural and technological change will be met only by the imposition of effective Government planning.


The lesson of Australian economic development is inescapable we can’t leave the job to market forces.

Government will have to take the major role. .

Finally, thank you for your invitation to speak to you today

Your Conference has a major theme to consider.

I am. sure that your analysis will illuminate the causes and consequences of unemployment and will suggest some effective remedies for the policy makers. .