More than half the people claiming unemployment allowances in Australia have been on benefits for more than a year. When we add the increasing number of unemployed people who are no longer counted in the statistics because they have transferred onto Disability Support Pension, we estimate Australia’s long-term unemployed population at something over 600,000.

Social policy intellectuals and welfare lobby groups argue that the solution to long-term unemployment can be found in ‘active labour market programmes’ (government jobs and training schemes) but these rarely work. What is needed to reduce unemployment is reform of the awards system, reduction of the minimum wage, looser workplace regulation, lower taxes and a reshaped income support system.

In addition, the particular problem of long-term unemployment should be tackled by introducing time limits on receipt of unemployment allowances. Almost all other OECD countries have time limits in one form or another. Time limits in the US are one reason why the incidence of long-term unemployment is so low in America.

It is proposed that the existing Newstart Allowance be renamed ‘Temporary Assistance for Jobseekers’ and that it be limited to six months duration. Anybody still requiring support after that time would transfer onto full-time Work for the Dole until they secure paid employment.

This change could reduce the incidence of long-term unemployment by 200,000. It could save around $2 billion of taxpayers’ money every year as well as improving the quality of life for those leaving welfare. The proposal appears to have widespread support among the Australian public.

Peter Saunders is Director of Social Policy Program and Kayoko Tsumori is a Policy Analyst at The Centre for Independent Studies. This is the latest in a series of papers outlining the case for reforms of taxation, welfare and labour market in order to reverse the trend to increasing welfare dependency. It follows ‘Help and Hassle: Do People on Welfare Really Want to Work’ featured in the current issue of POLICY (Winter 2003).