Part 2: Expanding Low-skilled Employment

• One reason working-age welfare dependency remains high is that the demand for unskilled labour is in decline. Part 1 of this CIS Issue Analysis showed that more education and training will be of limited help to jobless people who do not have the ability to perform highly skilled tasks. What they need is an expansion in the number of lower-skilled jobs for them to do.
• No single policy can expand low-skilled employment. Simultaneous action is needed on four fronts: (1) reducing the cost of unskilled labour to employers, (2) making employment more attractive than welfare, (3) boosting new personal service employment, and (4) improving people’s social skills and competences.
• Cutting minimum wages best reduces the cost of unskilled labour. Australia has the second‑highest minimum wage in the OECD, yet our tax and benefits systems mean our lowest-paid workers take home less than in some countries with a lower minimum wage. A 20% reduction in our minimum wage could generate another 100,000 jobs but would still leave our minimum wage comparable with that of countries such as New Zealand and the UK, and tax changes could compensate workers for the cut. No household should pay tax until its earnings exceed the welfare minimum.
• Further reforms to welfare benefits are needed to discourage dependency. While some welfare groups want to weaken or abandon work requirements for disadvantaged jobseekers, the opposite is necessary: work requirements should be extended to more categories of welfare recipients.
• This entails changing Parenting Payment eligibility rules, applying new capacity criteria to existing DSP claimants, ending unemployment benefits for school leavers, and replacing the first six months of unemployment benefits with drawings from personal savings accounts.
• The main area of potential employment growth for low-skilled workers is in personal services, for these jobs are not easily automated or exported. If minimum wages fell, service employment would expand. The paper explores the potential for increased employment in home-based services for the elderly, child care for working parents, mentoring for children in poorer neighbourhoods, and other community-based services.
• Personal services employment requires ‘social skills’ such as reliability, honesty, politeness, and a smart appearance. Lack of these qualities (rather than any lack of technical or vocational skills) may prove the biggest obstacle to people on welfare finding employment, particularly young males. Schools have a key role in raising social skills, and conditional welfare is important to reinforce shared norms. School leavers who cannot find work or training should be offered a place in the military or in a new Peace Corps that could also help inculcate a stronger sense of social responsibility.

Professor Peter Saunders is the Social Research Director of The Centre for Independent Studies, and the author of Australia’s Welfare Habit, and How to Kick It.