More stick, less carrot for long-term unemployed

OPPOSITION leader Tony Abbott has floated the idea of removing eligibility for unemployment benefits for those aged under 30.

The proposition is that, in the context of labour shortages in parts of the country, unemployed people should be expected to relocate in order to take up a job.

The first thing to say is that this idea is not new.

There have always been elements of stick, as well as carrot, in the administration of unemployment benefits.

The stick has come in the form of an activity test; recipients must be able to demonstrate that they are looking for work, including attending job interviews.

Another requirement is that recipients must present themselves at a Centrelink office every fortnight, although it has recently been announced that this obligation will be relaxed.

Relocation incentives have also been part of the system from time to time, as well as other forms of assistance related to job training and the like.

Under existing arrangements, young recipients (up to the age of 25) are expected to "earn or learn". Allowances are paid only on the basis that recipients are working, training or in education, or some combination of these activities.

So Abbott's idea is actually an incremental extension of the status quo - which is widely seen as uncontroversial - but involves the requirement that recipients relocate in the event of unsuccessful job search locally. Relocation subsidies would, in all likelihood, form part of the package.

One of the objections that can be raised to this idea is that such a policy is unduly harsh, forcing individuals away from their families, friends and local communities.

But, of course, the idea of mutual obligation is just that, mutual. Recipients are expected to make an effort and adjust to gain work, in order to continue to receive unemployment benefits.

Exceptions can be made for cases where relocation would be unduly harsh, but it is important that these exceptions are not "gamed" by the recipients to the point where the policy has little effect.

So what is the evidence on the likely impact of additional requirements being placed on jobseekers in terms of their coming off benefits?

What seems to matter most is that additional requirements involve a strong signal to benefit recipients that staying on benefits will be made more difficult.

At this point, significant numbers will find a foothold in the labour market, assuming they are not already in some form of "cash economy" job.

For example, research has indicated that when jobseekers, after a period of unemployment, were required to attend a five days a week, fortnight-long course to learn job search skills, a significant number did not bother to turn up and became ineligible for unemployment benefits.

Either they had jobs and this imposition could not be accommodated, or the course looked so unattractive that securing employment was a better alternative.

This signalling effect may be more powerful in the case of Abbott's proposal than the actual requirement to move.

Rather than relocate, the unemployed may simply ramp up their job search activities and find work locally. After all, the overall rate of unemployment is only 5.3 per cent.

A further objection being raised is that the labour shortages are actually skill shortages, and most unemployed persons simply do not have the required skills.

But there is evidence of actual labour shortages and unskilled and semi-skilled jobs going begging.

Moreover, there is a message in this for the unemployed: they need to acquire the skills required in these booming sectors in order to share directly in the benefits. The shortage of rental accommodation and high rents in mining towns are also mentioned as reasons to reject the policy.

But if employers are truly short of workers, arrangements will be sorted out to make it worthwhile for potential workers to take up these jobs.

A final point that should be mentioned in this context is that Australia is one of the few developed economies that provides open-ended unemployment benefits, irrespective of the period of joblessness.

In most countries, earnings related unemployment benefits are time-limited, after which there is a sharp reduction in the assistance provided to the unemployed.

Not surprisingly, there is a significant fall in the numbers of benefit recipients around the time that the relatively generous benefits end. Moreover, requirements along the lines of mutual obligation are almost universal overseas.

So is Abbott's proposal worthy of further consideration and

debate? After all, relocation need not be permanent.

Many people move for employment and move again. If the alternative is ongoing dependence on taxpayer generosity, then the requirement that people move to obtain a job, subject to reasonable safeguards, is not unreasonable.

Judith Sloan is honorary professorial fellow at the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne.