The fatal flaw in Australia’s social safety net, and how to fix it
Australia’s social safety net catches a lot of vulnerable people. There are, however, some crucial gaps in the safety net, where people fall through. The biggest gap exists in the coverage of ‘involuntary unemployed’ Australians. The current system fails to support individuals who are willing and able to work, but unable to find gainful employment. The system fails to support these individuals, because it pretends that these individuals do not exist. This failure to acknowledge and support involuntary unemployed Australians is one of the roots of poverty in Australia.
As an adult living in Australia, in order to lead a healthy life you must receive a regular income. The state provides some basic services like hospital care, but you still need money to buy housing, utilities, food, clothing, transport, medications, and leisure. There are some exceptions — for example those who enjoy support from an affluent partner or family member or those who inherit considerable assets that they can live off, but in general, everyone needs an income in order to live.
On average, as a single adult, you need at least $489 per week to stay above the ‘poverty line’, and in most circumstances you need double that to enjoy a decent life. Fortunately, there is a simple solution: Find a job. Minimum wage is $882.80 per week (before tax), so if you can find a full-time job, or something approximating a full-time job, you will probably be fine.
Obviously, if someone physically cannot work, but needs money to live, then the state should support them. Accordingly, the state pays a liveable income (≈ $500 per week) to people who cannot work a formal job due to old age, disability, or full-time caring responsibilities. Hardly anyone objects to this form of welfare. It aligns with our basic moral intuitions; obviously, you should not be left to starve just because you are too old, too disabled, or too busy caring for a sick family member.
During the COVID-19 pandemic, there was a new category of people who needed support — those who had lost their job/could not find a job due to Covid. Covid hit Australia in early 2020, and after a few months nearly a million new Australians were out of work. These people displaced by Covid were by all means willing and capable workers, but there just wasn’t enough work available for everyone. In light of this, the state stepped in and supported these individuals in the form of ‘job-keeper’ (≈ $750 per week) and ‘job-seeker’(≈ $500 per week) payments. The conservative LNP government conceded that if people couldn’t support themselves through “no fault of their own” (Frydenberg), then the state should support them.
In this moment, Australia established a clear moral stance on unemployment benefits: It doesn’t matter whether you are inhibited by disability, frail age, or a pandemic-induced economic crash; as long as you are suffering from involuntary unemployment, then you deserve support. Furthermore, the pandemic taught us an economic lesson — that willing and capable workers can face persistent involuntary unemployment when the market is not offering enough jobs to support everyone. Many of us were already familiar with this fact, but the pandemic made sure we all knew it.
Now, let’s turn to the problem at hand. In pre-Covid and post-Covid Australia, the welfare system “work[s] on the assumption that there [are] plenty of jobs for anyone capable of filling them” (Quiggin et al. 2020, p. 2). In other words, we assume that involuntary unemployment only afflicts those who are frail-aged, living with debilitating illness/disability, or say burdened by full-time caring responsibilities. For physically capable individuals, unemployment is “seen as reflecting personal defects,… unwillingness to work or, more charitably, a lack of particular skills needed for ‘job readiness’” (Quiggin et al. 2020, p.2). In accordance with this perspective, the government offers minimal support to physically capable, unemployed workers. These ‘job-seekers’ are paid $375 per week, well below the poverty line. After all, why should we support people who have the option to pull themselves up by their bootstraps and find a job?
The problem with this system is that even under normal economic conditions, there are factors beyond anyone’s (excluding power brokers in the Government and RBA) control that keep willing and capable workers unemployed. The biggest factor is the amount of jobs on offer. As noted , Australia’s welfare system “work[s] on the assumption that there [are] plenty of jobs for anyone capable of filling them” (Quiggin et al. 2020, p. 2). In other words, the welfare system assumes ‘full-employment conditions’, — where job vacancies roughly match the number of unemployed individuals (Quiggin et al., 2020). Contrary to the assumptions of the welfare system, Australia does not normally operate under full-employment conditions. The ratio of unemployed workers to job vacancies looks more like this:
There are several reasons as to why Australia’s economy does not permanently operate at full-employment. For a start, economic contractions like we saw during covid actually happen quite often, although they are not always as extreme. Broadly speaking, the economy operates in ~5–7 year business cycles — which involve periods of expansion followed by periods of contraction/or recession — where businesses lay off workers and cut down on hiring — such that even skilled and motivated workers face persistent unemployment. Australia has had 21 recessions in the last century and a half, — a pace of one recession every 7 years, and each time we see a spike in the ratio of unemployed workers to job-vacancies — which can take years to correct. It is moronic to encourage the unemployed to ‘pull themselves up by their bootstraps’ when firms are not hiring. Australia’s unemployment support system completely ignores the reality of these frequent contractions and recessions. Covid was the only recent exception where we recognised the economic downturn and the limits it imposed on jobseekers, and supported people accordingly.
Even when Australia’s economy is expanding, it is rarely operating at full-employment. From 1991 to 2019, Australia experienced a remarkable 27 consecutive years of positive GDP growth. Despite this, since the turn of the century, unemployment has fluctuated around 5–6%, never reaching below 4.2%. This is not because 5–6% of people are too lazy to work and would rather live in poverty. Rather, it is because the RBA conducts monetary policy in accordance with NAIRU — the Non-accelerating inflation rate of unemployment. The RBA purposefully aims for a level of unemployment of around 4-5%, under the assumption that this will keep headline inflation steady at 2–3%. Yes, you read that right. The RBA tries to keep unemployment around 4-5%. In the context of Australia’s monetary policy, we cannot possibly say that all willing and capable workers can find a job, even during economic expansions. If all everyone secured a job, then unemployment would be considered ‘too low’, and the RBA would increase rates to slow inflation — renewing the supply of unemployed workers. Our politicians simply ignore this reality. When asked about raising job-seeker payments, Scott Morrison responded: “The best form of welfare is a job … Our government will not rest until we get all of them into jobs, because that’s the pledge we made at the last election” (Morrison, 2019). This philosophy makes no sense in light of Australia’s monetary policy. Jobseekers are paid a poverty income on the assumption that they all have the option to get a job, yet our monetary policy ensures that they can’t all get a job.
Importantly, there is no reason to think that a tax-funded increase to job-seeker payments would compromise this 2–3% inflation goal.
Distribution of unemployment
There are particular groups of willing and capable workers who are more susceptible to prolonged unemployment. For example, workers who are relatively new to the workforce. Anglicare’s 2023 Job survey found that for every entry-level position in Australia there are 26 jobseekers (70% of which have been unemployed for over a year). Workers can also be disadvantaged by their location. In some parts of the country jobs are easy to come by. In other parts they are nearly impossible to come by.
One group who are particularly susceptible to involuntary unemployment are Indigenous Australians. This is largely because 18% of Indigenous Australians live in remote Australia, where there is a chronic undersupply of job vacancies. There is a straightforward historical explanation for this. Britain’s colonial frontier expanded into remote Australia during the late 19th and mid 20th centuries, where they expropriated Indigenous land for mining and pastoral activities, while targeting Indigenous populations with policies of ‘elimination’, then ‘assimilation’, and eventually ‘protection’ (Altman & Markham, 2019). This caused irreparable damage to previously self-sufficient Indigenous communities in these regions.
Recognising the minimal long-term economic opportunities on offer in remote Australia, colonists largely abandoned their economic endeavours in these areas of the country, leading to a chronic undersupply of capital investment that persists to this day. Due to the inability of remote Australia to attract capital investment, there is weak demand for labour, causing chronic high unemployment which disproportionately affects Indigenous Australians. When Covid caused caused weak demand for labour in big cities, we recognised that willing and capable workers were suffering unemployment through no fault of their own, and we had no qualms about paying these people enough money to stay out of poverty. For some reason, we withhold necessary support from remote Indigenous communities who are in the same situation.
Remember, most of us do not create jobs. We study, train, and develop skills, and then we go out into the world and hope that there are willing buyers for our labour. As I have demonstrated, due to the nature of our economic system, some of us will go through prolonged periods where we cannot find a willing buyer. None of us are responsible for the public infrastructure, resource allocation, and macroeconomic management that create a buoyant job market in our area, so it is unwise and unfair to withhold vital support from individuals who happen to inhabit markets with inadequate demand for their labour. Importantly, to care about this issue, you needn’t be committed to any particular conception of justice, you need only be committed to moral consistency. Currently, we enthusiastically support those who cannot support themselves due to disability, frail age, caring responsibilities, and pandemic-induced economic crashes. In order to be morally consistent, we must also support those who cannot support themselves because they can’t find a suitable buyer for their labour.
What should we do?
I have identified a problem: Australia’s unemployment benefits scheme operates under the false assumption that there are plenty of jobs available for anyone willing and capable of filling them. In reality, Australia’s economy is organised in such a way that at any point in time there are millions of willing and capable workers who cannot secure full-time work. These individuals are at a major risk of living in poverty, through no necessary fault of their own. The only support available to these people is a $375 per week ‘job-seeker’ payment that takes several months to kick in, and is subject to punitive conditionality. This is unacceptable. In order to be morally consistent, we should support job seekers in the same way that we support other ‘involuntary unemployed’ groups — like those inhibited by disability, frail age, or a pandemic-induced economic crash.
There are several policies we could implement to support job-seekers. The most straightforward policy is to raise the job-seeker payment to the level of the age/disability pension. This is well within the parameters of current federal budgeting, and notably less than the annual revenue cost of the Stage 3 tax cuts (Quiggin et al., 2020). Another option is to ditch NAIRU and implement a federal job guarantee. Another option is to have the state provide free essential goods and services like food, medical care, housing, utilities, transport, and so on, so individuals are not dependent on a wage for their subsistence. One way or another, we have a duty to fix this problem in our social welfare system. We are failing as a political community when we are spending money on nuclear submarines, football stadiums, and supercomputers, but not providing an opportunity for everyone to live a healthy life.
As noted above, the simplest measure to fix this problem is to raise job-seeker payments to the level of the age/disability pension. I want to briefly address a common retort to this policy proposal: Many argue that job-seekers should not be paid a liveable income, because this will discourage them from seeking out work. It is argued that if workers can live off their welfare benefits, they will purposefully avoid finding a job, so they can receive ‘income for doing nothing’ (NSW Liberals, 2023). Australians have a distinct pejorative word for these individuals — dole bludgers. This term was invented by Australian politicians in the 1970s to support Australia’s shift toward neoliberal economic policy. Talk about ‘dole bludgers’ became a political tool for stigmatising the unemployed, in order to justify and gain support for the erosion of the welfare state (Hutchens, 2021).
Those who are concerned that paying job-seekers a liveable income will remove their incentive to work are misguided in several ways. For a start, the practice of dole bulging assumes that there is gainful employment available that the welfare recipient is avoiding. As I have demonstrated, this is often not the case. Australia’s job-seekers have been paid crumbs for quite some time now, yet unemployment fluctuates around 5–6,% with the the average duration on JobSeeker growing over time. If withholding essential support from job-seekers encourages them to find work, why haven’t they all found gainful employment? Why is the opposite happening?
The truth is that job-seekers find work sooner if they are paid a liveable income as opposed to a poverty income. A 2020 Senate Inquiry into Jobseeker rates found that over half of job-seekers cannot afford basic essentials that they need to be competitive job applicants, and are ‘trapped’ in poverty (Commonwealth of Australia 2020). It turns out that if someone cannot afford a home, quality food, medications, transport, internet, and decent clothes, they will have a hard time trying to secure a job. The Committee recommended that Jobseeker payments be increased above the poverty line, so that job-seekers have the basic necessities they need to be competitive job applicants.
There have been no reputable, empirical studies to support the hypothesis that individuals who can survive off their welfare benefits lose a desire to work. Most individuals do not want to survive on a bare ‘liveable income’, when they stand to make twice that amount in minimum-wage full-time employment. Yes, a liveable income is enough to live on, but there are enormous marginal benefits on offer by transitioning to paid employment. Anyone who is interested in buying consumer goods, travelling, investing in a home, or basically anything beyond the bare essentials, is still incentivised to find paid employment.
If we paid job-seekers a liveable income, it is possible that some small number of job-seekers would live off their benefits paycheck to paycheck, and sit at home playing video-games all day. However, we should happily put up with these exceptional cases if it means we get to keep all the other sincere job-seekers out of poverty.
Even if it were somehow true that 5% of job-seekers will avoid finding a job in order to live on their subsistence income, then there is a simple solution: employers could offer more enticing wages, benefits, and working conditions to lure people into the work-force. I happen to think that individuals should not be forced into employment by the threat of poverty [this results in workers accepting exploitative contracts]; individuals should join the workforce because they are enticed by a mutually beneficial contract with an employer to trade their labour for a wage.
Note, if job-seekers were paid a liveable income, we would need to implement sensible effective marginal tax rates (EMTRs). EMTRs reflect the rate at which welfare payments decrease as market income increases, and vice versa. When EMTRs are high, the marginal benefit of increasing paid employment is minimal, which naturally disincentives work. We don’t want a situation where a job-seeker is offered a casual job which pays $300 per week, but taking on the job will lower their job-seeker payment by $300 per week. Similarly, we don’t want a situation where an underemployed worker is struggling on $400 per week, and notices that they can enjoy $500 per week if they withdraw from the work-force and apply for job-seeker instead. As per the recommendation of Quiggin et al. (2020), the tax and transfer system needs to be reformed so that EMTRs rise gradually in line with incomes, and ideally, not exceed 60%. This would incur extra cost, as some job-seekers who gradually transition into paid work would retain more benefits for longer, but eliminating poverty traps easily outweighs this cost.
References made to:
Altman, J. & Markham, F. (2019). Basic Income and Cultural Participation for Remote-Living Indigenous Australians. In E. Klein, F. Mays, & T. Dunlop, (Eds.), Implementing a Basic Income in Australia Pathways Forward (pp. 87–109). Palgrave Macmillan.
Commonwealth of Australia (2020). Adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support payments in Australia. Community Affairs References Committee. https://parlinfo.aph.gov.au/parlInfo/download/committees/reportsen/024323/toc_pdf/AdequacyofNewstartandrelatedpaymentsandalternativemechanismstodeterminethelevelofincomesupportpaymentsinAustralia.pdf;fileType=application%2Fpdf
Hutchens, G. (2021, May 29). The phrase “dole bludger” emerged in the 1970s, and it’s still serving its political purpose. ABC News. https://www.abc.net.au/news/2021-05-30/dole-bludger-emerged-in-the-1970s-to-serve-a-political-purpose/100174356
Morrison, S. (2019). Questions without notice: Newstart Allowance. Parliament of Australia. https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;db=CHAMBER;id=chamber%2Fhansardr%2F4e9130e2-015a-43dd-b3ba-).
NSW Liberals. (2023, July 31). Incentivising jobseekers to enter the workforce. Liberal Party New South Wales. https://nswliberal.org.au/news/incentivising-jobseekers-to-enter-the-workforce
Quiggin, J., Klein, E., Dunlop, T., Henderson, T., & Goodall, J. (2020). Liveable income guarantee. [Briefing Paper]. Tax and Transfer Policy Institute. https://apo.org.au/node/308260
