Tony Abbott is having a horrendous run. He’s now more unpopular than Bill Shorten, who holds an 11 point lead in approval ratings, a reversal that is truly spectacular.
His big problem is a tough budget that broke promises.
One of the Government’s signature policies is to push young people into taking work. Their policy is called “earn or learn.” It will deny the Newstart (dole) payment to anyone under the age of 25; and people aged 25-30 will not be eligible for the dole in their first six months of unemployment.
”There is no right to demand from your fellow Australians that just because you don’t want to do a bread delivery or a taxi run or a stint as a farmhand that you should therefore be able to rely on your fellow Australian to subsidise you,” said Employment Minister Eric Abetz.
The rationale is to stir up resentment at the welfare state.
“The bludger should not be our national icon.” – Rupert Murdoch, (American citizen)
It’s an entirely political, dog-whistle ploy to make underpaid workers of Australia target their resentment at the unemployed, not the managers that dine with their own remuneration committees.
But doesn’t mean the policy intent is all bad. Here’s why the policy can do good for some people (caveats follow).
Long-run unemployment is one of the most damaging things that can happen to a person. It causes not just a fall in skills (human capital). It is associated with worse health outcomes, including mental health issues, falling life expectancy, higher chances of dropping out of the labour market, and their children’s school performance.
Long run unemployment is also bad for the economy. Hysteresis is now an accepted fact of macroeconomics. It describes the way long periods of high unemployment make the minimum achievable unemployment rate creep higher and higher. An economy that can match people into jobs swiftly increases the welfare of future workers.
Sure unemployment is bad. But people know that and want to get themselves a job. No?
Well, a new paper from the National Bureau of Economic Research shows that unemployed workers set a reservation wage that affects their willingness to take a job.
“workers are 24 percentage points more likely to accept an offer that is equal to or exceeds their reservation wage than to accept a job with a wage below the threshold.”
This fits with some excellent new research by Australian economist Justin Wolfers. He found arbitrary thresholds are a source of important irrationalities in human behaviour, and illustrated it with marathon finishing times.
Wolfers’ article focuses on how arbitrary thresholds could cause irrational investment behaviour, especially the case of people being unwilling to sell their house for less than they bought it for. But the analysis could as easily apply to reservation wages, which can be set with reference to what you used to earn.
If you refuse a job because if pays $5000 a year less than your old job, but then spend months more unemployed, you may well be worse off.
These pieces of research are part of the new behavioural economics that finds predictable irrationalities in human behaviours.
It is not uncommon for social outcomes to be improved with a “nudge” toward the more rational course of behaviour. Traditionally, of course, conservatives oppose these kind of nudges, preferring to let humans remain “free”, while liberals tend to endorse them. In the case of “earn or learn,” it is more of a shove then a nudge, and conservatives are more likely to be fans of it.
I don’t want to stand up for the exact policies that the Coalition has brought in. I think they are too blunt to have a net good effect. But the concept that the labour market will reach equilibrium without intervention is also likely wrong – unemployed people should be encouraged to not just search for, but take a job.
- Geographic moves should not be encouraged. It is not smart to make people move away from their social networks and supports. Humans are not only economic actors, and as discussed in these very pages, jobs are found through people as often as through job ads.
- The ABS covered, just this week, how much unpaid work is being done in the economy. It is estimated at 40 to 60 per cent of GDP. A focus on paid contributions could be said to be discriminatory against the people doing this work, often women.
- Are all jobs equal? Sex work is legal – should young men and women be forced to take jobs as prostitutes if they are unemployed? Should young people be forced to join the armed forces, do coal mining or be prison guards? Some jobs can be really dangerous to your reputation – for example, not everyone would want to be a member of parliament.