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Unemployment should no longer be tolerated: there is an easy solution

By William Mitchell and John Burgess - posted Friday, 15 October 1999

Unemployment remains one of the most apparent forms of social and economic exclusion in our community. Without a job you are dependent on transfers and savings to survive. You are also stigmatised and you are also likely to be located in poverty and you are more likely to be subject to health, family break-up and other social problems. Furthermore, you are likely to be subject to human rights abuse under the new regime of reciprocal obligation. The unemployed have few rights, indeed they are a group who can be easily stereotyped and condemned by anecdote.

While the government is sanguine about its unemployment record (the drop in official rates from 8.5 to 7 per cent) and its policy program (the privatisation of employment placement, the work for the dole program), the reality is that there has only been an illusory improvement. We still have over 600 thousand officially unemployed persons. In addition there are the underemployed part-time workers and the hidden unemployed (another 500,000). Over a million persons who would like either the opportunity to work or the opportunity to work additional hours. Existing job vacancies are around one tenth of the officially estimated unemployment numbers. Even if all job vacancies were filled by the unemployed tomorrow, there would still be over half a million officially unemployed. In addition to this the bulk of the new jobs created in the economy, around 75 per cent, are either part-time and/or casual. These jobs are often very precarious in terms of their tenure, rights and remuneration. The predictable result is an ever-widening polarisation of the earnings of those with jobs.

There are not enough jobs to meet the aspirations of those who want work. The government pretends that there are jobs and it is a matter of attitudinal modification on behalf of the unemployed. Those jobs that are available are often insecure, associated with very low pay or with insufficient hours to generate an income that can sustain basic living standards.


So what can be done about this situation? It is time that the government resumed an active involvement as an employer in the labour market. The economies that avoided the plunge into high unemployment over the last 20 years maintained a sector of the economy which effectively functions as an employer of the last resort, which continuously takes up the slack created by the private sector. In other written work, Mitchell (1998) has called this absorption function the Buffer Stock Employment (BSE) model.

Accordingly, the government would act as a buffer stock employer and continuously absorb workers displaced from the private sector. The 'buffer stock' employees would be paid the award minimum wage, which provides a wage floor for the economy. The BSE proposal would automatically increase government employment and spending as jobs were lost in the private sector, and decrease government jobs and spending as the private sector expanded.

Where would the work be? Work is often associated with the jobs that profit seeking private firms offer in return for wages, but if income is only linked to this narrow concept of work, many of the working age population will remain unemployed. The BSE model provides an ideal solution to both the current unemployment problem and the future need to extend the range of employment activities that society deems to be worthy of reward by income.

Numerous service jobs could provide immediate benefits to the society, when filled by BSE workers. These include urban renewal projects and other environmental and construction schemes (reforestation, sand dune stabilisation, river valley erosion control and the like), personal assistance to pensioners, assistance in community sports schemes, and many more.

The BSE approach would constitute the single most effective means of increasing living standards, reducing inequality and generating fiscal dividends. Our proposal would not drain the fiscal surplus, and indeed could even boost it. It is probably the single most microeconomic reform that could be undertaken in Australia and it makes all the other so called microeconomic reforms pall into insignificance in terms of contributing to GDP.

The critics focus on the cost of the scheme and focus on the short-term rise in the budget deficit. Three recent studies estimate the costs of such schemes in the United Kingdom, the United States, and Australia, respectively - Gordon 1997 for the United States; Kitson et al. 1997 for the UK; and Mitchell and Watts 1997 for Australia. All three studies produced estimates that lie in the range of 0.06 percent (United States) to 3.5 percent (Australia) of current GDP. The costs are overstated because they ignore the multiplier effects from the rising incomes of buffer stock workers. More detailed cost analysis can be found in the above references. The conclusion from all studies is that the BSE proposal is a very cheap option compared to the Okun gap losses that are incurred daily due to unemployment. High unemployment also places increased costs on the health system and is associated with increased family breakdown and higher crime rates.


Moreover, Gordon (1997) concludes that: "Beyond this, there is an important sense in which the job guarantee program would not cost anything. The goods or services produced by the labour of the beneficiary of the job guarantee increase the gross national product and the national welfare by as much as the worker is paid as reliably as does any 'free market' labour. The labourer is 'earning' the wage or salary received. Also, and importantly, the worker under the job guarantee program has a job of which the worker can be as proud as are other citizens with their jobs."

In short, it is difficult to see how in the wider scope of human rights and equality of opportunities how we cannot afford to implement the BSE scheme.

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About the Authors

William F. Mitchell is Professor of Economics and Head of Department and Director, Centre of Full Employment and Equity research University of Newcastle New South Wales.

Dr John Burgess is a Senior Lecturer in the Department of Economics, University of Newcastle.

Other articles by these Authors

All articles by William Mitchell
All articles by John Burgess
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Centre of Full Employment and Equity
University of Newcastle
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