Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Joblessness and income inequality: has Australia taken the wrong turn?

By Fred Argy - posted Tuesday, 30 January 2007


Model 4 is favoured by the Scandinavian countries and some of the smaller Europeans (such as the Netherlands and Austria). It involves high taxes and redistribution on an even larger scale than group 3 - but the income support provided, while generous, is more work-conditional and employment protection laws are less strict than group 3 - although stricter than in groups 1 and 2 (or Australia).

Instead this model relies heavily on “active” social programs to enhance the productivity and mobility of low income people throughout their life cycle. For example, in addition to spending much more on education, governments in Denmark, Norway, Sweden and the Netherlands invest about four times more (relative to GDP) on active labour market programs - job placement, training, employment incentives, integration of disabled people, direct job creation and start-up incentives - than the English-speaking countries.

The policy works. Model 4 delivers low and stable levels of income inequality, high and rising levels of income mobility and very good productivity and employment outcomes. The Scandinavians also rank high in international competitiveness league tables.

Advertisement

The “best” mix of instruments?

The poor employment outcomes in much of continental Europe are partly due to rigid monetary policy but, one suspects, they are also due to excessive reliance on EPL. This suspicion is confirmed when one looks at Italy, Spain, Portugal, Turkey and Greece. These countries, which are not included in our tabular analysis, have very restrictive job-protection laws and deliver poor employment outcomes (as well, they are not generous with fiscal redistribution so they also produce poor distribution outcomes).

On the other hand, the success of model 4 suggests that high levels of redistribution are not per se incompatible with good economic and employment outcomes - provided the main redistribution method is fiscal rather than regulatory and the policy mix is liberally spiced with “active” government intervention to help people get jobs and improve mobility and work incentives.

Lessons for Australia

Australia’s policy mix of the last decade - liberal economic reform with moderate employment protection regulation and conditional income support for working age Australians - has been fairly close to that of model 2. And it has delivered similar employment and productivity outcomes but with somewhat less income inequality. With a record like this, Australia could have simply rested on its laurels. But reform is the name of the game. So we got the recent workplace and welfare reforms. These take us towards model 1 (indeed in terms of how we treat trade unions and how we reward welfare to work we now have harsher regimes than the Americans).

But the cross-country evidence above suggests that moving from model 2 to model 1 produces little economic benefit and considerable distributional pain. On the other hand, even a partial move from model 2 to model 4 offers more equality of opportunity without any national economic cost. Sweden, for example, has much less income inequality than Australia, as well as more generous sickness, parental and study leave arrangements, better education outcomes and, it appears, greater intra-generational social mobility. Yet over the last five years it has achieved much stronger productivity growth than Australia, as well as higher employment/population ratios (with fewer casual jobs), lower inflation and a substantial external account surplus (unlike our big deficits, despite booming commodity prices). Much the same can be said of the other Scandinavian countries.

Has Australia taken the wrong turn?

  1. Pages:
  2. 1
  3. Page 2
  4. All

First published on Club Troppo on January 23, 2006. It is republished as part of "Best Blogs of 2006" a feature in collaboration with Club Troppo, and edited by Ken Parish, Nicholas Gruen et al.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

13 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Fred Argy, a former high level policy adviser to several Federal governments, has written extensively on the interaction between social and economic issues. His three most recent papers are Equality of Opportunity in Australia (Australia Institute Discussion Paper no. 85, 2006); Employment Policy and Values (Public Policy volume 1, no. 2, 2006); and Distribution Effects of Labour Deregulation (AGENDA, volume 14, no. 2, 2007). He is currently a Visiting Fellow, ANU.

Other articles by this Author

All articles by Fred Argy
Related Links
Equality of opportunity in Australia: myth and reality: Fred Argy - The Australia Institute

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 13 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy