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Recessions and employment. Disappointments of the Boom.

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Presentation on theme: "Recessions and employment. Disappointments of the Boom."— Presentation transcript:

1 Recessions and employment

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5 Disappointments of the Boom

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16 Policy induced substitution

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31 So what are the bottom lines? Shouldn’t we be spending more time thinking about what is going on in this twenty years? The state is paying for only about half of the reduction of full time work? When are we talking about when we say we all need to work harder because the population is ageing? Time off

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33 Few of my male friends have taken twenty years off? So many men somewhere must be taking more than twenty Why are we focusing on adding two years to retirement age over the next fifteen or so years? Absolutely trivial. What is all this part time work about? Not a recession response!

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37 Table 1 Appeared as PPS in with youngest child 13 to less than 16 What welfare payment do they access after PPS? NumberPercent One PPS Only9710 PPS and NIS*15516 PPS and at least one spell on UB40543 PPS and at least one spell on DSP687 PPS and at least one spell on UB and DSP13715 PPS and at least one spell on Other IS*798 Total * NIS is family payment or LIC ** Other IS is AP, Carer, Sickness and Widow

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52 Some Notes on DSP Duration Take males on DSP at August 1996, aged between 20 and 53 years Remember this is not inflow so they were on DSP before 1996 Average age in 1996 is 42 years How long are they on DSP over the next 11 years?

53 70 per cent are there for more than 10.9 of the eleven years Average stay about 10 years The average age is now 53 so on average another 12 years to go before the age pension Why is disability so permanent? Will denying access make a difference Note that the age group chosen for this analysis says this is not really a pre-retirement group There were 160,000 males in the DSP group

54 NewStart males selected at August 1996 There are 461,000 Average age 30 years Remember the sample is the stock so they could have been there since 1990? 30 per cent, 138,000 spend more than five of the next eleven years on NewStart – some may have gone to another program

55 Where are the interesting forcasting and policy reform pressure pointsThe dominant role of the male labour market. The importance of employment growth asymmetry over the cycle. The long duration of Income Support Program substitution –The leakage from unemployment benefits to disability payments. –Policy Induced substitution in female income support

56 The startling changes in the world economic outlook The amazing Policy Responses Confusion about some of the things we do and do not know about policy impacts

57 The focus is on two and a half million people of work force age who now receive welfare payments for their livelihood. Welfare recipients as a ratio of those employed, –1970, one in fourteen –Today, one in four –There has been a four fold increase –Tomorrow one in three? I am not discussing family payments The focus is on those of workforce age

58 So where are we at with respect to income support?

59 Complete failure of programs or the economic recovery to make significant inroads into this long term group Why is there such a high failure rate to meet needs of the long term people? Perhaps the best we can do? Australia really needs a systematic academic program of work on these programs – public service too close to politicians to be adequate researchers in this area (not public servants fault – just the way the world works). Note that most Newstart long term stayers have left Nestart for some short periods – jobs? breachs? training programs. Add male DSP and Newstart then 35 per cent of the 1996 stock of Income Support Recipients spend ten of the next eleven years on income support – 230,000 males

60 How the male welfare market operates The importance of disability payments and their relationship to unemployment And the recent declines in welfare numbers

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65 Two examples of program substitution

66 The Long duration when you take multiple spells into account

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68 Remember 461,000 NewStart Males at August 1996 At June 2007, eleven years later, at the peak of the boom 147,000 are receiving income support, approximately 32 per cent of the 1996 group Of which just over half are DSP - 83,000

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70 Remember 461,000 NewStart Males at August 1996 At June 2007, eleven years later, at the peak of the boom 147,000 are receiving income support, approximately 32 per cent of the 1996 group Of which just over half are DSP - 83,000

71 Remember 461,000 NewStart Males at August 1996 At June 2007, eleven years later, at the peak of the boom 147,000 are receiving income support, approximately 32 per cent of the 1996 group Of which just over half are DSP - 83,000

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73 »The End

74 The Questions What has been the role of the labour market in producing this large increase? Why was the recent economic boom not more effective in reducing welfare numbers? What is likely to happen over the next few years? What might governments do?

75 Key issues from the macro history The long slide and the role of attitudes to work and income? Where are we trying to get back to in terms of the employment/welfare mix. Is there a full employment level of welfare? This question is important and has never been addressed!!! The emloyment growth non-symmetry of the recessions. No clear theory of this behaviour either. The employment weakness of the recent boom.

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77 The Female Story

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79 Employment weakness of the recent boom

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82 Where is the economy going? Stress again the importance of the male labour market as an explanation of welfare incidence Remind you of the original two pictures

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84 The Recession What is different this time around? Recession is not government induced in response to inflation Special sort of monetary squeeze quite different from other recessions World wide – globalization has tied us all closer together - so all affected Recession being sold as the worst since the 1930s Australia was about to have a mild recession perhaps but now largely out of our hands

85 Some Forecasting Information or more accurately Forecasting Fun

86 Australian labour market forecasts seem wrong? Employment falls appear trivial for a major recession and trivial for the output forecasts Unemployment forecasts appear too low We are putting a great deal of weight on the stimulus packages and the initial state of the economy – banking and building- to avoid a serious downturn.

87 Now suppose we go through a 1991 recession or something similar, but a little milder, what might the welfare state look like The following is a very rough projection primarily to focus our minds on the issues This is an underestimate because there is no population adjustment This is an overestimate because the recession unlikely to be as bad as 1991 and a slightly more stringent different welfare regime in place

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89 The Fifty Year History and Changing Role of Income Support The role of the labour market Increasing program substitution Increasing duration

90 Role of recent policy changes Piecemeal tightening in a fairly benign environment –Remove the young –Lengthen the starting period –Reduce the income support of individuals relative to wages –Reduce the income support of partners in terms of access –Tighten disability access –Tighten lone parent payment access

91 Policy working and effectiveness was accelerating but very slow impact and very reliant and labour market growth continuing. What about the future labour market? Some simple labour dynamics of a recession

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93 Women’s Income Support not directly related to the women’s labour market Women’s welfare uptake primarily related to the male labour market Women’s income support the outcome of caring and partnering (or not partnering, PPS) with male income support recipients.

94 Program substitution in the welfare system Disability Pensions Carer Pensions Partnering payments

95 Men have offset tightening mutual obligations by going on to DSP. Increase in retirement age of women and substitution to DSP Changes in welfare entitlements for partners and substitution to Carer payments and DSP Perhaps program substitution will become more difficult, not easy to make a judgement

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97 Income Support Duration is long and probably becoming longer

98 Income support is long and probably becoming longer In most programs the duration length is interrupted by program substitution or temporary exits

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101 Some Policy Issues Is a two tier system a good idea? How much further should we go in terms of the income gap between the tiers? Should we move to three tiers – allowances, work force age pensions, age pension? How should we deliver an increase in the age pension? Reducing EMTR’s Were PPS and DSP changes worthwhile? Employment subsidies (EITC) Duration limits (extending PPS reforms?)

102 I. Why have welfare numbers not fallen more?

103 [a] Program substitution has offset policy initiatives

104 [b] In real terms allowances and pensions not fallen

105 [C] Demand has not impacted much because of the nature of the current boom Employment growth is still biased against full time employment of the unskilled

106 2. The widening income gap between the Two Tiers- allowances and pensions Should the current policy of widening the income gap between allowances and pensions and forcing more people onto low paying allowances be continued

107 I will begin with a fifty year history of the welfare system, emphasizing the initial design features of the pre 1975 system Then move on to how the system has changed over the years, focusing on its current design and how it operates Lastly I offer comments on current policy issues

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110 Was the PPS reform a good one? Was the DSP reform a good one?

111 Implications of increasing the base rate of age pensions The gap between PPS (youngest child under 6) and old PPS (youngest child over six) will increase The gap between new DSP (15 hours) and old disability hours will increase Should the pension category be split into two one for those of workforce age and one for the age pension

112 Radical Policies for Reducing welfare numbers that are beyond the pale Employment subsidies – earned income tax credits Minimum wage/allowance inter relationships

113 The End

114 A quick summary –Male labour market has been the key issue –Women being forced into the labour market and being treated less like a family welfare system but women resisting with program substitution –What will be the implications of the coming recession for change in the welfare system –Relationship between income support for those of working age and those retired

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116 Proposition two There is a grossly inadequate understanding of the welfare system as a whole. Policy not sufficiently aware of program substitution. Individuals move around different programs according to their stage of life and the conditions attached to each payment Welfare is best thought of as a near permanent state for most individuals rather than a temporary state

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