Reforming employment services

Dr Matthew Thomas, Social Policy

Key issue
The current contract for Australia’s public employment services system, jobactive, is due to expire in June 2020.
A recent independent review into jobactive identified a number of failings with the system.

Public employment services and labour market programs

Public employment services such as jobactive are the main executors of labour market policies and programs. Labour market programs take a number of different forms but typically consist of things such as job placement assistance, educational or vocational training schemes for the unemployed, wage subsidies, and direct job creation.

Arguably, the three main immediate aims of labour market programs are to:

discourage reliance on welfare by attaching job search requirements and other conditions to the receipt of income support
improve the efficiency of the labour market through enhanced job search activity to reduce frictional unemployment, and education and training to reduce structural unemployment and
improve equity by ensuring disadvantaged groups are able to take advantage of job opportunities.

To the extent that they achieve these aims, labour market programs are also likely to serve broader macroeconomic purposes such as decreasing unemployment, improving the short-term inflation–unemployment trade-off, and increasing the dynamic efficiency of the labour market.

In Australia, expenditure on labour market programs and the mix of these programs has fluctuated over time. This has been in line with economic conditions, changes in the unemployment rate, differing economic philosophies of governments, and varying understandings of the role of labour market programs and just what they can achieve.

In the early 1990s Australia went through a recession, with official unemployment rates at their highest levels in over 50 years. In response to a steep rise in youth unemployment Australian government expenditure on employment assistance was increased significantly from 0.21 per cent of GDP in 1990 to a high of 0.72 per cent of GDP in 1995. Following substantial cuts in 1996 and 1997 (to 0.54 and 0.42 per cent of GDP, respectively) spending on employment assistance programs has fluctuated from year to year but generally declined thereafter. As at 2016, expenditure on employment assistance was 0.24 per cent of GDP.

The most recent comparable data indicate that at 0.23 per cent of GDP, overall spending on employment services in Australia in 2015 was less than the OECD (Organisation for Economic Co-operation and Development) average (0.51 per cent) and equal ninth lowest of 33 OECD countries.

Effectiveness of labour market programs

There is a large and growing body of reliable evidence of the causal impacts of labour market programs—that is, whether or not they improve employment outcomes.

Based on a meta-analysis of recent labour market program evaluation literature which measures the impact of programs on the probability of job seekers gaining employment, David Card, Jochen Kluve and Andrea Weber found that a majority of programs ‘have relatively small effects in the short run (less than a year after the end of the program), but larger positive effects in the medium run (1–2 years post-program) and longer run (2+ years)’.

The time profile of post-program impacts was found to vary by type of labour market program. Job search assistance and sanction programs that emphasise a ‘work first’ approach had relatively large short-term impacts, on average. By contrast, training and private sector employment programs had smaller short-term impacts, but larger effects over the medium- to long-term. The program effects of job search assistance and sanction programs were found to be less enduring than those for training and private sector employment programs.

These findings are in line with expected outcomes. Training programs require job seekers to temporarily withdraw from the regular labour market (they have ‘lock-in’ effects), but tend to pay dividends in the longer term. By contrast, job search and sanctions programs are calculated to push job seekers into the labour market quickly, and involve little or no investment in job seeker employability.

The average impacts of programs were found to vary across groups of job seekers, with larger effects for females and long-term unemployed job seekers and smaller effects for younger job seekers and older workers.

Card, Kluve and Weber also found ‘suggestive evidence’ that certain types of labour market program worked better for some groups of job seekers than others. Job search assistance and sanctions programs ‘appeared to be relatively more successful for disadvantaged participants, whereas training and private sector employment subsidies tend to work better for the long term unemployed’.

Labour market conditions were found to have some impact on the relative effectiveness of programs, with programs generally having ‘larger impacts in periods of slow growth and higher unemployment’. Particular programs are likely to be more or less relevant and effective depending on the health of the economy and the resultant strength of labour demand.

Australia’s public employment services system

In 1998 Australia moved from a public job matching and case management service with contracted out labour market programs to a fully contracted out service, known as the Job Network. With the introduction of the Job Network the previous public labour exchange—the Commonwealth Employment Service (CES)—was abolished.

In undertaking this reform Australia was not only one of the first countries to contract out public employment services, but to date it is the only country that has outsourced the entire delivery of its publicly funded employment services.

The introduction of a more flexible and competition-based system of employment assistance was intended to both reduce costs and result in a better quality of services for job seekers.

While changes have been made to the system post-1998, the basic structure and administrative arrangements of the system remain essentially the same.

Problems with jobactive

In early 2018, in the lead-up to the expiry of the jobactive deed in 2020, and in the face of increasing criticisms of the system, the Australian Government appointed an independent Expert Advisory Panel to ‘help shape the future design of employment services in Australia’. The Panel’s report was provided to the Government on 15 October 2018.

The report found that Australia’s employment services system was not meeting the needs of many job seekers and employers, as outlined below.

A substantial number of job seekers are able to find work themselves, with limited or no employment service provider assistance. These job seekers are subject to compliance requirements that in many cases do not help and may actively hinder them in gaining employment. Other more disadvantaged job seekers are not receiving the intensive individualised support they need from providers who have high caseloads.

At the same time, the report found that very few employers are using the jobactive system, and many of those who do reported being inundated with inappropriate job applications as a result of the job search requirements placed on job seekers.

The report recommended that the employment services system be re-structured to focus on helping those job seekers who most need assistance.

To this end, it proposed that job seekers who are job-ready and digitally literate should no longer use the employment services provider network. Instead, these job seekers would self-service, using online employment services. The resources saved and employment services providers freed up through many job seekers self-servicing would then be dedicated to providing intensive, face-to-face services and support to disadvantaged job seekers.

To a large extent the failings of jobactive identified above stem from the logic that underpins the system.

‘Work first’

Australia’s employment services system is based on a ‘work first’ approach; that is, it has a strong focus on rapid placement in work at the expense of longer term investments in employability.

Employment services providers are encouraged by the way in which the system is structured—and, in particular, its outcome fee arrangements—to concentrate on strategies proven to deliver short-term results, rather than more speculative long-term investments. The system encourages providers to ‘pick winners’, assisting job seekers who are relatively job ready rather than devoting time and resources to job seekers who are less likely to realise an employment outcome.

One rationale behind a ‘work first’ approach is that low-paid, part-time or temporary jobs can serve as ‘stepping stones’ to better jobs. Advocates of the approach argue that it is better to place job seekers rapidly in whatever work is available than to encourage them to hold out for a good job. It should be noted that the ‘stepping stone’ effect is highly contested, and there is evidence to suggest that while it might work for some groups, it does not work for others. An alternative argument has it that workers can become trapped in the ‘secondary’ labour market (of low-paid, part-time or temporary jobs) and that a history of employment in this market may prevent a worker from moving into the ‘primary’ labour market and ‘good’ jobs.

In the past, employment assistance in Australia had a stronger focus on employability than under the current system. For example, many of the labour market programs delivered under the Working Nation initiative of the 1990s had a strong emphasis on education and vocational training. However, since the 2000s policymakers have placed a greater emphasis on low-cost, standardised job search measures and on managing the risk that the income support system reduces participation in paid work.

As noted above, while a ‘work first’ approach typically has a large short-term impact, programs that are focused on improving the human capital of disadvantaged job seekers through education and training tend to have longer run effects. Arguably, such programs are especially relevant in Australia’s current context of high levels of long-term unemployment and underemployment and a labour market in which the share of low-skilled jobs is gradually shrinking.

Recent developments

Before the 45th Parliament was prorogued, the Coalition Government made a commitment to implement many of the Expert Advisory Panel’s recommendations. Under the 2019–20 budget measure, New Employment Services—pilot and transitional arrangements, job-ready job seekers will be able to access employment services online, with savings realised through moving away from face-to-face delivery of employment services being redirected towards increased support for disadvantaged job seekers.

These arrangements are to be tested in Adelaide’s southern suburbs and on the NSW Mid-North Coast from 1 July 2019 to 30 June 2022 ahead of a national rollout. While the new arrangements are being tested, current jobactive contracts, which were due to expire in June of next year, will be extended until 30 June 2022. The Government was already trialling the online delivery of employment services, with funding having been allocated towards an Online Employment Services Trial as a part of the 2017–18 Budget and extended as a part of the 2018–19 Mid-Year Economic and Fiscal Outlook (MYEFO).

The 2019–20 Budget measure is anticipated to result in net efficiencies of $59.4 million over the forward estimates as a result of reduced expenditure for face-to-face servicing that would have been paid under the jobactive contract. The budget papers do not provide a breakdown of the amount to be reinvested in services for disadvantaged job seekers, they only provide details of the amount that is to be realised by the Government as savings.

In March 2019, Minister for Jobs and Industrial Relations, Kelly O’Dwyer announced that job seeker compliance arrangements would also be changed. The general requirement for job seekers to apply for 20 jobs per month is to be replaced with a new points-based system under which job seekers will have more choice in the employment-related activities they undertake.