Goodhart’s Law and the overlooked complexities in Australia’s employment services sector

Jan 16, 2024
unemployment concept, job search on internet, man at home looking for work Image: iStock/anyaberkut

Yesterday, I wrote that the Jevons Paradox is a good explanation for the problems of the National Disability Insurance Scheme (NDIS). Today, I look at another theory – Goodhart’s Law – to explain what is wrong with Australia’s $3 Billion a year employment services sector.

The recent Workforce Australia review labelled the system a failure. ‘Tell us something we don’t know,’ you might say. Well, something we don’t know is what Tony Burke, the Minister responsible, will offer even as a basic response to the report’s findings. Meanwhile, unemployed workers interpret this lack of response as a clear message that they will be stuck with this dog of a system for years. That’s just cruel.

A major flaw in Australia’s employment services is the fixation on Mutual Obligations, not that the review wanted to touch that. The best it could come up with is the tosh that Mutual Obligations is controversial. We’ll know that the Government knows it’s tosh if Tony Burke’s eventual comments include that phrase beloved by politicians when they’re being their shittiest: “I make no apologies…”

Yet, a deeper problem, completely overlooked in the review lies in the ongoing obsession with outcome-based funding. This model is so deeply ingrained in the psyche of the public sector that it is almost impossible to see – what could be wrong trying to make sure that public money is used in the best possible way, making every dollar count, and making sure that funded programs are effective and impactful?

Meet Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.”

Outcome-based funding, embraced since the late 20th century, marked a shift in government spending from input-focused methods to measurable outcomes. This shift led to an emphasis on quantifiable outcomes, often sidelining broader social goals, as described by Goodhart’s Law.

In contrast to the Jevons Paradox, described yesterday, where increased efficiency leads to greater usage, efficiency in Australia’s employment services has resulted in a focus on specific outcomes, particularly short-term job placements, often overlooking long-term employment objectives and the diverse needs of unemployed workers. This target-driven system restricts service scope, aiming to meet limited objectives. This is a case where efficiency and effectiveness cannot be conflated – they are, in fact, not even on speaking terms.

Goodhart’s Law critiques this system effectively. It shows how success indicators become ultimate goals, obscuring the real purpose of employment services. This results in a box-ticking routine, failing to meet the job market’s complexities and unemployed workers’ varied goals.

This focus on specific metrics creates a compliance culture, not genuine service delivery. Under target pressure, providers may choose quick, superficial job placements, compromising the services’ long-term benefits. Thus, the sector, trapped by Goodhart’s Law, sees its success measures become its downfall.

The Department of Employment, by prioritising shallow metrics, sustains this flawed system. They promote a culture valuing appearances over substance, diminishing the sector’s efficacy and ignoring the complexities of public resource management.

Addressing these issues requires rethinking policies and performance measures. If I were Tony Burke, it would also involve an almost complete clear out of the Department. While there has been some much-needed turnover, a lot more is needed still. A broader approach is also needed, valuing quality job matches and long-term prospects. This involves diversifying metrics to encompass unemployed worker welfare and sustainable employment, engaging stakeholders in success definition and evaluation, focusing on long-term outcomes, and establishing regular policy assessments.

What I am suggesting aligns with many of the review’s recommendations. However, the persistence of outcome-based funding in these suggestions casts doubt on the possibility of real change, suggesting a likely continuation of a system that values superficial metrics over comprehensive improvement.

Examining Australia’s employment services through Goodhart’s Law today and yesterday, the NDIS through the Jevons Paradox reveals a complex public policy landscape. These discussions underscore the need for nuanced policymaking. Avoiding narrow, target-focused pitfalls in employment services and understanding increased efficiency’s broader implications in the NDIS demonstrate that simple, quantitative methods are inadequate. The issues in both sectors highlight the need for comprehensive strategies that truly address the varied needs of public services and their beneficiaries.


Read part 1 of this two part series:

Unpacking the Jevons Paradox: how effectiveness gains in the NDIS lead to increased demand

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