We now need a ‘JobCreator’ rather then just ‘JobSaver’

Oct 2, 2020

My choice of four spending initiatives for next week’s Budget are: hiring credits; permanently boosting JobSeeker; funding for high quality aged care; and social housing.

While COVID-19 imposed limits on economic activity in Australia, a ‘job saver’ policy mode was needed.  Now, however, with recovery well underway, the time is right for transition to a ‘job creator’ policy mode.

Government policy aimed at job creation can bring multiple benefits.  First, efficiency gains: Placing jobseekers who would not otherwise be employed into work reduces the long-term negative impact on their job readiness and skills.  Second, macroeconomic stimulus: Spending on job creation can increase the aggregate level of economic activity.  Third, distributional benefits:  Job creation undoes some of the uneven distribution of the labour market impact of a recession.

The question, of course, is what policies for job creation to choose.  The alternatives range from direct and immediate approaches – such as promoting job creation through hiring credit/wage subsidy programs or extra public sector jobs – to longer term ‘trickle’ down approaches such as institutional reform of the training and education system.  In between are policies which involve government seeking to stimulate employment by ‘buying’ final goods and services (such as large infrastructure projects); putting extra money into households’ pockets; or raising the returns to private sector activity (such as by cutting company tax rates).

My view is that the appropriate way to choose job creation policies is to acknowledge that there are multiple outcomes we would like those polices to achieve; and therefore to adopt a check-list approach to choosing between the policies – based on their impact on those outcomes.

My check-list of desirable outcomes would include three main categories:

  • Short-term impact on job creation;
  • Long-term impact on productivity; and
  • Impact on social good.

Judging a policy’s impact on job creation is mainly about the total amount of employment expected to be created per dollar of spending (over a specified time period).   But account should also be taken of the types of jobs created and types of jobseekers who will gain employment; the speed with which those jobs will be created (important to tailor the timing of job creation to the phase of stagnant economic activity); and the certainty of impact of a policy on employment creation.

Having a check-list brings an awareness of trade-offs.  Policies differ, for example, in their relative impacts on job creation and long-run productivity.  In our current situation, priority must be given to policies that do most for job creation – because it is job creation that will do most to increase national well-being.  There are also trade-offs in judging between the impacts of policies on short-term job creation – suggesting the value of adopting a portfolio of policies.  For example, to get the desired mix of jobseekers back into work, a combination of general job creation and job creation targeted at specific groups of jobseekers may be needed.  A portfolio approach can also play an insurance role where there is uncertainty about the employment impact of policies such as tax cuts.

In the recent National Economic Poll, my choice of four spending initiatives for next week’s Budget was: hiring credits; permanently boosting JobSeeker; funding for high quality aged care; and social housing.

These initiatives would be likely to have relatively large and immediate impacts on employment – compared to alternative policies.   But they are also chosen with the objectives of social good and long-term productivity in mind.  Hiring credits are a direct way to create extra jobs – and also, when targeted in the right way, can increase workforce productivity.  Boosting JobSeeker is the best way to create employment via putting extra money in households’ pockets because so much of that money will be spent; and it also increases the welfare of a disadvantaged group.  Aged care and social housing would increase employment of carers and tradies – and in a way that has maximum social benefit.

Many policies can be claimed to have the purpose of job creation.  What is important at present is to choose the policies that will be most effective in creating quickly and at least cost the amount and type of jobs needed – and to do that taking account of their broader consequences for social good and productivity.

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