Issue of High Unemployment Rates in Australia

Indigenous unemployment rates in Australia are too high

1.0   Introduction

In 2016, Aboriginals comprised an estimated 3.3% of the Australian population with 20.6% of this group unemployed in comparison to 5.7% of Caucasian Australians (ABS, 2016). Whilst Indigenous Australians only constitute a small portion of the population, their cultural significance to this country exacerbates the gravity of their plight; these high levels of unemployment combined with only 55% of them engaged in the workforce at all is an issue that must be addressed (Australian Institute of Health and Welfare , 2017). This problem is even more egregious in rural areas with Aboriginals 1.4 times more likely to be unemployed in comparison to Indigenous people residing in the city (Australian Institute of Aboriginal Studies , 2018). As seen in Figure 1, Aboriginal unemployment has hovered around 20%, slightly increasing from 19.9% in 2011 to 22.1% in 2014 then slightly decreasing back to 20.6% in 2016. As evident from Figure 1, this problem is not being remedied and the current discretionary fiscal policy implemented by the government, allocating approximately $30 billion a year in the budget towards Indigenous Australians, is doing little to curb it (The Conversation : Factcheck Q&A, 2016).

Figure 1 – Indigenous Unemployment Rate Australia (2011-2016) (ABS, 2016)

This report will investigate the cause and effects of Australia’s Indigenous unemployment epidemic and evaluate two solutions using the criteria of costs and benefits.

1.1 Causes of the Issue

Indigenous unemployment is complex in nature and caused by a plethora of individual, cultural and socio-economic factors. Education outcomes are a key determinant of employment; an Indigenous Australian with a degree has an employment probability of 81%, dropping to 43% if they fail to complete year 12 (Australian National University Research Department , 2018). With only 47% of Aboriginal persons aged 20 to 26 reporting that they have completed year 12, Indigenous Australians are at an inherent disadvantage from the outset (Creative Spirits , 2019). This high dropout rate coupled with their subsequent disengagement with the workforce may be attributed to the rampant discrimination endured by Aboriginals in both the workplace and classroom with 37% of Indigenous reporting they have experienced some form of expressed prejudice in the last 6 months (The Conversation , 2016). Furthermore, with 40% of Aboriginals residing in rural communities, such regions with single sector industries are most vulnerable to both structural and cyclical changes that can reduce the viability of those industries and hence employment (RuralHealth.org, 2019). For many rural towns, the dominant industries are agriculture and tourism, both of which can be subject to variable seasonal influences and experience 63% higher rates of seasonal unemployment than major cities (National Rural Health Alliance Inc, 2016). In addition, with fewer opportunities for educated workers, the motivation of students to strive for better education is reduced, lowering the perceived relevance of education in rural and remote areas (Stokes, 2016).

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1.1.1 – Demand and Supply

Because Aboriginals comprise a small percentage of the population, a D+S curve is used to display a cause of unemployment. Figure 3 demonstrates how the substandard education levels of Aboriginals affect the market for Indigenous workers in white-collar jobs. Both Indigenous and non-Indigenous workers have similar employment chances in blue-collar jobs, however, the real inequity lies in Aboriginal’s lack of secondary and tertiary qualifications. With non-Indigenous workers on average more educated and qualified, a decrease in the demand of Indigenous workers will be prevalent as the substitute (non-Indigenous) worker is more appealing to the consumer (companies) by on average 59% (Australian National University Research Department , 2018). This will cause a shift in the demand curve to the left. At their original wage (P1), the quantity demanded is less than the quantity supplied, resulting in a surplus of Indigenous workers, lowering their wage to P2. This is reflected in their median wage per person of $564 in comparison to the average Australians of $739 (ABS Quick Stats, 2016). At the lower wage (P2) less Indigenous will be hired, causing a contraction in supply. The result is a new lower equilibrium wage (P2) and quantity (Q2) at ME2. This reduction in demand for Indigenous workers pushes them into manual labouring industries such as manufacturing. Yet with contemporary technological advancements, these industries are evolving and becoming automated, further increasing the redundancy of Aboriginal workers, leading to an increase in structural unemployment for said demographic.

Figure 3 – Demand and Supply for Market for Indigenous Workers

1.2 Effects of the Issue

Numerous immediate and long-term effects of Indigenous unemployment are prevalent, impacting Aboriginals, government and society as a whole. In the short term, as a result of higher rates of unemployment, Indigenous people are financially challenged, both having less disposable income and in comparison to a non-Indigenous citizen are half as likely to own their own home (Australian Institute of Health and Welfare , 2017). Furthermore, this prolonged economic hardship can result in mental illnesses in the long term; Aboriginal people who were unemployed experienced higher rates of psychological distress (42%) in comparison to those who were employed (22%) (Australian Indigenous HealthInfoNet, 2019). As a coping mechanism and means of alleviating such financial burden, Indigenous persons often resort to crime. As seen in Figure 3, this is reflected in the percent of the prison population that is Indigenous, gradually rising from 26% in 2013 to 29.5% in 2018. In response, the government allocates money to support them financially. With the total direct expenditure on services for Aboriginal people comprising 6.1% of total government expenditure, other investments and alternative sectors’ funding is being cut and reallocated in order to achieve an equitable distribution of income and wealth (The Conversation : Factcheck Q&A, 2016).

Percent of Prison Population that are Indigenous (2013-2018)

1.2.1 – Circular Flow Model

With high levels of Indigenous unemployment, an array of effects is prevalent on the CFM. Indigenous households now provide less FOP’s hence lowering the production sectors output. With less Aboriginals (household sector) on a wage, their income will decrease (Y), further decreasing their consumer confidence and purchasing power. As a result of their reduction in discretionary income, CE will decrease. In turn, with Indigenous people earning less, their savings (S) will also decrease. Furthermore, higher unemployment rates indicate that there is spare capacity and hence the government will be receiving less from tax receipts (T) and having to invest more in welfare benefits (GE) to support those unemployed. Whilst this added government expenditure is an injection, it must come from either an increase in taxes or redistribution of fiscal spending, harming the individual or Australia respectively. These changes in the sectors will lead to both more Indigenous on the dole and a lower median income for Aboriginals as a group, hence widening the already existing inequity. Assuming ceteris Paribus, overall the leakages are larger than injections, causing the CFM to contract.

Productivity

Output

 FOP’s

 CC 

CE

 S 

GE(Social Securities)

 Government receiving less tax receipts 

Figure 4 – The circular flow model showing sectors and flows impacted by Indigenous unemployment in Australia

2.0 – Proposed Solutions to the Issue

In light of this, two solutions are proposed to reduce Indigenous unemployment in Australia.

The first solution is an extension of the Australian Government’s Aboriginal wage subsidy scheme, implemented as of 1 July 2015, designed to encourage employers to hire eligible Indigenous workers by contributing to the initial costs of hiring a new employee (Indigenous Wage Subsidy for Aboriginal Job Seekers , 2019). It keeps the same structure of the scheme, just increasing the amount Aboriginals are eligible to receive and making to more easily accessible Indigenous Australians.

The alternative option is a redistribution of fiscal spending within the budget, increasing the money allocated to support predominately Indigenous schools (such schools are almost exclusively in more rural areas) (Australian Government Department of Education and Training , 2019)

Identify what type- discretionary fiscal etc

Improve it more

2.1 – Criteria

These solutions will be evaluated against the criteria weighted as follows: effectiveness, benefits and costs. This plight is one of Australia’s greatest current source of inequity and is only worsening. The current solutions aren’t having the desired effect, hence another course of action must be taken. With the solutions first being evaluated based on a reduction of unemployment and benefits over the costs of it, the most effective solution has a higher chance of being selected. The government is already injecting billions of dollars into assisting the Indigenous and hence costs are less of an issue.

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2.2 – Proposed solution that is most effective in reducing unemployment

With successful precedent of wage subsidy schemes already existing, a 2017 study conducted by the Australian Government Behavioural Insights team in 2017 polled a sample of 5473 employers nationwide on the question “do you find wage subsidies attractive” with 94% agreeing with the statement (Australian Government Department of Jobs- Behavioural Insights Team , 2017). This is corroborated by an Australian JobActive study that found that if you are a part of a disadvantaged demographic and take advantage of a wage subsidy, a 32% increase in employment chances is seen (JobActive, 2018). Furthermore, as asserted by the Minister of Aboriginal Affairs, Nigel Scullion, with an immediate influx of Aboriginals into the workforce, “we will become more culturally accepting and less discriminatory which will further incentivize them [Aboriginals] to engage with the workforce (Scullion, 2017). In addition, this will also have a long term benefit of employers becoming more tolerant regarding circumstances such as cultural leave days therefore more likely to hire Indigenous Australians (The Parliament of the Commonwealth of Australia (APH) report , 2016).

In contrast, increasing funding to Indigenous schools will increase their resources, allowing more students to graduate year 12 in a current job market where “earning a high school diploma is more or less required” (The Conversation , 2017). With a more educated generation of Indigenous students, alongside being more enticing to employers already, they will better realise the importance of work and actively seek out employment and upskilling opportunities (Creative Spirits , 2019). Furthermore with it being 2.7 times more likely that if an Aboriginal parent is educated, their child will receive employment, a long-term effect of this is increasing intergenerational equity (Australian Institute of Aboriginal Studies , 2018). Currently many parents and Indigenous communities have low expectations of their children achieving educational success, which is reflected in the 53% school dropout rate (Aboriginal Census Information: Education, 2016). With more resources provided to such communities, more emphasis will be placed on Indigenous education, catalysing an integrated and self-regenerating cycle: more parental engagement leads to improved educational outcomes, social capital in the school’s community will grow which will feed back into more education and increased employment rates (Research Gate , 2016).

Whilst in the short term wage subsidies will lead to a decrease in unemployment, investing in education will provide much greater long term benefit, hence being the more efficacious solution.

2.3 – Proposed solution with the most benefits

With 92% of small – medium businesses asserting they would be attracted by Indigenous wage subsidies, a benefit to the production sector can be observed with such companies incentivised to take on more workers and expand (Australian Government Department of Jobs- Behavioural Insights Team , 2017). Through immediate influx of Indigenous, workers coinciding with said expansion, the diversification and subsequent increase in cultural appreciation will lead to an increase in productivity within the workforce. A study conducted by B&T concluded that with a more diverse workplace, employees saw a tenfold increase in innovation and were 19 times more likely to be satisfied with their jobs (B&T, 2017). Furthermore, said Aboriginals that are now employed have a wage and a steady flow of income “increasing their confidence and encouraging expenditure… growing our ecnomy” (Shorten, 2016)

An increase in funding to Indigenous schools will bring benefits to a variety of stakeholders. A study conducted by Creative Spirits found that in 38% of rural Indigenous communities students are keen and eager to learn, but cannot progress because there are no full-time teachers skilled in teaching English or basic mathematics (Creative Spirits , 2019). An influx of money into such rural schools will not only allow higher wages for teachers but will also inject funds into the local economy, making residing there more enticing for future educators (Sydney Morning Herald , 2019). Furthermore, with increased levels of formal education, Indigenous students are 76% less likely to participate in criminal activity, which could result in incarceration, hence reducing the severe externalities of crime on the economy (Royal Commission , 2018). In addition, education aids one in creating a positive social identity which enhances self-esteem and mental wellbeing in the long term (Economic Social Research Council , 2016).

Whilst increasing funding to education will decrease crime and increase prosperity in rural communities, the incentive for expansion that the wage subsidy scheme has outweighs such benefits.

Whilst for the 86% of Indigenous Australians are disadvantaged, wage subsidies will reduce this inequality, for the 14% that experience none of this under privilege, wage subsidies will provide them with an advantage that undermines the principles of a meritocracy (The Atlantic , 2016). Furthermore with an estimated 62% of Australians residing in rural areas not possessing the adequate information and technology required to claim such subsidies, this solution disproportionately advantages city dwellers with a large portion of the rural community unable to reap its benefits (University of Melbourne Research Centre, 2018). In addition, whilst wage subsidies may increase the standard of living of some in the short term, it still fails to “make an impact in just one area that I [Scott Morrison] believe can achieve generational change. And that’s education” (Morrison, 2019).

Between 2012-2017, the government has incurred an estimated $12 billion sunk cost in funding that will support Indigenous students to study and close outcome gaps in education between non-Indigenous and Indigenous students (Australian Government Producivity Commission , 2017). Whilst Indigenous rates of year 12 completion has increased an estimated 10% in this time period, it is still found that in some communities, Indigenous children are rejecting a formal education, this policy proving ineffective (Australian Indigenous HealthInfoNet, 2019). Furthermore, increasing funding to rural Indigenous schools does not assist the 80,000 currently unemployed Indigenous Australians looking for work (Aboriginal Census Information: Education, 2016).

Overall both options yield some economic drawbacks to key stakeholders, however, the inequity towards rural Indigenous Australians that the wage subsidy scheme possesses outweighs the comparatively minor costs of the education funding.

3.0 – Conclusion

In conclusion, mandatory exercise within schools is the better solution overall, having more tangible benefits. Whilst the ban of junk food advertising doesn’t have the direct costs to children that exercise possesses, it doesn’t adequately address the growing epidemic of childhood obesity; not having enough research and testing done on its positive externalities and benefits. However, tackling childhood obesity requires a holistic approach and alongside the implementation of mandatory exercise within schools, both children and parents must also take some initiative and make healthy choices to gain the maximum benefits of this solution.

Whilst Indigenous wage subsidies are the better option in terms of costs incurred, it is not as efficacious at reducing Indigenous unemployment and doesn’t possess as many benefits in comparison to increasing education funding. Talking the plight of the Indigenous requires a holistic and prudent approach. Through increasing education to schools, it will both possess a multitude of benefits for all stakeholders and simultaneously lay the foundation for future generations. Whilst Indigenous unemployment rates won’t immediately increase, the influx of money into rural communities coalesced with increasingly educated Aboriginal’s progressing into the workforce and having children will provide a genuine and enduring increase in employment rates over the superficial one?

4.0 – References

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