A THEORETICAL AND PRACTICAL PERSPECTIVE ON LONG-TERM UNEMPLOYMENT

by CHRISTINE SHORT*

1. Introduction At the time of writing, the latest employment statistics (for July 1993) have

just been released and Australia has an unemployment rate of 11.1% and WA 9.3%. While obviously Australia as a whole is experiencing a more severe problem than this state, neither of these figures is socially or economically acceptable. IIb make this worse, nearly a third of WA’s and over a third of Australia’s unemployed have been unemployed for over a year. Projections (Chapman, Junankar & Kapuscinski, 1993) now estimate that Australia’s long-term unemployed could reach 530,000 by the end of 1994.

In WA in June 1993 18% of the unemployed (over half of the long-term unemployed) had been unemployed for over two years (ABS Labour Force Estimates). The labour economists (Jarvie 81 McKay 1993; Junankar 1993; Yetsenga, Maclachlan & Edwards 1993) now talk about not just the long- term unemployed (LTU or those unemployed over one year) but the very long- term unemployed (VLTU or those unemployed for over two years). Clearly more needs to be done about unemployment and even more particularly about the long-term unemployment-hence the Federal Government’s investigation through the Xiskforce on Employment Opportunities and seminars such as the one for which this paper was written.

It is with a certain sense of frustration that I address this subject. In 1989 I completed a report on long-term unemployment for the WA Department of Employment and llaining. At the time I wrote “. . . as at July 1989, the economy is showing signs of slowing after some months of record interest rates and this should be reflected in increases in unemployment before the end of the year . . . it appears likely that should a new build-up of long-term unemployment occur in Australia in 1990 it will be from a higher base than that present in 1983, making the problem of long-term unemploy- ment increasingly intractable”.

Unfortunately my predictions were only too accurate. Now we have about 9% of the labour force unemployed and 32% of that is long-term unemployed. Sadly, governments are very unlikely to fund doing anything about un-

* Director, Work Matters Research, Mount Lawley, WA 6050. This paper is derived from one prepared for the South West Metropolitan Social Development Council seminar on Employment Issues in the South-West Corridor of Perth.

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employment while the numbers are relatively low; they only react when the problem becomes really severe.

I will draw on my 1989 report to describe what is known of the causes of unemployment and long-term unemployment, the effects of unemployment, and solutions to unemployment. ?b this I will add some recent research on solutions and some practical knowledge from those who work with the unemployed in Western Australia.

I will tend to concentrate on long-term unemployment as unemployment is now beginning to reduce in Western Australia, if not yet in Australia, and it is fairly clear that it is the long-term unemployed who suffer most and who stand the least chance of leaving unemployment. However, it is also necessary to concentrate on those who are currently unemployed for less than a year but are most likely to become long-term unemployed, hence the causes of long-term unemployment are of particular importance.

2. Causes of long-term unemployment The causes of long-term unemployment were unclear in 1989, mainly due

to a lack of longitudinal studies of the subject. In 1993 there is a little more information due to work based on the Australian Longitudinal Survey (Chapman & Smith, 1993); however this survey is still limited to those aged 29 and below and so fails to describe the situation for the majority of long- term unemployed people who are older. The few cross-sectional studies that have been conducted suffer deficiencies in variables covered andlor only a limited age group was covered.

Four studies examined (Brooks & Volker, 1984; Brooks & Volker, 1985; Aungles & Stewart, 1986; Flatau, Lewis & Rushton, 1991) found duration of unemployment itself to be a cause of long-term unemployment. This is due to the vicious circle effect of unemployment: the longer a person is unemployed, the more potential employers are reluctant to employ them, the less enthusiastic the unemployed person becomes about job search, the more skills deteriorate through lack of use, and the more a person finds it difficult to adjust back into the workplace should they find work. This finding indicates that early intervention to facilitate employment before the person enters the vicious circle would be desirable, if the characteristics of people likely to become LTU can be identified.

Analyses by Chapman and Smith (1993) in the case of women leaving the labour force, Aungles 8r Stewart (1986) and Cass (1988) indicate a relation- ship between migrantllanguage status and long-term unemployment, as country of birth has found to be significantly related to LTU. In 1989 being a person of aboriginal background did not appear to be connected to long- term unemployment as many previously (very) long-term unemployed aborigines had been absorbed into the Community Employment Development Program where aboriginal communities are given a lump sum equivalent to their social security allowances in order to employ people on developing community facilities. This removed large groups of aborigines from the statistics on unemployment. However, one could argue that those involved

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in CEDP are still, to some extent, unemployed and urban aborigines are certainly over-represented amongst the long-term unemployed (Cass, 1988; Short, 1989).

Lack of Year 12 and post-school qualifications were identified as being correlated with long-term unemployment in two studies of young people (Brooks & Volker, 1985; and Chapman & Smith, 1993). All four studies examined (Chapman & Smith, 1993; Cass, 1988; Brooks & Volker, 1985; and Aungles & Stewart, 1986) found that men tend to suffer LTU more than women (mainly because women stop looking for work) and older people tend to suffer LTU more than younger people. One study (Aungles & Stewart, 1986) found that number of CES referrals was highly correlated with duration of unemployment (less referrals more duration) indicating that government intervention can work, or alternatively, that CES officers only refer those who they believe stand a chance of gaining employment. It was suggested by the same researchers that the wrong variables were being studied and that a measure of employability and stability of work history might reveal more information about probabilities of remaining unemployed. A CES pilot study before the launching of the New Start strategy appeared to indicate that low work motivation and poorlunstable work history were causes of long-term unemployment.

The sociaUpsychologica1 literature ('Ikavers, 1983: Cobb & Kasl, 1977) showed that if a person was in ill-health when helshe became unemployed the probability of continuing to be unemployed was increased. Chapman and Smith (1993) show that living in a rural area is highly correlated with duration of unemployment.

Hence, while there is no really clear picture of the causes or correlates of long-term unemployment, in order of importancelstrength of research finding these are:

the experience of unemployment itself, duration; lack of qualifications: sex (being male): age (being older); ill-health on becoming unemployed: migrant statuslcountry of birth; living in a rural area: aboriginality; low number of referrals from the CES; low employabilitylwork motivation: and poor work history.

3. Effects of long-term unemployment The literature is relatively clear about the effects of long-term unemploy-

ment. These can be severe, and those that suffer most tend to be middle- aged men and women who are also principal household earners. The young tend to still be dependent on their parents or live in communities of

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unemployed youth, and those nearing retirement tend to own their own homes so are less financially affected by long-term unemployment.

However, exceptions to these, for example homeless youth or renting retirees, also suffer severe effects from prolonged unemployment. Un- employed women who are not principal household earners suffer less economic and psychological pressure, because society still regards them as having a useful role in the home even if they are seeking work outside (Warr, 1987; Bradbury, Garde & Vipond, 1985).

Bearing in mind these differential effects, the main consequences of long- term unemployment lie in the psychological and economic areas, and of course these two areas are interrelated. Since the late 1930s (Eisenberg & Lazarsfeld, 1938) it has been understood that the unemployed go through four stages of psychological reaction: (i) shock on losing their employment (in the case of those previously

(ii) optimism, initially when the job search is begun; (iii) pessimism and despair, as no job eventuates (this is the worst stage of

all); and, finally (iv) apathy, resignation and adaptation (life may actually improve if the LTU

person is good at managing on very little money and fully adapts to a world without work. This, however, is certainly not universal; but research appears to indicate that the unemployed person's mental state does not deteriorate further from this stage but remains the same or improves).

It appears that this process takes between three and six months after job search has begun (Warr, 1987).

Naturally the main psychological effect of unemployment is stress, and many physical effects are connected to this. These effects are again interrelated with another major effect of prolonged unemployment-poverty ('Ikavers, 1983; Aiken, 1968; Commission of Inquiry into Poverty, 1975; Gallagher, 1987; and Brewer, 1984; Bradbury, Garde & Vipond, 1985). All these effects tend to lead to increased family strife. The actual withdrawal from the workplace causes the unemployed person to have less structure and organisation in life, and less sociallwork contacts. These in turn work against the unemployed person in finding and retaining employment if it is found (Brewer, 1980 and many others). Evidence (Berk, Lenihan & Rossi, 1980 cited in 'Ikavers, 1983) has also been presented that crime is an effect of unemployment, not just because of poverty, but because the unemployed person has more time to commit crimes, and less incentive not to perform criminal acts, for example, in order to retain employment.

employed);

4. Solutions to unemployment First some economic theory that helps us to understand what types of

employment exist and how best to deal with each type. Economists describe unemployment as being frictional, structural or demand deficient. Frictional unemployment is caused by the job search process when between jobs;

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structural unemployment is caused by changes in industrial structure Ieading to skills mismatches and geographic mismatches (see Standing, 1983; Jackman & Roper, 1988; and Karmel & Aungles, 1988 for more on this subject); and demand deficient unemployment is caused by economic downturn resulting in there not being enough jobs to go around.

The solutions to these types of unemployment differ, requiring different responses in labour market programs or economic policies. If the problem is frictional unemployment then improving job search information and processes is the appropriate response. Structural unemployment requires the same response, as well as (re)training and subsidies for geographic relocation. Demand deficiency requires macro-economic intervention, e.g. increasing exports andlor domestic demand at the risk of inflation, and keeping down real wages, which the Australian Government has effectively managed of late. The labour market program response to demand deficiency is either large scale employment creation projects such as the nowdefunct Community Employment Program, or self-employment creation, e.g. local enterprise initiatives. Wage subsidy programs fit into none of these categories as they tend to reshuffle the unemployment queue rather than create jobs that would not have previously existed, and thus are not preferred by economists. However, for the LTU, wage subsidies do provide a way out of the unemployment-creates-further-unemployment problem and assists in skills and motivation maintenance.

Thus it is important to understand what type of unemployment exists before implementing labour market programs. Frictional unemployment is clearly something that applies mainly to the short-term unemployed. Job clubs provide the type of labour market program required here as they improve the individual’s skills and information in the job search area. The long-term unemployed are unlikely to be assisted by this sort of intervention alone. They are more likely to be suffering from structural unemployment and demand deficiency (exacerbated by the deterioration in their skills over the lengthening period of their unemployment). Hence current labour market programs that can assist the long-term unemployed are: the training programs available through JOBTRAIN, JOBSKILLS and Skillshare; the regional and individual enterprise development schemes; and wage subsidy programs such as JOBSTART.

naining The OECD (1988a & b) commends Australia’s re-orientation towards

training as a solution to unemployment (especially increased school retention for youth), but notes that the particular need of the LTU for training preparation courses in life skills, motivation and basic trainingljob skills, creates a problem called negative branding. The problem is that employers perceive individuals who have undertaken this type of course to be undesirable; also participants feel they are further marginalised, removed from the rest of society. However, the LTU clearly need the’kind of re- motivating these courses offer. In order to overcome this the OECD (1988bI

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recommends a longer-term re-orientation of mainstream training courses towards the needs of the LTU. To some extent this may now be addressed through the Australian Vocational Certificate system now being put in place, as this intends to teach all young people some life skills and motivation as well as basic job skills (literacy, maths etc.).

Another way around the branding problem, and a solution to long-term unemployment in itself, would be identify the long-term unemployed by their personal characteristics before they become LTU, then the damaging effect of LTU on their motivation and skills can be avoided and labour market programs can be targeted where they are most effective. Presumably, with earlier preventative targeting on individual characteristics, the pre-training courses would not be confined to the long-term unemployed, partially relieving the individual's marginalisation problem, if not the employer branding problem. The more that training courses for the long-term unemployed are offered within TAFE colleges allowing graduates to then go on to other main-stream TAFE courses, the more this branding problem will also be reduced.

Longer term training courses such as those offered through lXFE are also, in part, a solution to the demand deficiency problem which is clearly now present in Australia. If people who are currently unemployed enrol in two to three year courses they stand some chance of coming back on the labour market at a time when demand deficiency is less due to the economy improving. However, it is very important that people enrol in courses that are likely to provide them with skills that will be in demand in the future. Hence forecasting demand for skills is very important. The Federal Government does try to do this in order to guide the 'MFE system and now this is being further improved through the industry training advisory system (Industry Employment and Paining Councils in WA; Industry Paining Boards elsewhere) where industry representatives recommend changes to courses and assist in forecasting skills demands in their particular industry.

Short-term training courses (such as those available through Skillshare) are unlikely to be of much assistance to the long-term unemployed except in helping to provide motivation and reintroduce work discipline. The courses are too short to provide anything but the most vocational or industry skills. For example, 15 week typinglclerical courses can hardly ensure that graduates are the fully trained wordprocessing operators currently in demand in the workforce. This is acknowledged by DEET officers:

For courses of very short duration it appears that content may not be very significant: employers in the Skillshare evaluation for example reported that the confidence and the work habits gained through skills training was probably the most important aspect of the training from their point of view, not the skills themselves. (Jarvie & McKay, 1993:lZ) However, according to anecdotal evidence, Skillshare courses tied to

particular firmdindustry needs show more success. For example, the Skillshare operating in WA which is connected to the Burswood Hotel and Casino and that operating in the WA Institute for the Blind show more

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success in placing graduates in jobs than those not so directly connected to industry.

Macroeconomic intervention Junankar (1993:35) points out that “[s]imply acquiring more qualifications

does not insulate a person from unemployment”, justifying this by showing that people who stayed on at school over the period 1980 to 1992 increased their unemployment rate by 107.3% compared with an increase of 73.2% for those who did not. He sees the only solution to the current unemployment problem as being measures to increase aggregate demand via monetary or fiscal policy (direct job creation measures). Hence Junankar categorises the majority of current unemployment as being due to demand deficiency. Other economists might agree with this analysis, but deplore his solution as likely to cause inflation. Certainly there are solutions to demand deficiency in government adjusting the macroeconomic situation and some of those suggested (in Quiggin, 1993 e.g. changes in HECS and social security arrangements) are being pursued in the latest budget.

Regional targeting and employment development However, if we are to spend money on labour market programs in an

attempt to improve the situation for the unemployed we still need to try and do this in the most effective way possible. It is arguable that the Federal Government spending in this area is too centralised and inflexible. The OECD (1988b) notes that programs need to be targeted not only to specific groups within the long-term unemployed with different needs (i.e. youth, migrants, older people) but also to specific regional needs. As people in the south- west metropolitan area of Perth are no doubt very aware unemployment (and long-term unemployment) is often concentrated in particular areas within cities and regions within a state (see Yetsenga. Maclachlan & Edwards for more on this) and a different emphasis is needed in program delivery for each problem area. Regions need to know what proportion and type of un- employment-frictional, structural and demand deficient-exists in their area and to adjust their labour market program provision accordingly.

Regional employment development initiatives are also a method used to combat demand deficiency in that they are aimed at creating employment suited to that region’s needs rather than just improving the individual’s skills. Funds need to be spent on identifying the types of unemployment problems existing in particular regions and the opportunities for creating employment, and then on fostering employment creation. It would appear not enough is being done in this area by the Federal Government. State Governments try to do more regional development but relatively speaking have few funds available to them to spend on this type of employment program.

The Federal Government does support another type of employment creation through the New Enterprise Incentive Scheme (NEIS. or New Enterprise Scheme, NES, as it is known in WA) which aims to assist unemployed people to set up their own businesses through planning, training,

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mentoring and providing an allowance equivalent to social security payments in the first year of business. The State Government funds some of the training component. This type of assistance is particularly good for the older unemployed who find it difficult to re-enter the labour market in the low skill, low responsibility jobs generally available to the unemployed. NES has also found to be of relatively low cost to the government and effective in ensuring small businesses survive better than they would without assistance (Short 1986b). However, currently the Federal Government spends only relatively small amounts on this type of employment program, concentrating their big spending on wage subsidy and training programs. This was emphasised recently in WA when many people undertaking the NEISDJES course found out that they would not receive their enterprise allowance at the end of their course as Federal funding was not available. The Federal Government needs to provide funding for this type of scheme on a demand basis-if people can get through the strict monitoring of business plans that occurs in this program and successfully complete their training and start their business-they should be funded by the Federal Government; numbers should not be restricted by quotas and lack of allocated funds.

Labour market program selection criterion In 1989 the CES primarily used duration of unemployment as the criteria

for eligibility for its labour market programs plus to some extent access was granted earlier (before people became W) to people categorised as “especially disadvantaged”. These were defined by the Federal Department of Employment, Education and ’Ikaining as including aborigines, sole supporting parents, disabled, overseas born and other special needs job seekers (e.g. wards of state, ex-offenders, homeless people, unsupported young people and those who are illiterate or in severe poverty) (CES 1989). This meant they were allowing earlier access to labour market programs by some people who were more likely to become long-term unemployed. The research quoted above does appear to support targeting these “especially disadvantaged” people although in the case of small groups such as sole supporting parents and the disabled, little or no data is available so the researchers are unable to identify these as people likely to become LTU. However, this seems most likely. In 1990 the groups who can obtain priority access to programs have been changed to: aborigines and ’Ibrres Strait Islanders, people with disabilities, youth at risk, ex-offenders, spouses of NewStart clients, sole supporting parents, migrant professionals and people aged between 50 and 65 years old. The CES refers this group to programs early, as far as they can given funding limits for the various programs involved. People with no post-compulsory schooling, living in rural areas, with poor work histories, and migrants with language difficulties need to be added to this list too. Granted people with postcompulsory qualifications may be a very large group but this could be further narrowed down with more research on the causes of LTU.

The point is that the CESlDEET should really be directing all its funding

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and programs to two groups only: those already long-term unemployed and those most likely to become long-term unemployed. In the absence of further research the categories already used for priority entry to programs plus those mentioned as needing to be added to this group should be used as those most likely to become long-term unemployed.

5. Conclusion and recommendations Long-term unemployment is a severe and increasing problem in both

Australia and Western Australia. Thus governments are now looking to better target their labour market programs and policies towards the long- term unemployed. The causes and effects of long-term unemployment have been identified from the literature to conclude that while the effects have been fairly well researched the causes of long-term unemployment are less clear. The few studies that have been conducted on whether LTU is caused by the experience of unemployment or by individual characteristics have mostly been carried out at a time of high and increasing unemployment when the KRJ were less typical, and also had fairly inconclusive results apparently resulting from the small range of data available.

This review of unemployment leads me to suggest a number of changes to current labour market policies aimed at the unemployed and some further research. (i) ’llaining offered to the unemployed needs to be mainstreamed

(connected into WFE and school training) to avoid isolation and negative branding, and needs to be better connected to industry.

(ii) Regional employment development programs need to be further supported with funds and research data.

(iii) N E I S N S funding needs to be increased and more flexible according to demand.

As discussed above, however, a year’s unemployment will have already built in all the problems that come with long-term unemployment-lack of motivation, contacts and deteriorating skills and negative employer per- ceptions. The psychological literature suggests that optimal period for intervention would be three to six months after initial job loss but many of the people in this duration category could gain employment without government intervention. Thus, if early intervention is to be entertained, a much better understanding of the individual characteristics that are correlated with long-term unemployment would be needed then those most likely to go on to become long-term unemployed could be targeted.

As I recommended back in 1989 a major study of the causes of long term unemployment is still needed (see Short, 1989 for further details). While the characteristics of this group are still not clear from existing research, the Department of Employment, Education and ’llaining should reconsider its definition of “especial disadvantage” and actively seek to give the people in the following categories priority entry into its programs:

people with little or no (post compulsory) education, especially those who

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are illiterate;

older workers (50-64): those in poor health, especially those with disabilities: aborigines and ?brres Strait Islanders: sole supporting parents: ex-offenders: migrants with language problems, especially those recently arrived; people living in rural areas: people in severe poverty andlor homeless: and, people with unstablelinadequate work histories. Note that being male and one of the above would make people even more

disadvantaged and in need of intervention. Labour market programs are currently assisting a large number of quite

short-term unemployed clients. This is not an efficient or effective way of targeting those most in need in the labour market, unless these programs are restricted to only the short-term unemployed fitting the characteristics of those most likely to become LTU. The great majority of short-term unemployed will gain jobs without government assistance. As the young tend to dominate the short-term unemployed, job search skilling in schools by teachers and career guidance officers could be more effective than training them in job clubs.

The Department of Employment Education and Tkaining should review any direct assistance given to the short-term unemployed and adopt more efficient strategies involving targeting those most likely to become LTU amongst the short term unemployed, and assisting schools to train school leavers in job search techniques.

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