Make Work Pay

Leonie Jennings, Southern Cross University

Abstract

This paper confronts the seeming contradictions that occur once welfare recipients

and their families join the ranks of the Working Poor within the context of an

increasing casualised labour market. Despite blowouts in welfare budgets and

growing welfare dependency, this paper argues the case for tax credits/or work

incentives to supplement the earnings of the Working Poor. Drawing on programs

implemented in other neo-liberal democracies, it will be argued that Australia

should reconceptualise innovative tax policies by encouraging people to earn more

and not be penalised in their attempts to cover the basic necessities of life.

Introduction

Poverty is not confined exclusively to the unemployed. Forty-two percent of

Australians living in poverty exist in families where one or both adults work. As

Pusey and Wilson state (2001, p.21):

. . . we are led increasingly to believe poverty comes from unemployment and the

solution lies in getting people into the labour market. It’s a good idea in theory, but it

doesn’t work in a new, deregulated, lean and mean labour market in which insecure,

badly paid, casual and part-time jobs are increasingly replacing secure full-time

employment.

What has emerged in the deregulated labour market not only in Australia but in other

global economies, is an increasing trend toward a dualistic structure: a permanent full-time

workforce alongside a part-time casualised workforce. Job seekers today are at

risk of joining a pool of people who are only ever offered short-term casual work.

This trend toward casualisation is resulting in the development of a segmented

occupational structure characterised by the growth of a group known as the ‘working

poor’. The existence of such a group was identified by labour market economist,

Professor Bob Gregory, as early as 1992.

Probably the most recently cited report that identifies the emergence of the ‘working

poor’ in Australia is the Smith Family Report ‘Financial Disadvantage in Australia

1999: The Unlucky Australians?’ This significant study argued that just over 2.4

million Australians live in poverty today – 1.7 million adults and 732,000 dependent

children.

For some years, it was hoped that the previous Labor government's Incomes Accord

with the union movement would alleviate the situation, but the trends have continued

into the ‘noughties. Today the ‘working poor’ are not only found in the industrial

sector of the Australian economy but also in the service sector including the hallowed

grounds of academe.

It now appears that the postwar days of stable employment are behind us. Features of

this type of boom economy included standard working hours, a predominance of full-.time employment and secure middle-income jobs. Instead we have witnessed a shift

towards:

· flexible working hours

· a growth in part-time work at the expense of full-time work

· casual or contract labour that has times of instability

Within this shift we are seeing dualistic labour market which can divides workers in a

number of ways:

· overworked or out of work

· well paid or the poorly paid

· career jobs or fringe jobs

· fulltime or part-time

· contract or casual

Welfare-to-work policies fight an uphill battle against this deteriorating low-wage

casualised labour market. There has been a strong growth in jobs but the growth is at

the low end of the income distribution – jobs that are casual or low paid. Income

inequality – the share of aggregate income going to the richest one tenth versus the

poorest one tenth – is higher than ever. Part-time job growth rates have been

phenomenal when compared with full-time employment. The average annual growth

rate for part-time employment has been 4.5 per cent. This compares with 1.1 per cent

for full-time jobs and 1.8 per cent for jobs overall.

In 1975 full-time work was the most common form of employment for both men and

women. At that time 96 per cent of employed men were employed full-time and 68.2

per cent of employed women were employed full-time. The picture is now very

different. Over a quarter of the total employed work force is now employed part-time

(see Burrows below). The proportion of men in full-time employment has fallen to

86.9 per cent and for women it is now only 56.0 per cent.

The shift in employment from full-time to part-time work has been accompanied by a

growing rate of casual employment for both full-time and part-time employees. This

has grown from 16 per cent of employees in 1984 to 26 per cent in 1999.

The Treadmill of Casual Work

The shifting labour market has witnessed not only a growth in casual work but also a

decline in the real wages of low-paid workers. The ACTU President, Sharan Burrows

argues that 2 million working Australian are currently casualised and this represents

about 27% of the workforce. Many of these casualised workers have worked in the

same job with the same employer for more than 12 months. Their designation 'casual'

is often used as a convenient way of reducing labour costs by denying workers their

rights. Burrows argues that they are denied fundamental employment rights such as:

· job security

· adequate sick leave

· holidays.· maternity leave

· redundancy payments

· other statutory minimums enjoyed by full-time workers.

Back in 1997, a study undertaken by the Australian Bureau of Statistics showed that

70% of the 875,000 people looking for work in one month (May 1995) had found

work within 16 months. But the disturbing trend was that two-thirds of the 70% had

only found jobs that could be described as casual and lasted less than a year. A third

of the job seekers found no work at all. The study and its findings are significant

because it provides a detailed snapshot of the dynamics of the labour market by

tracking the same people over time. The study is entitled 'Australians Employment

and Unemployment Patterns 1994-1996' and reflects how job seekers are becoming

doomed to the treadmill of casual work. The ABS Report helps to identify a major

social problem in Australia: most of Australia's jobless are locked in a vicious cycle,

rotating between low quality, dead end jobs and unemployment. The difficulties in

finding ongoing work often leaves thousands of job seekers on welfare payments for

sustained periods.

From Casual to Permanency – Systemic Failure

Quite often in a deregulated labour market there is little incentive to move towards

full-time work when income test rules disadvantage the earning of extra income. This

is currently the case in Australia where breadwinners who shift from part-time (or

casual) to full-time employment are penalised. For example, back in April 2001 the

media (Cummings 2001, p. 20) portrayed the story of a part-time male teacher who

had been offered a full-time teaching position. He was reluctant to take up the offer

because Centrelink (the government shop-front for social security) threatened to make

him repay $5,000 in child-care and family benefits if he increased his earnings. This

case along with thousands of others not only demonstrates the flaws in income test

rules on child care and family assistance but also highlights a systemic failure to assist

the working poor to sustain a minimalist standard of living.

The problem is, that as people work more, they receive less in welfare payments or

benefits. Their low wages mean that their poverty is not reduced. Starting wages for

low skilled workers, who have limited education and limited work experience, are not

significantly higher than those on welfare benefits. The other problem with low wages

is that those who are currently unemployed have little incentive to get a low-paid job.

Work just does not pay! Despite the fact that statistics tell us that unemployed

people are better off when they make the transition from unemployment benefits to

paid work – the impact is marginal. The 2000 Federal Budget provided work

incentives with the Family Tax initiatives allowing the more low-paid worker to earn

more before they started to lose government allowances. But the problem is that this

labour pool of low waged workers is increasing, which is likely to reduce the meagre

share of work incentives provided by the government.

A landmark decision made by the Australian Industrial Relations Commission (AIRC)

in December 2000 ruled that 300,000 casual workers covered by the metal and

manufacturing industry award will be able to convert to full-time or part-time work

after six months service with an employer. This major victory for workers threatens a

fundamental shift towards a casualisation of the workforce. By choosing to move.from casual employment to full-time or part-time status, a worker will surrender the

25% casual loading, but, in return, will win greater security, severance notice and pay,

holiday pay and bereavement leave.

A further decision by the AIRC in May 2001 granted a $13 rise to low-paid workers.

This represents a 3.25 per cent increase, taking the federal minimum wage to $413.40.

Workers earning between $490 and $590 a week will receive a $15 a week increase,

and those earning above $590 will receive $17. The $13 increase means a pay rise of

only $9.10 a week after tax for workers on the minimum wage. The benefits of the

$13-a-week rise for lowest-paid workers will be consumed by higher inflation from

the GST and rising petrol prices. There is probably a strong case for tax relief based

on a rollback of the GST on basic household expenditures, and targeted income tax

relief and increased family benefits for low and middle-income earners. Later in this

paper, the concept of ‘Earned Income Tax Credits’ (EITC) will be considered as an

appropriate tax relief package for the working poor.

Blame the Victim

It is often argued by policy makers that people on welfare need to develop the ‘work

ethic’. All that is needed is for people to work hard. This attitude, however, does little

to recognise that not only do people require motivation, they also require access to

adequately paid, reliable and suitable work. Comments made on a documentary

program Four Corners (July 2001) by a government minister responsible for

employment stated:

We can’t abolish poverty, because poverty in part is a function of individual

behaviour – we can’t stop people drinking, we can’t stop people gambling, we can’t

stop people having substance problems, from making mistakes, that cause people to

be less well off than they might otherwise be – we can’t remove risk. (Four Corners,

2001)

This is a common misconception of conservative forces – that poverty is the result of

primarily individual choice rather than as an outcome of social policies. However,

having made choices, it can be argued that people are not responsible for events that

transpire subsequent to that choice being made. People make choices on the basis of

knowledge available at the time, but they cannot be responsible for outcomes over

which they have no control. Blaming the victim allows policy makers to absolve

themselves from responsibility.

From Dependence to Self-Reliance: Individual Employability and

Mutual Obligation

In the last decade mutual obligation has been embraced by neo-liberalist governments

because it is seen to assist with developing the individual’s personal self-esteem and

motivation. This in turn, it can be argued, leads to ‘self-reliance’ through paid work.

The fact that the person is reliant on welfare, it is believed, is an indication that she/he

lacks the capacity to be self-reliant. This places the blame squarely on the individual.

People earning reasonable wages are therefore seen as having the attributes necessary

to become ‘self-reliant’. The notion of the work ethic leads to the belief that the

wealthy are deserving due to hard work..Breaking the ‘cycle of dependence’ is believed to be achievable by motivating the

‘welfare dependent’ to become ‘self-reliant’. According to neo-liberalist thinking, we

are now living in New Times with this shift away from dependency on welfare to one

of self-reliance. The last decade has witnessed the enforcement of authoritarian and

paternalistic sanctions in an attempt to move people from welfare to the paid labour

force. As stated earlier, for many this new self-reliance has been translated into low-paid

casual work which can be identified as that of ‘working poverty’.

There appears to be a major contradiction in encouraging welfare recipients to find

work. The problem with the safety net is that providing more income to reduce

poverty can increase dependency on the State. But by reducing welfare benefits that

might encourage work, after accounting for work expenses, people are seldom better

off. Possibly they are worse off financially when they leave welfare for work,

especially when they enter the low-paid casual workforce.

Perhaps John Howard was right in his old portfolio when he said:

If the price of progress is human misery, it’s not progress. If change makes people

worse off, it’s not reform (then Opposition Leader, John Howard, to the ACOSS

Congress of 1995, cited in O’Connor 2001, p.15).

The real question is whether this shift in the reduction of welfare rolls has created

large numbers of poor families who are in effect substantially worse off. The reality is

that the move toward reducing welfare dependency has pushed many ‘dependent’

families into the ranks of ‘working poor’ families. This trend may call into question

whether work in the paid labour force is preferable to dependence on welfare. A

further question can be legitimately raised as to why so many Australian families are

living below the poverty line.

Baker (1996, p.8) notes the focus on individual employability ‘allows attention to

move from the inadequacy of social programs to cope with changes in families and

the labour force… One way to trim eligibility for services, including social assistance,

is to encourage or force more recipients of social assistance to enter the labour force

… but the implications for mothers may be counterproductive’. It is contentious that

government promotes mutual obligation policy within a climate of insufficient

employment and with no consideration to structural barriers.

The Case of Sole Parents

There is little recognition that there are groups of people, such as sole parents, who

face structural barriers to achieving a reasonable standard of living. For example,

Baker (1996, p.1) states ‘in order to make employability programs more effective,

governments need to deal with the earning disparities between mothers and fathers,

the shortage and high cost of child care, and the lack of full-time, permanent jobs’.

Swinbourne et al. (2000) found that sole parents experience reasonable security when

receiving welfare payments. They feel secure receiving the benefits card which

entitles the holder to subsidised pharmacy medicines, travel etc. ‘The benefits that go

along with the parenting payment are thus central to sole parents’ sense of security.

They reduce the perception of risk associated with day to day existence and offset the.sense of financial precariousness that is part and parcel of most sole parents’ lives’

(Swinbourne et al. 2000, p.62).

Graycar (1989, p.74) states ‘the best form of income support for sole parent women is

a combination of work force participation and social security, with particular

emphasis being given to payments in the form of allowances for children’.

Unfortunately, within the present paradigm of economic rationalism, the monetary

aspect of supporting sole parents is paramount. Positioning sole parents as ‘welfare

dependent’ leads them to be grouped with all welfare recipients and therefore viewed

as ‘dole bludgers’. Sole mothers are therefore seen as belonging to the group of

‘undeserving poor’. They are viewed as ‘just another group of work force age adults

on welfare’ (Siemon 1999).

Social policies need to take account of support structures for the transition from

benefits to work and the need for a reduction in the precarious nature of paid work.

For example, Grant (2001) identifies the benefit of a system that enables earnings to

be spread over a longer period of time, therefore making paid work more financially

worthwhile. There is a need to average out casual earnings to make it more

worthwhile to work. This means that financial gain from paid work needs to be

greater.

Swinbourne et al. (2000, p.64) note ‘it is no wonder that some sole parents are

tempted by offers of ‘under the table’ payments so that they are not penalised when

they try to improve their circumstances’. A recent study by Holdsworth (2001) found

that many sole parents reluctantly work ‘on the side’ to address this issue of financial

gain from paid work because it’s not worth working and declaring it. They tend to

lose too much from benefits. Holdworth’s study provides clear evidence that sole

mothers struggle when surviving largely on the welfare safety net.

Work Incentive Programs in North America

Australia is not alone in facing up to the need to address the impacts of poverty

caused by low-paid employment. In the early 1990s, Bill Clinton campaigned to end

‘welfare as we know it’ and during his administration many significant programs

attempted to reduce the welfare rolls. In terms of assisting the ‘working poor’ three

program initiatives which provided cash payments to supplement the earnings of low

wage workers are worthy of careful consideration. A full evaluative summary of the

work incentive programs is available through the Manpower Demonstration Research

Corporation (2000).

One of the programs emanated in Canada called the Self-Sufficency Project. This

project along with the other two programs Milwaukee’s New Hope Project and

Minnesota’s Family Investment Program. All represent new approaches to welfare –

supporting people when they worked. What can we learn from work incentive

programs as we begin to rethink and redesign the safety net for the Working Poor?

The three programs all aimed to support people when they worked, rather than when

they did not work. The strategies laid a foundation for a new safety net built around

work rather than non-work..The programs attempted to make low-wage work pay by providing work incentives in

the form of monthly cash payments to supplement their low incomes. These payments

were made only when people worked and the amount of each month’s cash payment

depended on the amount of that month’s earnings. All three programs were designed

to reward people when they worked, rather than when they didn’t, and to increase the

pay-off of low-wage work through work-conditioned earnings supplements.

Each of the three programs actively encouraged welfare recipients to work at least 30

hours a week, either by tying incentive payments to full-time work or participating in

job preparation programs. The main form of incentive that all three programs

advocated was a liberalization of the ‘earned income disregard’. That is, welfare

recipients were allowed to work and to continue receiving cash payments that

supplement their earnings.

Earned Income Tax Credits (EITC)

If we are to address the problem of the working poor in Australia that is due to

increasing casualisation and low paid work, there needs to be a redistribution of

wealth. Instead of concentrating on work for the dole type schemes, there needs to be

creation of ‘real’ work incentives such as tax credits. The idea of tax credits for the

working poor is not new. In the 1998 election campaign, the Labor party

foreshadowed a plan under which low-paid workers would get a small payment from

the Government for every dollar they earned.

In the late nineties in Australia, a group of economists, known as the 'Five

Economists', proposed that we might solve the problem of unemployment by bringing

in wage cuts for the low paid workforce combined with a tax credits scheme to

compensate for the wage cuts. The approach was to keep wages low, but provide

work incentives by giving tax breaks. As Watson’s paper (1999) commenting on the

Five Economists proposals states:

The lesson for Australia from the United States experience is that earned tax credits

are a successful response to the problem of welfare poverty traps and may warrant

further examination. Earned tax credits are not, however, a suitable partner for low

wage jobs since, as we have seen from the US experience, they compound many of

the problems to be found in the low wage sector. Instead, if earned tax credits can be

used as a complement to wage improvements at the bottom of the labour market, then

optimum outcomes all round can be expected. In this respect, the Five Economists are

mistaken to link their tax credit schemes with an expansion in low paid work. There

are too many serious shortcomings attached to low paid work for Australian policy

makers to consider expanding the low wage sector here.

Watson’s response to the Five Economists is cognizant of the growing low paid

labour pool that is developing in Australia. If wages are kept low and the income of

the working poor is topped up only through tax credits, a widening gap in wages is

likely to result.

The Living Wage Case argued by the Australian Council of Trade Unions (ACTU)

strongly supported a growth in wages for low-paid workers. A meagre $28 was

rejected which implies that there is little redistribution of wealth occurring among

high and low wage earners. It appears that some form of tax relief is necessary if the.current enterprise bargaining system is failing low-income workers. If Australia

prides itself on a progressive tax system, then tax credits for workers on the bottom

rung may be the only viable alternative for either political party.

The Need for a Redistributive Approach

Swinbourne et al. (2000, p.5) argue that there is a need to redress the inadequacies of

the welfare system and provide a visible improvement and practical support in an

infrastructure that provides for people to be able to manage all aspects of their

circumstances. As Watts (1999) notes, public monies are needed to provide

infrastructure to assist in job creation, health, education and other community

services. Tax credits do provide a practical solution to encouraging low-paid workers

to participate in the labour market.

A strong emphasis on labour force participation for all citizens can be a relatively

effective strategy to raise family income, reduce child poverty and address gender

equality according to Baker (1996). However, this needs to be implemented on a

macro level by using strategies such as tax credits.. Recognition needs to be given that

input from government and business is required. There needs to be incentives from

government to business in order to create sufficient employment for all who require it.

For example, Baker (1996, p.8) notes that in Sweden, such policies were successful

because ‘the government established public sector jobs with statutory protections,

developed lengthy family leave policies, ensured pay equity, established an extensive

system of public child care services and actively promoted gender equality’.

Hamilton (2000) identifies the need for a ‘Fourth Way’- one that would allow

alternative values to be internalised. For example, it would enable caring within the

community to be highly valued. It would recognise the need to redistribute wealth. It

would provide improved social services through a higher tax system being applied to

the wealthy. In reviewing Latham’s Third Way politics, Watts (1999, p.30) states:

I have no quibble at all about Latham’s advocacy for a renewal of community based

activities. I am only worried that he seems to have accepted that a low tax base will

have to remain to impede the level of investment across a whole gamut of activities

including the provision of social and physical infrastructure, job creation, the

provision of high quality education, health and community services, and the

redistribution of national income.

Earned income tax credits (EITC) have been used in other democracies to redistribute

wealth to assist needy families. In some cases it has been at the expense of assisting

the unemployed by mandating work requirements. Innovative tax policies are needed

to assist the working poor in their efforts to earn meaningful returns to work.

Currently in Australia, tax policies such as the Goods & Services Tax are constructed

as ‘innovative’. The unemployed and working poor lack the power to (re)construct

what constitutes ‘innovation’ in times that do not support work opportunities that

provide for a decent wage.

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