Work for the Dole doesn't work – but here is what does

The Work for the Dole program could again become a core element of welfare policy for the unemployed in Australia, but there is a considerable body of evidence which shows it is unlikely to help people find jobs.

While this week's announcement by Assistant Minister for Employment Luke Hartsuyker was sketchy in detail, from what has been said so far, it seems that the details of the program will remain similar to when it was first introduced in the late 1990s. The government will provide funding for short-term job placements in the community sector that will be required to be taken up by Newstart payment recipients whose unemployment spell reaches a threshhold length.

Another constant with Work for the Dole between its introduction and this week's announcement is the idea that it can improve employment outcomes for Newstart recipients. Unfortunately, this seems unlikely. In fact there is now much more evidence to tell us this than when the scheme was introduced 15 years ago.

A study I carried out with my University of Melbourne colleague Yi-Ping Tseng on the pilot phase of Work for the Dole, found that participants in the program were no more likely to move off welfare payments in the 12 months than a comparable group of payment recipients who did not participate in the program.

Our finding is consistent with a large body of international evidence on the effects of public sector job programs. The majority of those studies find zero or negative effects on labour market outcomes for participants.

Why it doesn't work

There are good reasons why public sector job programs such as Work for the Dole do not have a positive effect on employment outcomes. First, the programs do not increase the long-term availability of jobs. It is only when extra jobs become available that people who are unemployed can move into sustainable employment. But these programs are only providing a limited period of employment.

Second, the programs are not providing a sufficient opportunity for skill development to make a big difference to employment prospects for the unemployed. Many people who are unemployed have low education and skills, as well as other sources of disadvantage, and hence require a substantial increase in skills to be able to obtain and retain employment.

Programs that are short-term, and are not structured around formal skill development, as is the case for most public sector job schemes, do not provide that substantial increase.

Change the design

Does this mean that we should give up on government programs intended to assist the unemployed? Well, partly I think it does. The best way for a government to reduce unemployment is to keep the rate of economic growth as high as possible. For example, recent research I have done shows that virtually all of the increase in Australia's rate of unemployment since the start of 2008 – from about 4-6% – can be explained by slower economic growth over that period. So 95% of the time a government spends thinking about unemployment should be spent thinking about ways to promote economic growth.

For the other 5% of the time, I would argue that it is worth government persisting with programs for the unemployed. What needs to change, however, is the design of the programs. There needs to be much more attention to building in the lessons we now have about "what works". While it is the case that most programs that have been studied show no effect on employment outcomes for the unemployed, some schemes have been found to do better.

Keep it local

Small-scale programs, targeted at the needs of local unemployed and employers, and where ideally an unemployed person obtains a formal certificate or qualification, are more regularly found to have positive effects. Trying to incorporate these features into programs for the unemployed would therefore be a good place to start on policy design.

In another previous article in The Conversation I suggested a new approach to choosing programs to improve labour market outcomes for those from disadvantaged backgrounds that would allow this type of bottom-up approach. An independent body would be given responsibility for allocating funds amongst organisations (community or private sector) which submitted proposals for improving employment outcomes for disadvantaged groups.

There would be a great deal of flexibility in the type of projects that would be funded – from early years interventions through to labour market programs to assist those currently unemployed. Decisions on which proposals to support would be made using a benefit-cost method, and it would be a requirement of funding for a rigorous evaluation of outcomes from the project to be undertaken. Allocating funds in this way would provide an organic process for identifying and developing programs, assisting organisations with an understanding of how to improve outcomes in their local area and the capacity to implement their ideas.

Jeff Borland, Professor of Economics , University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.