Could government provide full employment?

February 28, 2009

Government has a responsibility to restore full employment by making an "unconditional job offer" at a liveable minimum wage to all who want to work.

This is the view of Professor Bill Mitchell, the director of the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle. Mitchell argues that the roots of the current economic crisis lie with the failure of neoliberal policy adopted after the 1974 economic crash.

In a February 25 interview with Green Left Weekly, Mitchell explained that the full employment experienced in Australia after the Second World War up until the worldwide economic crisis of the mid '70s, was largely as a result of a "tacit job guarantee" from government at all levels.

"You could always get a job in local council, the railway, the department of main roads or the department of housing and it's no secret that that's why we had full employment", he told GLW.

The role of government — according to the Keynesian consensus — was to spend to stimulate demand when private demand was low and to lower its spending when private demand was high. However, Mitchell argued, governments always ran a deficit.


The 1970s crash gave neoliberal economists, who had "been discredited in the 1930s depression", a dominant political voice. The neoliberal prescription was for massive cuts to government spending, for monetary policy (interest rates) to be the main way to stimulate or contract the economy and for fiscal policy (government spending and taxation) to remain "passive".

"Progressively, over the next three decades, that position was refined, to the point that in the '80s, we had the massive privatisations and outsourcing and the politicisation of the bureaucracy", Mitchell said. "The bureaucracy started to resemble a contract brokerage and management agency rather than a body providing unconditional services for citizens."

The period also saw "the beginning of a major redistribution of wealth to profits and away from wages", Mitchell argued.

He particularly singled out the Prices and Incomes Accord, introduced by the Hawke and Keating government in 1983, for criticism.

"The Accord was very successful in distributing wealth away from workers", Mitchell argued, adding that its promises that bosses would increase productive investment (and therefore employment) as profits rose, were unfounded.

"Now, the problem with that is then you get a realisation crisis", Mitchell explained.

While productivity had steadily increased — up by 79% from 1979 — real wages had only increased 12%. Wages share of the economy has fallen from 60% to 51%. Workers' purchasing power — their ability to demand goods and services (and the ability of capitalists to sell what they produced) — declined.

Full employment abandoned

Capital managed to postpone the crisis through the development of the "financial engineering" industry — built on selling credit to households.

"Of course, then the household sector has become increasingly indebted and interest payments have become a larger proportion of their expenditure, squeezing their ability to make other spending", Mitchell explained.

"From 1975 onwards, governments abandoned the concept of full employment and perverted that policy into full employability", Mitchell said, "abandoning the demand-side concept of providing enough jobs for the supply-side concept of making people employable.

"So they introduced a really pernicious welfare regime. Under this system they ran very large surpluses around the world and held these surpluses as being the proof of good management."

The Australian government's surpluses — accumulated in the Future Fund — were used to speculate on the stock market, Mitchell said. "They were using government spending to fuel the speculative boom at the top end of town."

"No one ever really challenged them", Mitchell said. "What are you doing buying shares when you are allowing the natural environment, schools and services to degrade?

"Those surpluses squeezed the private sector for liquidity and raised household debt. Just imagine if those $15 billion-a-year surpluses they were running, if they'd ploughed them into medical research — we could have cured cancer or HIV."

The period of neoliberal dominance saw lower government spending and the introduction of policies that saw a massive transfer of wealth from workers to capital. "You put those two together and that's why we have a crisis", Mitchell argued.

Wage restraint

Mitchell rejected the political consensus that the only way for capital to recover from the crisis is to cut wages. He rejected the notion that workers should accept wage restraint.

Mitchell was particularly scathing of the argument that in a period of rising unemployment that the minimum wage would need to fall. "There is no consensus in the academic literature as to whether the minimum wage impacts adversely on employment or not", he argued. "The balance is that it does not have any impact on the ability of low-skilled workers to get work.

"This is a neoliberal construct that the lower the wage the lower the unemployment rate. It was rejected in the 1930s.

"It doesn't matter how low the wage is — an employer isn't going to employ anybody unless they can sell the product they're producing and they sell the product on the basis of demand. If you cut wages, then you cut demand.

"The most important thing to creating jobs is demand and if there's an inadequate private demand then the public should fill the gap and that will drive employment more than wage fluctuations."

Jobs guarantee

"Whatever else the government does, the first thing it should do is buy up all the labour that is not currently wanted by the capitalist system", Mitchell argued. He called this a "jobs guarantee". All those who want work, but can't find it elsewhere, should be guaranteed work at a liveable minimum wage by government.

"CofFEE did a national survey of local government", he added. "We discovered that there's massive unmet need. How many jobs could be created? Hundreds of thousands — in environmental care, community care and personal care — they are all jobs that the private sector will not provide."

Research done by CofFEE shows that the federal government could provide 560,000 full time job equivalents, at a cost of $8.3 billion per year. While therefore seeing the federal government's $42 billion stimulus package as "a step in the right direction", the government had "failed to really target jobs", Mitchell argued in a February 4 blog entry.

In 2008, CofFEE produced a study for Greenpeace that showed that there would be many more jobs created in a transition from coal-fired power stations to renewable energy industries. However, such skilled jobs would be additional to those provided by a jobs guarantee, Mitchell stressed to GLW.

Mitchell emphasised that a jobs guarantee would also provide paid pathways for unskilled workers to undertake training, as against the current system, which pushes unemployed workers through an unending series of unpaid training courses with no job at the end.

Wage subsidies

Mitchell rejected the idea that the role of government was to offer wage subsidies to bosses, whether to employ apprentices or other workers. "Wage subsidies are an ineffective and failed strategy", he said.

"Wage subsidies are a neoliberal argument that the reason people aren't employed is that their wages are too high for their productivity and so you have to give the boss a subsidy in order to keep them employed.

"Wage subsidies have been abused because you create a target work force that, when the subsidy runs out, the bosses sack that worker and get the next subsidised worker. I think if there are not enough apprentices then the public sector should employ apprentices.

"I don't see the role of the government as subsidising the bottom line for business", Mitchell said.


The years of neoliberalism and relative boom were based on something of a "myth" Mitchell said. "What the economy was doing was replacing unemployed workers with under-employed workers", he argued.

"You need to consider not only the unemployment numbers but also consider those who do not have enough work but are classified as working.

"Not only has the economy failed to produce enough jobs — it's degraded the quality of the jobs it's producing into part-time and casual work. Under-employment is now greater than unemployment.

"I think what it demonstrates to me is that this is another cost of running surpluses that we fail to produce enough employment and particularly the public sector that used to be an employer, in most recent decades, has bailed out of that role.

"In order to get out of this crisis the public sector will have to become a significant employer again", Mitchell said.

You need Green Left, and we need you!

Green Left is funded by contributions from readers and supporters. Help us reach our funding target.

Make a One-off Donation or choose from one of our Monthly Donation options.

Become a supporter to get the digital edition for $5 per month or the print edition for $10 per month. One-time payment options are available.

You can also call 1800 634 206 to make a donation or to become a supporter. Thank you.