Our turn: Working together to create a wealthy economy

Without jobs there can be no prosperity. SIMON COLLINS discovers how successful economies try to provide work for everyone.

When the Queensland Coach Company went belly-up last year, Greg Castle was on the scene within days.

Within weeks, 41 of the company's 58 workers had been interviewed by Mr Castle and others from the state's Worker Assistance Programme.

Within months, all but eight of those interviewed had new jobs - many of them at New Zealand-owned Mills-Tui, whose Brisbane fire engine plant is growing rapidly and poised to expand into Queensland Coach's old business of building buses.

Many of those who found jobs would have got them without help from the state. But the Worker Assistance Programme (Wap) is typical of measures taken in most successful countries to help unemployed workers find jobs.

New Zealand may be more in need of such programmes than most countries if we want everyone to be able to contribute to society. Last year, 28 per cent of all those aged 15-64, or 693,000 people, were subsisting on welfare benefits or superannuation - one of the highest rates of state support of working-age people in the world.

Mr Castle, who is Wap's executive officer, believes the key to its success is early intervention. An immediate response team from Brisbane visits any business that lays off at least 50 people in a city or 15 people in a small town or rural area.

All affected workers are interviewed individually and advised of the help they can get.

In the larger layoffs, when a business is in liquidation, that help includes grants of up to $5000 to every worker to help with writing a CV, job interview techniques, retraining, shifting to a new job elsewhere in Queensland, and a subsidy to any employer who takes them on.

Three-quarters of the 406 redundant workers who qualified for Wap help in its first year, and many of the Queensland Coach workers, took up the option of retraining - even when they had already found new jobs.

"I have done three Microsoft program courses," says Helen Robinson, who continued working for the liquidator at Queensland Coach last year and is now at Mills-Tui.

Wayne Seagrott, who has also moved to Mills-Tui, is finishing his engineering studies by correspondence and going for his truck licence.

Only 31 out of the 406 redundant workers received help to move elsewhere - most to Brisbane - and only 38 found jobs with new employers who took the wage subsidy.

Rather than the subsidies, Mr Castle believes the main effect of the programme is to boost morale.

"If you are in a small country town and thrown out of work, it's easy to think no one cares," he says.

"If someone turns up and interviews you to help you get a job, that provides motivation."

Internationally, two broad approaches are often advocated to help unemployed people into the paid workforce. One is the market model typified by the United States. The other is the European model of "social partnership," followed, for example, in Ireland and Denmark.

The US model, as promoted in the Organisation for Economic Cooperation and Development (OECD) Jobs Strategy, includes:

* Decentralised, enterprise-level wage bargaining, increasingly with individual contracts, share options and growing use of casuals and temps.

* Freedom for employers to hire and fire. As Silicon Valley venture capitalist Pitch Johnson puts it: "You don't have to pay people redundancy pay here. We have almost no unions. So we hire people and grow quickly, knowing that if you don't make it you can let people go."

* Flexible hours, including part-time work.

* Low and restricted welfare benefits. In the US, a two-year limit on unemployment assistance was imposed in 1996, helping to halve the numbers on welfare by 1999, especially among sole parents.

All these factors have made wages relatively flexible - they fell behind inflation when unemployment was higher in the mid-1990s, but rose faster than inflation later in the decade as the economy took off.

The table shows that the result is a wider spread of incomes than in other developed countries. A rich American (the top 10 per cent income bracket) earns 4.12 times as much as a poor American (the bottom 10 per cent).

Clearly, this gives people stronger incentives to train for high-paid fields such as computing.

This may have helped boost jobs in the late 1990s. The table suggests a tendency for employment to grow faster in the more unequal countries of North America, Australasia and Britain than in the more equal nations of continental Europe and Japan. US unemployment was the lowest of the world's leading economies, at only 4 per cent of the workforce before this year's recession.

In particular, the growing use of temp agencies is believed to have cut half a percentage point off the unemployment rate. (Increasing the prison population from 0.3 per cent of Americans in 1985 to 0.7 per cent in 1998 cut almost another half a per cent).

But the table shows no clear relationship between inequality and unemployment rates, as opposed to employment growth, with relatively equal countries such as Japan and Sweden also achieving low unemployment.

In contrast to the American model, the European social partnership system aims, through centralised wage bargaining, to keep incomes relatively equal, protect workers from quick layoffs and pay high benefits to those who are laid off.

In Ireland, centralised bargaining was reintroduced in 1987 in response to an economic crisis, after a gap of several years. The unions agreed to wage increases of only 2 per cent a year for three years, below the inflation rate. In return, the Government compensated workers by cutting tax rates.

"People had come to a realisation that the crisis was very deep, so anything that seemed to give hope was acceptable," says Tom Wall, assistant secretary of the Irish Congress of Trade Unions.

Later three-year agreements up to last year's - called Prosperity and Fairness - repeated the formula, holding wage rises below inflation in exchange for tax cuts.

The share of wages in the national income dropped from 69 per cent in 1987 to 59 per cent in 1994, while the share of interest and profits rose correspondingly.

As in the US, this has coincided with a dramatic fall in unemployment, from 17 per cent to 3.6 per cent of the workforce, as the high profits attracted a surge of mainly US multinationals looking for a base in the European market.

Income inequality has widened in Ireland, as in almost all OECD countries. But the Government recently introduced a minimum wage, which will benefit the lowest-paid 23 per cent of the workforce.

In Denmark, where there has been centralised wage bargaining since 1899, equality is much greater. Danske Bank chief economist Jorgen Christensen says that with a third of fulltime workers on the top income tax rate of 63 per cent, and with unemployment benefits at 90 per cent of your previous wages, "you can't become rich or poor."

Bank economist Thomas Kyhl says Danes have their own tall-poppy syndrome that they call the "Law of Jante," based on a novel about life in a small Danish town: "You shouldn't think you are better than anyone else."

"We don't have any business heroes in Denmark," says Mr Kyhl.

"There are a few icons, such as Maersk [a shipping owner], not because of his ability to accumulate wealth but because of his endurance - being able to run this huge company - and because he doesn't stand out in public. He is very modest; you never hear him speak. The Danes like that."

Danish unions and employers meet the Government at the start of each wage round and agree on guidelines for pay rises that the economy can afford in relation to better productivity.

The system allows scope for individual companies to agree on higher wage increases if they can afford it.

Most agreements for the past 10 years have provided for an automatic 2 per cent for inflation, plus a further 2 per cent for productivity.

"That means the firms and factories can plan," says Niels Bono, an economist in the Danish Confederation of Trade Unions.

He says the agreements have kept wage-earners' share of the national income stable, and allowed employment to grow. Unemployment has dropped from more than 10 per cent in 1993 to 5.1 per cent.

By law, employers making large-scale redundancies must notify the Public Employment Service and negotiate with the workers. Salaried workers are guaranteed redundancy pay.

Another law requires the state to offer either training or jobs, in either the public or private sector, to young people after six months of unemployment and to people over 25 throughout the three years that their income-related unemployment benefits last. Those who turn down offers lose their benefits.

Denmark and Sweden spend more on active programmes to help the unemployed back to work than any other OECD countries - 28 per cent of a person's average annual output in Denmark, compared with 12 per cent in New Zealand and 3 per cent in the US.

An official evaluation of these policies last year found that training and job subsidies increase the chances of finding and keeping paid work for most groups, except those who were already highly educated. It found that the biggest effect of the policies was to motivate people to find work just before the point at which they would be required to take whatever job or training they were offered.

The structure of the Danish welfare system also makes it easier for parents to return to work after having children.

Unlike in New Zealand, the benefit rate is not affected by a partner's income. There is no separate benefit for sole parents, and the benefit for children is paid regardless of whether the parents are separated or together.

In addition, local councils are required to provide childcare for every child from the age of 1. Childcare is free for low-income parents, and those on higher incomes pay no more than one-third of the cost - typically 2000 kroner ($558) a month for 1 to 3-year-olds and 1650 kroner for older children.

With no financial penalty for living with a partner, it is not surprising that Denmark had relatively few sole-parent families in 1991 - only 17 per cent of all families, compared with 24 per cent in New Zealand. And with cheap childcare, Danish sole parents have paid jobs in almost the same proportions as parents with partners.

Danes with chronic sickness or disabilities are also encouraged to work. There are permanent wage subsidies for about 5000 people, and "flex-jobs" for a further 8000 people - where special conditions provide, for example, that if you have a bad back you do not have to lift heavy goods.

At Post Denmark's 630-strong Aarlborg postal centre in northern Jutland, 30 non-Danish-speaking immigrants are being paid by the local council to work at the centre for six months, after which Post Denmark will pay them.

Six chronically ill people work fulltime but are free to go to the doctor when they get sick; two people are on a job training programme partly financed by the council; one person with cancer works part-time in a flex-job, with half his salary paid by the council.

In the small town of Bjerringbro, the pump company Grundfos has hired 15 young people with criminal or drug convictions, with the local council giving the youngsters support in their spare time.

"The philosophy is that everyone has something to contribute, and also that business has something to contribute to national issues such as rehabilitation of young people with criminal tendencies," says Peter Owen, a New Zealander who works for Grundfos.

Most countries also help people who are starting businesses. Denmark offers loan guarantees to small and medium-sized businesses for an annual fee of 2-3 per cent.

Australia is investing $A76 million ($96 million) from the sale of Telstra shares, plus money from private sector and university partners, into "incubators" for information technology businesses in all seven mainland states and territories.

Even in what is arguably the most entrepreneurial place on Earth, Silicon Valley, veteran investor Pitch Johnson says the venture capital industry started with a federal law in 1958 providing that, if any group put up $US300,000 ($737,000), the Government would lend four times that much for investment in small businesses.

"Of the $300,000, the Government had another programme to lend you half of that," he says. "So we scraped up $150,000 between us and borrowed the other $150,000 from the Small Business Administration, and that enabled us to borrow four times that, so we had $1.5 million."

In Ireland, the state agency Enterprise Ireland assigns development advisers to Irish manufacturing and internationally traded services companies employing at least 10 people, working with them to boost their research and development, production and marketing.

Seamus Gallen of Enterprise Ireland's informatics directorate says it can provide grants for new jobs and for up to 35 per cent of research and development costs. It may also make shareholding investments - typically 5 per cent, sometimes up to £Ir25 million ($66 million).

In its report on Denmark last year, the OECD listed New Zealand as having made more progress in the 1990s than any other country towards implementing the American-style OECD jobs strategy. But if we want to ensure that all New Zealanders can contribute something to others, then Queensland's Wap is just one of many programmes around the world that might still offer us something to learn from.

LESSONS


1. We need to find ways to enable everyone to contribute to society, rather than paying them the dole to do nothing.

2. Both the American market model and the European social partnership model offer ideas from which we could learn.

3. We need to help small businesses to establish and grow.

Links


Breaking the Unemployment Cycle

The OECD Jobs Strategy

Department of the Taoiseach - Irish Government

Our turn

Send us your feedback:

Simon Collins

Letters to the editor (newspaper)

Other stories in this feature


Related features:

The jobs challenge

Common core values

href="http://www.nzherald.co.nz/storydisplay.cfm?reportID=57032">The knowledge society

Official website:

Catching the Knowledge Wave