Official Attitude To Unemployment
A Letter From The Department Of Employment 31/12/98
By Greg Connolly for Dr Paul Volker, Assistant Secretary Economic and Labour Market Analysis Branch

Dear Mr Atkinson
I refer to your recent letter to the Hon Warren Truss MP, Minister for Community Services, concerning staff reductions at Centrelink, and technology and its impact on the workforce. As many of the issues you raised in your letter are related to employment, your letter was referred to the Hon Peter Reith MP, Minister for Employment, Workplace Relations and Small Business. The Minister has asked me to reply on his behalf.

In your letter, you claim that advances in technology lead to a reduction in the overall workforce and hence, a reduction in income and spending power. While the implementation of new technology may displace workers in the short term this is not necessarily the case over the longer term. New technology can lead to higher employment through the benefits of lower costs to business and greater efficiency in production. As profitability rises, so too does the demand for labour. There are also cases in which the development of new technology has opened up new areas of demand (e.g in multimedia entertainment), hence creating greater employment opportunities.

You propose that one solution to the displacement of workers by technology is to extend the dole to every citizen who is not in paid employment. However, this is likely to significantly reduce the incentive to work and place a larger burden on government expenditure on welfare, which would most likely be financed by higher taxation. If this increase in taxation and accompanying reduction in the incentive to work were to lead to a reduction in employment, there would be an even heavier taxation burden on those still in paid employment. This is likely to further reduce the incentive to work. Limitless creation of money is highly likely to be inflationary. Unless a country is in a very severe recession, excessive creation of money, for unproductive purposes, is also likely to be inflationary. Contrary to the implication in your letter, the money supply is not dwindling rapidly but growing at least as quickly as the growth rate of nominal Gross Domestic Product, thereby supporting economic growth. In the year to October 1998, the M3 measure of the money supply grew by 6.9%, while total credit grew at an even faster rate of 10.7% over the same period. A Government directly injecting money into circulation is only likely to recover a proportion of the additional money as tax, given that most effective marginal tax rates are substantially lower than 100% and some of the additional expenditure would leak into imports. If the additional injection of money into circulation by the Government were to raise the Consumer Price Index (CPI), the Government would then have to spend more on allowances and other outlays that are linked to the CPI.

However, the Government does share your concerns about unemployment and has already implemented a number of measures aimed at reducing unemployment. These include the reforms to job assistance under the Job Network, industrial relations reform, and the introduction of schemes such as Work for the Dole and Green Corps. The Government is also addressing unemployment through sound economic management that is producing sustained low inflation and interest rates, and steady economic growth.

Thank you for bringing your concerns to the attention of the Government.

Yours sincerely