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ANU COLLEGE OF ARTS & SOCIAL SCIENCES

CENTRE FOR AbORIGINAL ECONOmIC

POLICy RESEARCh

Prospects or closing t e gap in a recession:Re isiting t e role o acroecono ic actors inIn igenous e plo ent

B.H. Hunter

CAEPR Topical Issue No. 01/2009


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Prospects or closing t e gap ina recession: Re isiting t e role o

acroecono ic actors inIn igenous e plo ent

Boyd Hunter

Senior Fellow, Centre or Aboriginal Economic Policy Research, Australian National University,Canberra; e-mail: o . [email protected] u.au

Centre for Aboriginal Economic Policy Research, Topical Issue No. 1/2009

An electronic publication downloaded from .

1

GLObAL FINANCIAL CRISIS, ThE NATIONAL ECONOmy ANdINdIGENOUS AUSTRALIANS

It is hard to escape the global nancial crisis. Stock markets around the world have plunged in unison in responseto the poor duciary management o loan port olios o many nancial markets. While Australia is not yet in

a technical recession, most countries are simultaneously entering the defationary stages o their business cycle,with many experiencing major contractions in their national output. Malcolm Edey, Assistant Governor (o theReserve Bank o Australia) indicated in a recent speech, Given the abrupt deterioration in the world economy, itwont be possible or Australia to avoid signi cant short-term weakness (Edey 2009).

The global lack o access to credit is depressing both consumer and investor con dence, and the ederal governmenthas enacted large stimulus packages to stimulate aggregate demand in Australia. Conventional wisdom ineconomics is that this stimulus should enhance macroeconomic activity; but the likely e ect is diminished tothe extent that economic actors save extra income (or do not invest in productive activities), or there is leakagein the circulation o money to overseas actors. Consequently notwithstanding the policy response to limit theadverse macroeconomic impacts it is probable that there will be a substantial increase in unemployment and aconcomitant loss in employment prospects. 1

This short paper is an attempt to tease out some o the issues o these adverse macroeconomic conditions on asmall segment o the national population, Indigenous Australians. Like other disadvantaged minorities they maybe particularly susceptible to the prospect o large increases in unemployment and reductions in national wealth,but with a ew notable exceptions such issues have been rarely discussed (Altman & Daly 1992b).

Altman and Daly (1992b) explicitly ask the question: Do fuctuations in the macroeconomy infuence Aboriginalemployment status? They argue that the increase in publicly unded Indigenous employment between 1971 and1991 partially insulated Indigenous workers rom macroeconomic infuences. However, the trends in publicly

unded Indigenous employment have reversed in recent years with the decline in the Indigenous public sectorassociated with the dismantling o Aboriginal and Torres Strait Islander Commission (ATSIC) and the slow declinein Indigenous employment in the ederal public sector (e.g., Commonwealth o Australia 2007). One reason or the
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2 Hunter

Centre or Aboriginal Economic Policy Research

latter is the increased reliance on graduate recruitment in the ederal public service, which institutes a biasagainst Indigenous employment. Despite recent improvements in Indigenous educational attainment, sadlysuch changes have not kept up with those observed or other Australians (Altman, Biddle & Hunter 2005;Altman, Biddle & Hunter 2008). Certainly the gap in the incidence o graduate quali cations between

Indigenous and other Australians is substantial and shows no sign o disappearing in the near uture.Indeed, Altman, Biddle and Hunter (2008) use data rom the last three censuses to show that it will be atleast one century be ore the proportion o the respective populations with a degree level quali cation areequal.2

Obviously changes in Indigenous economic activity are not going to a ect the macroeconomy signi cantly:however broader economic actors and macroeconomic behavioural patterns will drive Indigenous economicactivity. In order to understand the likely e ects o macroeconomic outcomes on Indigenous workers, itis essential to understand the extent to which Indigenous labour market outcomes are driven by eitherthe behaviour o employers or the pre erences and resulting behaviours o the Indigenous work orce.Economists call such infuences demand-side and supply-side actors respectively.

The next section examines the relative role o demand and supply actors in order to explore the extentto which Indigenous employment is separate rom macroeconomic orces. The ollowing section thenrehearses some arguments concerning the dynamics o Indigenous employment, and explores, using thediscouraged worker and additional worker hypotheses, how Indigenous labour orce participation ratesmight change with the adverse macroeconomic conditions. The nal section examines the implications orthe Australian Employment Covenant and policy objectives o closing the gap in Indigenous employmentoutcomes rom the prospective onset o adverse economic times.

dEmANd FOR ANd SUPPLy OF INdIGENOUS wORkERS

Altman and Daly (1992a) build their argument on both the increasing Indigenous engagement in thepublic sector and the high level o industry segregation o Indigenous and non-Indigenous employment.Hunter (2004) extends this analysis to show that the majority o this industry segregation is concentratedin public sector employment with measured segregation in Indigenous employment; the private sectorbeing about hal that in the public sector (e.g., the Community Development Employment Projects (CDEP)scheme). Taylor and Liu (1995) demonstrate that a high level o overall industry segregation betweenIndigenous and other workers is evident in rural/remote areas.

Segregation in the industry o employment can refect either the average choices o Indigenous individualsabout where they want to work (i.e., their pre erences) or external constraints on these choices (e.g.,employer discrimination and other demand-side infuences). It is conceptually di cult to identi y the

relative contribution o such actors. Hunter (2004) attempts to document the relative roles o supply anddemand-side actors. Industries grow at di erent rates over time, and this means that one can predict theexpected growth in Indigenous employment given the current mix o industries that employ Indigenousworkers. This industry-mix component o growth is closely related to many popular indexes o employmentdemand used in economic analyses (see Katz & Murphy 1992). The remainder o employment growth canbe attributed to national job growth and a rather complex mixture o demand-side and supply-side actors.There ore, while Hunter (2004: Chapter 3) does not, and cannot, separately identi y demand-side romsupply-side infuences, that research does put a lower bound on the importance o demand-side actors.The bottom line rom that research is that at least one hal (and possibly much more) o the changes inIndigenous employment are explained solely by demand-side actors. Accordingly, we have to expect thatadverse macroeconomic times will adversely a ect the demand or Indigenous workers substantially.

CdEP:CommunityDevelopmentEmploymentProjects


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Prospects or closing the gap in a recession 3

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Table 1 documents the overall distribution o Indigenous and non-Indigenous workers across the variousindustries using the latest census, which predates the current global nancial crisis. Overall the distributionso employment were not that di erent to that observed in earlier censuses (with the possible exception o Indigenous involvement in mining, which grew strongly between 2001 and 2006).

Overall Indigenous workers still tend to be employed in di erent industries rom non-Indigenous workers.However, Table 1 uses a recent assessment by a company IBISWorld to provide a broad qualitative assessmento how industries might are in the current downturn. 3 Note that this table involves some interpolation

and judgement calls on the part o the authors, but should provide a rough basis or a broad assessmento how Indigenous workers might are in the near uture. The nancial sector will be particularly hard hit,

Table 1. Industry distribution of Indigenous and other Australians in 2006and prospects in the economic downturn

2006 in ustr co position(% o total e plo ent)

I e iateProspects or

In ustr or 2009In igenous Non-In igenous

Agriculture, orestry & shing 3.2 3.2 GoodMining 2.2 1.2 PessimisticManu acturing 7.9 10.8 WeakElectricity, gas, water & waste services 1.0 1.0 MixedConstruction 7.3 8.0 MixedWholesale trade 2.6 4.5 WeakRetail trade 8.0 11.7 WeakAccommodation & ood services 6.7 6.5 WeakTransport, postal & warehousing 4.2 4.8 WeakIn ormation media & telecommunications 1.1 2.0 WeakFinancial & insurance services 1.2 4.0 DisasterRental, hiring & real estate services 1.0 1.7 WeakPro essional, scienti c & technical services 2.4 6.9 MixedAdministrative & support services 3.9 3.2 MixedPublic administration & sa ety 17.9 6.7 MixedEducation & training 8.8 7.9 GoodHealth care & social assistance 15.4 10.7 Good

Arts & recreation services 1.7 1.4 MixedOther services 3.5 3.8 Weak

Total 100.0 100.0

Note: Industry data is derived rom the 2006 Census while the prospects o the industry in the economicdownturn are in erred using the IBISWorld (2009) pamphlet, Economic Downturn: Who will thrive in

2009? as a starting point. The assessments are inherently subjective. For example, disaster is rather

emotive term but it seems to accurately describe the current predicament in the nancial sector.

The IBISWorld pamphlet told investors to avoid the mining sector, which has been translated to

pessimistic or this table. Where the sector was not re erred to explicitly, I have interpolated using

the prospects described or other similar industries.
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4 Hunter


while only education and health are going to are relatively well. Even so it would probably be nave toexpect large absolute increases in employment in education and health: rather they are only going to arerelatively well in the economic downturn.

The mining sector prospects are described in pessimistic terms by IBISWorld, possibly because o uncertaintyabout the export demand or resources. 4 Notwithstanding the recent growth in mining, the Indigenousmining sector is still extremely small, and hence one would expect, other things being equal, that Indigenousworkers may be less a ected by the prospect o job losses in that sector.

While the general lack o involvement in the nance sector may also protect Indigenous workers to someextent, in all likelihood there will be a substantial e ect on the real economy especially in the assets heldby many Australians. This decline in wealth and income rom nancial assets are a separate issue that willbe discussed in the nal section.

Another consideration is the number o jobs or vacancies that are currently available. Recent Departmento Employment, Education and Workplace Relations (DEEWR) data rom their online employment website

showed around 40,500 vacancies were available throughout Australia in mid-February 2009 (AustralianGovernment 2009a). This data is not broken down by industry, but the top three occupational groups were:Labourers, Factory and Machine Workers (6,600); Food, Hospitality and Tourism (4,700) and Marketing andSales Representatives (3,400). While there is considerable indigenous participation in these occupations,there are also a large number o non-Indigenous persons unemployed with suitable skills.

Overall, the above analysis seems to indicate that Indigenous workers may be less a ected by the economicdownturn than other Australian workers. However, even i the demand or Indigenous workers is notdirectly a ected by sectoral change associated with the economic downturn, the adverse macroeconomicconditions will probably worsen Indigenous outcomes through their e ect on the probability o employmentand unemployment and the incentives or job search. That is, even i there is no decline in the job prospectsin the industries that currently employ Indigenous workers, the higher unemployment among relativelyskilled non-Indigenous workers may mean that there is greater competition or job vacancies.

ThE dyNAmICS OF INdIGENOUS EmPLOymENT ANd UNEmPLOymENT:ThE dISCOURAGEd wORkER vERSUS ThE AddEd wORkERhyPOThESES

Gray and Hunter (2005) demonstrate that the dynamics o Indigenous employment and unemployment areclearly di erent to that o other Australians. Using representative samples o job seekers, they demonstratethat the Indigenous unemployed are hal as likely as other Australian unemployed to move into employment

a ter 15 months (between 1996 and 1997). Furthermore, and an observation that is particularly importantor this analysis, Indigenous unemployed are substantially more likely to stop looking or work and leave

the labour orce a ter a 15-month break (e.g., or emales, the relevant di erential in this transitionwas 40.1% compared to 22.4%). Indigenous unemployed are also more likely to stay unemployed whencompared with other job seekers. The other possible transition over this 15-month period was that theunemployed could become employed around 20 per cent o unemployed males and emales becameemployed (23% and 17.8% respectively). The composition o jobs ound broadly ollowed that evident inthe labour market with male jobs being over two thirds ull-time and hal o the emale jobs being part-time (Gray & Hunter 2005).

dEEwR:Department o Employment,Education andWorkplaceRelations


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Table 2. Marginal effects of the probability of job retention, three or moreconsecutive months of employment, Indigenous workers, 19967

Male (%) Female (%)

Age 1.4 -1.2Year 11 19.4* 14.6**Year 12 32.4* 27.8*Trade quali cation 16.7* 24.9*Other quali cation 10.5 17.5*Degree/diploma 27.5* 33.3*Still in education -10.2 -0.1Poor health -18.5* -11.3**Arrested -18.8* -5.9Been on a labour market program 2.6 14.3*Base case 55.3 57.3

Note: * and ** Indicates that the underlying coe cient is statistically signi cant at the 5 per cent and 10

per cent con dence levels respectively. The marginal e ect is the change in probability o retaining a

job rom a re erence person (i.e., the base case) as a result o varying the relevant explanatory actor.

Source: Gray and Hunter (2005: Table 5)

Job retention is another major aspect o the dynamics o the Indigenous labour market. Table 2 describes

some o the major actors underlying the ability o Indigenous workers to keep their jobs over three ormore consecutive months (Gray & Hunter 2005). Social, environmental and cultural actors are importantdeterminants o Indigenous people nding employment (Borland & Hunter 2000). Table 2 illustrates thatsuch actors are also crucial in explaining Indigenous job retention overall, the results rom Hunter andGray (2005) are broadly consistent with those ound in studies o the determinants o labour orce status(see Hunter 2001; 2004 or surveys o this literature). Indigenous job retention is particularly adverselya ected by actors such as interactions with the criminal justice system, health and poor education.Finishing Year 12 increases the probability o employment by around 30 percentage points (as compared toIndigenous individuals who have not reached year 12). This observation probably refects that the skill levelo individuals is positively associated with productivity, and hence educated workers are more valuableto employers. In times o structural change, workers with general skills may also be more fexible; hence

rms may hold onto and retain such workers even though market conditions (and there ore the goods andservices produced) might change.

Other important actors in job retention include health and arrest. Having poor health reduces theprobability o job retention or males by 18.5 percentage points, and the e ect is statistically signi cant.Having been arrested in the last ve years reduces job retention or males or three or more consecutivemonths by males by 18.8 percentage points. The e ects o health and arrest or emales are substantiallysmaller; reducing the probability o employment by 11.9 and 5.9 percentage points respectively (with thelatter e ect not being statistically signi cant).

The results or Table 2 highlight the role o negative actors that are particularly evident in the Indigenous

population. It is possible or even probable that such actors are also important or non-Indigenous jobretention. Note that with respect to the role o arrest, the low incidence o arrest in the non-Indigenous


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population means that such data are not generally collected in surveys o the total population consequentlythese Indigenous-speci c results are rather unique. This observation tells a story in itsel in that the extantgap in social outcomes between Indigenous and non-Indigenous workers is one reason or the ongoinghigh levels o Indigenous disadvantage.

Another dynamic in the Indigenous labour market is how people nd jobs. In the economic theory o jobsearch, there are two wage levels that determine whether people look or work. The rst is the labour supplyreservation wage the wage rate below which the person would not accept a job. The second is the searchreservation wage below which the person will not search or work, even i they are willing and availableto work. I there are search costs then the search reservation wage will be greater than the labour supplyreservation wage. Workers that are marginally attached to the labour market are constrained participantswho optimally choose not to search or employment because their perceived bene ts rom search all shorto the cost. For these individuals a all in the costs o job search or an increase in the probability o success

rom job search would mean that they would start actively searching or employment.

The costs and bene ts o searching or work are both a ected by the level o labour demand, which in turnis heavily dependent upon overall economic activity in both the Australian economy and the local labourmarket. The main avenues by which such actors a ect job search is through the e ect on probability o employment (and unemployment) in the relevant sectors o the labour market. Other actors also comeinto the individual calculus o the value o job search, including the level o wel are or alternative incomesources vis--vis the wage o ered (Daly & Hunter 1999) and the aggregate number o job vacancies in theeconomy at large.

Such concepts have a long history in labour economics. Empirical studies o the relationship between thelabour orce participation rate and the unemployment rate date back to the 1940s (Gray, Heath et al. 2002).Woytinsky (1940) developed the additional worker theory which suggests that the participation rateshould increase during recessions because there would be an infux o ringe potential workers into the

labour market. This occurs because o their need to supplement amily income ollowing unemployment o the breadwinner. In contrast Long (1958) and Humphrey (1940), argued that unemployed workers becomediscouraged during a recession due to the diminished likelihood o nding employment, and consequentlyexit the job market. This phenomena is labelled the discouraged worker e ect. This theory suggests thatthe participation rate should decrease during recessions because people who would otherwise have enteredthe labour orce become discouraged in a recession and tend to remain out o the labour market. Looking

or work has such a low expected pay-o or them that such people decide that spending time at home ismore productive than spending time in job search.

McConnnell and Brue (1992) argue that the discouraged worker e ect should outweigh the added-workere ect because the discouraged worker e ect applies to many more households than the added worker

e ect. For example, i the household unemployment rate rises rom, say 5 to 8 per cent, only those 3 percent or so o all amilies who now contain an additional unemployed member will be subject to the addedworker e ect. On the other hand, worsening labour market conditions may have a discouraging e ectupon actual and potential labour orce participants in all households (McConnell & Brue 1992: 71).

Labour Force Survey data or March 2009 seem to indicate that there is a net added-worker e ect evidentwith both national unemployment and labour orce participation increasing in recent months (AustralianBureau o Statistics (ABS) 2009). This can be rationalised by the act that wealth and incomes are likely tohave allen by more than the probability o nding work and hence the incentive to supplement amilyincome dominates. However, in the long-run one would expect the increased probability o unemploymentto dominate and the discouraged worker e ect will become more evident. One caveat to this prediction

AbS:Australian Bureauo Statistics


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is that the ongoing en orcement o policy requirements that most wel are recipients look or work, underthe mutual obligation ramework, puts a foor under the number o people who will o cially indicate thatthey not looking or work.

The o cial ABS de nition speci es that a discouraged worker must be available to work within our weeks(but are discouraged rom looking or work by the lack o suitable/available jobs). Un ortunately, thepublicly available data or Indigenous population does not contain direct in ormation on the availability tostart work ( or those not looking or work). Consequently, the existing estimates o Indigenous discouragedworkers are de ned as those who want to work but are not actively looking or work (Hunter & Gray 2001).Using this broad de nition, Indigenous males are almost our times more likely than other Australian malesto be wanting work but are not be actively looking or work (15.8% as opposed to 4.2%). Indigenous

emales are almost three times more likely to be discouraged workers than are non-Indigenous emales(29.3% as opposed to 10.0%). While such evidence is somewhat dated now, being based on 1994 data, theydemonstrate that one cannot discount the possibility that discouraged workers will be a signi cant issue

or Indigenous Australians in the current downturn.

Hunter and Gray (2001) describe some o the issues or determining whether individual Indigenous jobseekers look or work. In addition to the role o the business cycle, the list o actors that infuencewhether a person is discouraged worker include: a range o personal characteristics (e.g., age; skill level;di culty speaking English), relationship status, combined with number and age o dependent children,5 the wage and non-wage each partner can command in the labour market, housing tenure, and socialenvironmental actors. Voluntary work appears to complement participation in the mainstream labourmarket o Indigenous jobseekers by cultivating a culture o work, hence increasing awareness o what ittakes to secure and keep a job. It is worth noting that geographic actors were not statistically signi cant,so the likelihood o being a discouraged worker is not sensitive to locational actors or local regionallabour market conditions (in remote Australia or elsewhere).

Underemployment has arisen as a prominent issue over recent decades with the sustained national growthin part-time employment. In 1994, the incidence o part time employees who would pre er to work longerhours (the underemployed) was particularly evident among Indigenous employees with 19.5 per cento emale workers and 25.3 per cent o male workers indicating they would pre er to work more hours(Hunter 2002). Hunter (2002) also showed that the Indigenous underemployed work about 11 hours lessper week than Indigenous employees who are unconstrained in the number o hours they work. Not onlydo the underemployed have di culty nding enough work, but they were also less likely to be working

or continuous periods. For example, the underemployed being more likely to be working in any availablejob including casual or seasonal jobs rather than being matched with their optimal job. It is worth notingthat CDEP scheme workers are about twice as likely to be underemployed as other Indigenous workers. Theissue o CDEP scheme work is complicated by evolving program re orms, which will be re erred to in theconcluding section.

This analysis o the discouraged workers and underemployment among Indigenous people points to a roleor demand-side actors, but it must be acknowledged that it is extremely di cult to e ectively separate

out supply and demand-side actors. For example, educational attainment is widely believed to increaseindividual productivity, but it may also increase the desire to work by, inter alia, increasing the opportunitycosts o not working. Notwithstanding these analytical di culties, long term policies which augment thedemand or Indigenous workers, such as e ective education and regional development policies, are likelyto substantively improve Indigenous labour orce status.


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The dynamics o Indigenous job search and other labour market behaviour described in this section are likelyto drive the eventual outcomes arising rom the current economic downturn. While the above dynamicsmay be sensitive to the stage o the business cycle in which data were collected, many economists arepredicting that the aggregate unemployment rate will reach around 8 per cent in the current slow down,

which is broadly consistent with that evident when the data used in this section was collected.

Uncertainty is the order o the day or both Indigenous and non-Indigenous Australians in adversemacroeconomic times. Notwithstanding, it is possible to make an educated guess about what might happento socioeconomic outcome or both groups in an economic downturn, and hence speculate about theprospects or closing the gap or overcoming Indigenous disadvantage (Steering Committee or the Reviewo Government Service Provision 2007). The next section explores these issues by discussing the implications

or the Australian Employment Covenant (the Covenant) a national industry-led initiative especiallydriven by Andrew Forrest o Fortescue Metals Group. The Covenants initial aim was the placement andlong-term retention o 50,000 Indigenous people into Covenant jobs within a two-year period. Forrest hasnow distanced himsel rom this timetable (OConnor 2009). Clearly the prospects or closing the gap will

be a ected by recession, so the major implications o adverse macroeconomic times or both the closingthe gap policy and the Covenant will be discussed in turn.

ImPLICATIONS OF ThE ECONOmIC dOwNTURN FOR CLOSING ThE GAPANd ThE AUSTRALIAN EmPLOymENT COvENANT

One o the main messages o this paper is that macroeconomic actors cannot be ignored, or Indigenousworkers are rmly embedded in the Australian economy. Public policy may provide some bu er againstjob losses, but Indigenous employment is not in a position to de y gravity. Altman, Biddle and Hunter(2008) demonstrate that Indigenous employment did eventually respond to the 10 years o buoyant

macroeconomic conditions, although the bene ts took some time to trickle down to Indigenous workers.The ongoing mismatch between the skills demanded by employers and the skill sets that Indigenous peoplepossess means that Indigenous workers are likely to be at the back o the job queue in the current economicdownturn.

The success o the closing the gap policy depends on what happens in non-Indigenous Australia, as wellas the trends in measured changes Indigenous disadvantage (Altman, Biddle et al. 2008). Obviously, themeasured gaps are directly a ected i the non-Indigenous benchmark changes; however the ability o Indigenous outcomes to reach such benchmarks will also change with variations in social and economicconditions. Clearly, the current economic downturn is one such condition or event.

Low skilled workers with little experience a group that includes most Indigenous people tend to be

the last workers hired in a period o macroeconomic growth and the rst workers shed in an economicdownturn (i.e., Last In First Out or LIFO accounting). Businesses o ten rationalise this behaviour on thegrounds that they want to minimise turnover o their most experienced (and usually most high value-added) sta . The crucial point is that the ability to close the gap cannot be sustained inde nitely, asit depends on macroeconomic growth which by de nition goes up and down with the business cycle.There ore relative Indigenous outcomes are likely to improve during sustained periods o economic growth,but all else being equal, relative outcomes tend to stagnate or get worse in the recessionary periods o thecycle. This is an important point to keep in mind with the continuing global nancial crisis and Australiasresultant diminished economic growth prospects.

LIFO:Last In First Out


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Superannuation unds are being particularly hard hit by substantial alls in the stock market valuations.The lowering o interest rates are a suitable response to stimulate aggregate demand, but it also hassubstantial impacts on people on xed incomes, or example sel - unded retirees. The slump in stock pricesand wealth also has substantial implications or superannuation and people on xed incomes. The decline

in net wealth will signi cantly and adversely a ect those who live long enough to avail themselves o superannuation payouts or have worked long enough to accrue substantial entitlements. However, thisis unlikely to include substantial numbers o Indigenous people, whose average li e expectancy is around17 years less than the non-Indigenous population (ABS/Australian Institute o Health and Wel are 2008).Even i the nancial crisis does reduce the average income o the non-Indigenous population and henceclose the income gap, there is no necessary reason why it will improve the employment disadvantageexperienced by Indigenous Australians vis--vis other Australians. Indeed, the reduction in net wealth mayinduce an added worker e ect and increase the competition or scarce jobs. Given the historical lack o skills o many Indigenous workers, their relatively short exposure to labour market will ensure that they arein a poor position to compete with more productive workers who have recently held jobs.

The Covenant was launched on 30 October 2008 at Kirribilli House and, at last count, around 10,000 jobsthat have been promised to Covenant organisers (OConnor 2009). It is a credit to the Covenant that it hassecured so many commitments rom employers in adverse macroeconomic times (stock markets startedtheir decline rom November 2007). However, it is timely to consider the likelihood o achieving the50,000 target in the near uture. Firms that are under mani est nancial pressures are not likely to employextra workers when their bottom line is under pressure. As argued above, they are particularly unlikely toemploy Indigenous workers. Andrew Forrest appears to have secured a commitment rom the governmentthat subsidies or training will be tailored to employers speci cations (Perpitch 2009). However, questionsremain as to whether the deep skill de cits arising rom a long history o educational neglect can beovercome by short-training courses.

One alternative is that rms can increase their subsidy to Indigenous workers, but their ability andwillingness to do so is diminished as the survival instinct takes over. The low level o (aggregate) demandor goods and services means that pro t margins are constrained or most employers. This is not to deny

that some rms will thrive in a harsh macroeconomic climate. 6 The main point is that so-called corporatesocial responsibility is unlikely to be su cient or enhancing Indigenous employment outcomes in theshort-run. When pro t margins are restored to the levels evident be ore the economic downturn, theCovenant may be more success ul in achieving its target. It is encouraging that signi cant elements in theprivate sector are trying to be actively involved in overcoming Indigenous disadvantage, but it is importantto acknowledge the limitations to such initiatives.

In the last years o the Howard Government, the CDEP scheme was wound back to ocus only on regionaland remote areas. The current round o re orms re ned the ocus o CDEP scheme to remote areas (seeAustralian Government 2009b). Furthermore, even in remote areas there will be transitional arrangementsso that new participants in the re ormed CDEP will access the program while on the relevant incomesupport rom 1 July 2009. Existing CDEP participants in remote areas will be able to access CDEP wages until30 June 2011. The main implication o these re orms to CDEP is that the increased number o Indigenousjobseekers may put pressure on regional labour markets, especially in remote areas. At the end o February2009, only 17,000 participants were employed in the CDEP scheme this gure is only hal that evident in2006 and hence, all things being equal, one would expect that there are around 18,000 more Indigenouspeople competing in the open job market as a result o the job search requirement entailed in manyincome support payments. When the remaining participants are eventually displaced rom the scheme,this will place extra pressure on the Indigenous labour market. 7 Not only will this increase the number o

jobs required or indigenous people to close the employment gap, but is likely to induce a more substantial


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discouraged worker e ect in such areas, as it e ects the costs and bene ts o job search. Hunter (2009)demonstrates that CDEP scheme has an unambiguously positive e ect on individual wellbeing, and hencethe re orm will probably worsen other aspects o Indigenous disadvantage to the extent it diminishes CDEPemployment (especially in the short-run).

There is no guarantee about what will happen to Indigenous and non-Indigenous employment, but basedon historical evidence we would expect the employment gap to increase in absolute and relative terms.Is there anything that policy makers can do to prevent this occurring? Conventional responses involveactive labour market programs, but these initiatives only have had limited success in redressing Indigenousdisadvantage (Hunter, Gray et al. 2000). A study o 1,580 Indigenous job seekers showed that respondentswho completed a labour market program were only 6.3 percentage points less likely to employment shortlya ter the program than those who did not complete the program. 8

Wage subsidies were the most success ul labour market programs as they were associated with longerspells in employment, less time in unemployment and a higher number o spells in employment thanother labour market programs (Hunter, Gray & Chapman 2000). One reason that wage subsidies achievedbetter outcomes or Indigenous job seekers than job creation, training subsidies and employment supportprograms was that it had higher rates o completion. This is not surprising, since wage subsidies demandlittle rom the jobseeker involved once the subsidy is being paid.

It is hard not to be pessimistic about the e cacy o labour market programs or Indigenous job seekers,especially in adverse economic times. Note that the Hunter Gray and Chapmans (2000) results are basedon 19967 data, drawn when the national unemployment rate was well over 8 per cent. Given that manyeconomists are predicting that the current downturn will become a recession and the unemploymentwill reach levels at least this high, our ndings cannot be easily discounted as being an arte act o theconditions in the mid-1990s.

Wage subsidies still exist or Indigenous jobseekers and may o er one note o optimism. I the Covenantdraws in employers who can subsidise their bottom line using Indigenous workers, then there is a vaguepossibility that the employment gap might be closed somewhat. There are two potential problems with thisscenario. First, and most importantly, wage subsidies have only been available or Indigenous jobseekers

or some time and there has not been substantial change in the employment gap to date. 9 The secondproblem may be that the government may respond to the higher rates o aggregate unemployment withwage subsidies and other labour market programs. In that case, the relative advantage o Indigenousjobseekers arising rom the subsidy dissipates and the possibility o a positive interaction between subsidiesand the Covenant is eliminated. In summary, the prospect or closing the gap between Indigenous andnon-Indigenous employment is extremely limited consequently, my attempts to be optimistic about theprospects would appear to degenerate to be grasping at straws. Notwithstanding, it is possible that positive

synergies between the greater commitment o particular companies, wage subsidies and training tailoredto employer needs may enhance Indigenous employment outcomes. However, one could not be con dentthat this would be a wide-spread phenomenon in an adverse macroeconomic climate. A rather obviouspoint to make is that the total number o vacancies currently listed on DEEWRs online employment website is less than the target or the Covenant so, even i the competition rom non-Indigenous jobseekerswas limited, it would clearly take some time to achieve the rather ambitious goal set by Andrew Forrest.While the Covenant may not be as success ul as it originally set out to be, it might be an importantsymbolic contribution in the long-run.


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NOTES

1. Not only does the experience o unemployment increases the chances o a uture spells o

unemployment, but joblessness also leaves permanent scars on individuals when people nd workbecause o the stigma some employers ascribe to the unemployed (Arulampalam 2001). Not onlydo these people lose income during periods o joblessness, but the wage penalty or having beenunemployed is as much as 14 per cent o the wage expected i the person had not experiencedunemployment (Arulampalam 2001). Redundancy seems to be less stigmatizing than other pathwaysinto unemployment.

2. This estimate is based on the assumptions that the improvements in both Indigenous and non-Indigenous outcomes measured between the 1996 and 2006 censuses continue at the same rate.

3. IBISWorld is a Business In ormation provider who o ers comprehensive background in ormation onall industry, top 2000 companies and the business environment.

4. Even in countries still experiencing some growth like the Peoples Republic o China, the depresseddemand or goods rom the developed world means that resource requirements are limited.

5. Children a ect the costs o working (e.g. childcare) as well as value o time spent in householdproduction, and sociological actors surrounding attitudes towards parents working.

6. Indeed some structural adjustment is likely to eventually occur, but the economy must endure higherlevels o unemployment and low wage growth (or contractions) i these positive adjustments are tooccur.

7. The ABS (2008) reports that Indigenous data rom the Labour Force Survey showed that the number o indigenous employed increased signi cantly with an extra 20,000 or so jobs between 2002 and 2007.Over the same period, the employment-population ratio did not change (and is still around 48.4 %)and hence the increased number o Indigenous jobs only kept up with the population growth. Thelarge loss o CDEP jobs, and the prospect o urther losses as participants move onto other incomesupport arrangements, will place enormous pressures on the Indigenous labour market.

8. Note, the employment rate a ter labour market programs is slightly better when compared withthose who did not start any such program (about 10 percentage points).

9. To be air, there was some improvement in Indigenous employment vis--vis other Australiansbetween 200106 although, this could be attributable to either general buoyant labour marketconditions or the existence o Indigenous-speci c wage assistance program in the last inter-censalperiod.


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12 Hunter


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