Unemployment and Income Distribution

Unemployment is widely regarded as the foremost economic problem currently facing the Australian economy. Among its many evils, high unemployment – especially long-term unemployment – has become a major source of poverty. The unemployed have now replaced the aged as the predominant group in poverty in Australia (King 1997). It also contributes to the rising levels of anxiety about the increasing risks faced by employed people of involuntary loss of their jobs.1 Psychologists have concluded that the pain of unemployment arises from two sources: ‘lack of money and lack of structure and purpose in life’ (Feather 1997, p. 39). Detailed interviews with unemployed people have ‘revealed again and again the limiting effects of loss of income and shortage of money on many aspects of family life and the negative effects of relative poverty on psychological well-being ... In the absence of financial strain, the negative effects of unemployment were halved’ (Feather 1997, p. 40).2 The persistence of high levels of unemployment in Australia and in many European countries has been attributed to ‘structural rigidities that reduce employment opportunities for low-skill workers’ (OECD 1996, p. 22). ‘Structural rigidities’ include minimum wage laws, which are claimed to prevent the wage structure from responding to declines in the relative demand for low-skill workers. Advocates of this view draw attention to the fact that a number of countries which have had relative success in reducing unemployment also operate relatively unregulated labour markets and have experienced substantial rises in inequality in the distribution of earnings, partly because of falls in pay at the bottom. The United States, Canada, the United Kingdom and New Zealand are given as examples.3 The experience of these countries is contrasted with those of many in the European Union, which have avoided the rising inequality but also have high and persistent unemployment. Australia has experienced rising inequality, but not as much as in the first group of countries and its wage structure is still relatively compressed. It