Issue Brief 11 / 1996

The recent Budget cuts in the Indigenous affairs portfolio are likely to lead to a substantial rise in the unemployment rate among Indigenous people before the year 2000. The major factors underscoring poor labour force outcomes are:

• the limited employment prospects in the areas where Indigenous people live, and
• the recent budgetary restrictions on the growth of the 'work-for-the-dole' Community Development Employment Projects (CDEP) scheme in the medium term.

In the Centre for Aboriginal Economic Policy Research discussion paper, Indigenous labour force status to the year 2000: estimated impacts of recent Budget cuts, Boyd Hunter and John Taylor made dire predictions regarding the future position of Indigenous Australians in the labour market. Almost two-thirds of all jobs for Indigenous people are now in public and community sectors of the labour market due largely to growth in the CDEP scheme. A concern previously articulated in regard to such over-reliance on government programs for job growth is the vulnerability to any significant shift in government policy that this entails.

The 1996-97 Budget and Indigenous labour force status

The 1996-97 Budget marked a break with recent Indigenous affairs policy after years of fiscal expansion. One consequence has been a halt to new CDEP schemes and reductions in capital expenditure and training for existing schemes. Set against provisions for natural growth in participation, it is not unreasonable to assume that the net effect of these announcements will be to restrict CDEP scheme employment to its current level.

On the basis of this assumption, this paper calculates a number of possible outcomes in Indigenous labour force status to the year 1999 based on extrapolation of known parameters in labour market performance between 1986 and 1994. These calculations reveal that, in a best-case scenario, the employment/population ratio and the unemployment rate for Indigenous people will remain unchanged at 36 per cent and 38 per cent respectively. In the more likely scenario, however, the employment/population ratio is predicted to decline from 36 per cent to 33 per cent and the unemployment rate to rise from 38 per cent to almost 43 per cent. A key point to note is that these projected estimates are based on conservative assumptions.

Source: Table 6 Hunter and Taylor 1996.

The graph summaries the results of this research. The labour market outcomes of Indigenous people will not improve before the year 2000 in any of the scenarios examined. However, the most likely outcome (scenario 2) is that the unemployment rates increase by over 11 per cent between 1994 and 1999 while the employment/population ratio falls by just under 10 per cent.

The poor prospects for Indigenous employment contrast sharply with Treasury forecasts for the total population. While no change in the overall unemployment rate is anticipated to the year 1998, there are certainly no projected declines in the labour market.

Policy implications

The main dynamic in projecting Indigenous labour force status is the ever-increasing number of young Indigenous adults who are entering the transition phase from school to work, a process that will continue well into the new millennium. In the past, the CDEP scheme has helped absorb much of this expanded labour supply. Now that this capacity is curtailed, the challenge for policy makers within the Aboriginal and Torres Strait Islander Commission (ATSIC) and in other government portfolios will be to quickly find alternative and more permanent means of creating opportunities for new entrants to the workforce.

To date, changes in the macroeconomic environment have had limited impact on Indigenous labour market indicators because of increasing subsidies to Indigenous employment. This buffer has now diminished. Among the indirect impacts of the Government's deficit reduction strategy is a projected decline in Indigenous employment rates and an increase in unemployment.

A key question to consider in this new policy environment is the opportunity cost of worsening labour force status, in particular the potential costs associated with a greater number of Indigenous people in unemployment.

B. Hunter and J. Taylor.

This Issue Brief summarised CAEPR Discussion Paper No. 119, 'Indigenous labour force status to the year 2000: estimated impacts of recent Budget cuts' by B.Hunter published in October 1996. It was prepared by B. Hunter and J. Taylor, assisted by Linda Roach and Melissa Lucashenko, and edited by Maureen MacKenzie-Taylor.