This review examines labour market policy from the point of view of “activation” in Australia. It continues a series of Activation Policies reviews for Ireland, Norway, Finland, Switzerland and Japan, which have been published as OECD Social, Employment and Migration Working Papers.

This report provides an overview and assessment of Australia’s labour market policies to tackle welfare benefit dependency and unemployment. It examines Australia’s main labour market institutions, employment services and other active and passive labour market programmes. Australia is unique among OECD countries in that its mainstream employment services are delivered by over 100 for-profit and nonprofit providers competing in a “quasimarket”, with their operations financed by service fees, employment outcome payments, and a special fund for measures that tackle jobseekers’ barriers to employment. In most other OECD countries these services are delivered by the Public Employment Service. The Job Services Australia model, introduced in 2009, reinforced the focus on employment outcomes for highly disadvantaged groups. This report assesses the latest reforms of Australia’s “activation” model and puts forward recommendations to improve its effectiveness.

Since the early 1990s the employment rate of Australia’s working-age population has increased from about 66% to over 72%, and GDP per capita has risen by about 10% more than in the average OECD country. In 2010, Australia ranked among the top ten OECD countries on both variables.

Australia’s labour force has a large foreign-born share and a generally high level of educational attainment, although the share with less-than-secondary education also remains relatively big. Labour market outcomes have steadily improved since the mid- 1990s, and were not much affected by the recent recession. Australia’s employment rate is now one of the highest in the OECD area. Target groups for activation measures include lone parents, people with disabilities, Indigenous Australians, immigrants, youth and older workers.

Labour market policy in Australia is primarily the responsibility of the Department of Education, Employment Workplace Relations (DEEWR) and two other departments, one of which manages Centrelink, the benefit administration body. Vocational training is mainly implemented by the states. The different public sector actors co-ordinate their work through “business partnership arrangements” and other policy agreements. DEEWR defines the conditions of contracts with private and not-for-profit employment service providers such as the schedule of payments, and monitors contract compliance and service quality. This helps to ensure consistent national implementation but it also results in administrative cost and complexity. The structure of Disability Employment Services is, following a long process of convergence, now fairly similar. Features promoting good governance include written submissions by stakeholders, including numerous employment service providers, to comment on proposed legislation and the conditions of new contracts. Associations that represent different professions and interest groups also actively analyse and advise on policies, based on the experiences of their member organisations, staff and service users.

Jobseekers registered with a Job Services Australia (JSA) provider (i.e. a private or not-for-profit provider of employment services) are allocated to one of four streams or, after a year of unemployment, to the Work Experience Phase, which provide different levels and forms of assistance. JSA providers are funded through a combination of Service Fees, Placement Fees and Outcome Fees, and are reimbursed for certain types of expenditure through the Employment Pathway Fund. Most of the fees are much higher for disadvantaged jobseekers than for regular, short-term unemployed. Centrelink, the benefit administration body, assesses jobseeker disadvantage at initial registration using the Job Seeker Classification Instrument, which is based on a questionnaire and administrative records. Star Ratings, which are measures of placement performance adjusted for differences in jobseeker characteristics and local labour market conditions, are used to eliminate employment service providers that perform poorly. Most provider staff are counsellors, who conduct regular interviews with jobseekers, negotiate their Employment Pathway Plan, and may provide financial assistance with the cost of taking up work or refer clients to job-search training and related activities. The structure of the JSA caseload is complex, with less than half of all clients required to be available for full-time work and complete the maximum number of hours in the Work Experience Phase.

Income-replacement benefits in Australia are means-tested. Payment rates vary as a function of social risk (such as education, unemployment, care responsibilities and incapacity), age and household composition. Unemployment benefit rates are indexed to prices, and have fallen well below disability benefit rates. Effective tax rates on earnings are sometimes high, but in standard cases jobseekers can retain a significant proportion of any earnings from part-time work. In some cases, parttime work satisfies participation requirements and unemployment benefit is paid as an in-work benefit. It can also play the role of a training allowance or a shortterm sickness allowance. When job-search requirements apply, failure to attend appointments with JSA providers can lead to benefit sanctions. Controversy over harshness or laxity of the regime has led to sharp swings of policy. The phasing-out of inactive benefits (i.e. that have no job-search or work availability requirements), and the extension of labour market participation requirements to Parenting Payments and workers with partial incapacity has progressively reduced the share of benefit recipients in the working-age population. Evaluations show that new participation requirements for a particular demographic group increase the rate of exit from benefit, but a greater impact arises from a fall in new claims. Policy-driven declines in benefit-recipiency rates have been matched by increases in employment rates, partly in the case of single parents and fully in the case of older workers.

Expenditure on active labour market programmes, except employment services, is relatively low in Australia. However the data are not closely comparable with those of other countries because training and work experience through the Employment Pathway Fund is classified as expenditure on employment services, and unemployment benefits paid to participants in longer-term training or work-experience programmes are not reported as expenditure on these programmes. Policy changes since 2008 include the restructuring of Work for the Dole, which has reduced participant numbers, and jobseeker training through the Productivity Places Program. For youths without Year 12 schooling or equivalent, the Compact with Young Australians prioritised education and training over other activity. In non-remote areas, Community Development Employment Projects have been phased out so that Indigenous workers now have regular jobseeker status. Disability Employment Services resemble regular employment services but with higher funding, which allows providers to deliver ongoing support in the workplace in relevant cases. External evaluations of labour market programmes are relatively infrequent, but official evaluations using administrative data have provided a range of qualitative and quantitative evidence, including non-experimental estimates of the impact on exits from benefits for many of the programmes.