Why is the Indigenous employment record so bad? The Australian Government has spent considerable amounts of money and invested in a wide range of Indigenous employment programs and yet we do not seem to be able to significantly increase the number of Aboriginals involved in mainstream employment. Why not?
Most people address this question in terms of two main explanations, each with very different policy implications. One suggested explanation is that, by and large, Indigenous people choose not to be employed in the mainstream economy (the supply side explanation). This is done in various direct and indirect ways. One decision is the place of residence. Perhaps this is for family reasons or the desire to live a life closely based on traditional values—many Indigenous people choose to live in traditional remote areas where there are no jobs and thereby choose not to move to locations where there are employment opportunities.
Perhaps Indigenous people also choose not to search too hard for a job? Perhaps the traditional values that lead to income sharing reduce the incentives to accept well paying jobs on mine sites, for example, as well paid individuals inevitably have to distribute so much of their wages to other members of their community.
If supply side behaviour is an important reason for the low employment outcome then it is important to understand why this choice is being made. Is this choice strongly influenced by financial incentives that favour the non-seeking of jobs and non-involvement in the mainstream economy? In this respect, are unemployment benefits too high, so that Indigenous people are better off financially without employment? If financial incentives are important then employment may respond significantly to supply side policy changes. If supply decisions are based not on financial outcomes of different choices but on different personal considerations, then supply side policy initiatives aimed at financial incentives, such as reduced welfare payments, are unlikely to be effective at increasing employment. They will just reduce Indigenous income, with the associated increase in financial hardship.
The other explanation for low Indigenous employment levels is that Indigenous people want to be employed in the mainstream economy, perhaps at much the same rate as anyone else, but they cannot find a job offer to accept (the demand side explanation). When Indigenous people apply for jobs, they are placed too low on the candidate ranking list and rarely get the chance to accept a job. Their low ranking may be the result of discrimination or their poor skill levels.
This bald distinction between demand and supply explanations for low employment is often made behind closed doors. Different experts often hold one or other of these positions with considerable conviction, but very rarely is the distinction made starkly at conferences like these. The natural response of experts is to blur the distinction between demand and supply, or to emphasise the demand side alone, which they judge to be more politically acceptable. But little is served by this behaviour because these two classes of explanation lead to very different policies. We need to be clearer as to why we are observing poor employment outcomes. Indeed, the relative importance of these two explanations in the Australian community more generally is currently being actively debated among experts and politicians. The consequent judgment to place more emphasis on supply is beginning to impact on policy in non-Indigenous areas of the labour market.