The multibillion-dollar employment services system is badly failing workers and employers and needs to be scrapped and fundamentally rebuilt, according to a scathing parliamentary committee report.
As businesses grapple with sustained labour shortages arising from a tight labour market, a House of Representatives committee inquiry has found that the employment services system is letting the country down by forcing job-seekers into unsuitable short-term jobs and ignoring employer needs.
Inquiry chair, Labor MP Julian Hill, said the market-based approach to finding jobs for the unemployed - costing taxpayers around $1.3 billion a year - was failing.
Mr Hill said that workers were not being placed into suitable and sustainable long-term work, the needs of employers were being ignored, the system was fragmented and mired in complexity and the obligations imposed on jobseekers were counterproductive and backed by harsh and punitive sanctions.
"The system is driven by the pernicious myth of the dole bludger, reflected in a patently ridiculous level of compliance and reporting activities," the report said.
The current system was based on the flawed theory that unemployment "is an individual failing rather than a systemic concern", and that people will only make efforts to find employment only "if they are beaten hard enough".
Employers complained that the system was of little value and repeatedly tried to force jobseekers into vacancies unsuited to their skills and abilities without adequate incentives or support, according to the report.
According to the report, the "highly fragmented" system was also marred by excessive competition and duplication, causing unnecessary complexity for users and a high degree of churn among operators, noting that in the last round 22 per cent of regions dumped all of their providers.
"A hunger games-style contracting model and regulatory culture drives very high turnover in providers, leading to service disruption and devastating impacts on relationships of trust which have been built up between jobseekers and providers, and with employers," the report said.
The government has expressed concern about the effectiveness of employment services.
It is due to spend $7.3 billion on employment services over five years to 2027-28, and in July Assistant Employment Minister Andrew Leigh flagged changes to strengthen the focus on education and training instead of pushing jobseekers into jobs that do not match their skills or experience.
The government's Australian Centre for Evaluation will also assess the effectiveness of the online support provided by employment services to job hunters.
The Australian Council of Social Services welcomed the committee's report, saying its recommendations would "transform employment services for the better".
Acting chief executive Edwina MacDonald called on the federal government to commit to the reforms, which she said would "shift it from a system that punishes people towards one that opens up real employment opportunities".
Ms MacDonald said the fact that 600,000 people were stuck on unemployment payments showed the current system was not working.
She said the most urgent change was to end automated payment suspensions, adding that in the three months to September alone more than 280,000 had been threatened with losing income support.
"Cutting off someone's income should never be a first resort and people should be given the chance to explain their situation before their payments are impacted," Ms MacDonald said, adding that many were targeted for minor infractions, such as missing an appointment with an employment service provider that they didn't know about.
The proposed overhaul of employment services comes as the nation's unemployment rate has hovered at or around historically low levels throughout 2023, reaching 3.7 per cent in October.
Many employers report problems recruiting the workers they need even though the long-term unemployed rate has barely shifted.
Improving the effectiveness of employment services in helping people find work that more closely matches their skills and experience is seen as part of action needed to boost workforce participation and improve the nation's weak productivity.
"While the current labour market is the hottest for decades, long-term unemployment remains stubbornly high and is not materially improving," the parliamentary committee report said.
Rather than tweaking the current system or making the obligations on jobseekers even more onerous, Mr Hill said there needed to be a complete overhaul, including a different approach to the unemployed.
"Participation requirements will continue to be part of any system. However, the nature and extent of the current mutual obligations settings is counterproductive," the report said, adding that policy settings should "leverage not diminish" the motivation to find work.
"[Instead] consequences for non-compliance with mutual obligations are harsh, punitive, often disproportionate and simply ineffective at supporting people into work. The volume of sanctions for non-compliance...is simply out of control."
In a damning assessment of the Australian Public Service's capabilities, the report found that two decades of outsourcing had left it "detached from the realities of service delivery".
It said its firm conclusion was that the failings besetting the employment services system "cannot be addressed through mere tweaks to policies and programs. They demand wholesale and large-scale reform".
The committee has recommended a rebuilt Commonwealth Employment Services system with a focus on supporting job hunters to build their capabilities, reduce barriers to workforce participation and greater attention to career progression.
It said there should also be much greater engagement with employers.