There is a sound economic argument for the Prime Minister, Julia Gillard, and the Treasurer, Wayne Swan, to bring in a surplus in next week”s budget. However, there is also a good reason for Gillard and Swan to increase expenditure on the unemployed who genuinely cannot obtain work. The current Newstart Allowance, at about $245 per week, may be sufficient for those who are temporarily out of work. But it is certainly not adequate for the long-term unemployed.

In view of the state of the world economy, unemployment in Australia remains relatively low – especially when compared with the situation in Western Europe and the United States. Yet Labor has presided over a substantial increase in the long-term unemployment rate.

The Australian Bureau of Statistics” paper titled “”Long-term unemployment””, dated September 2011, tells the story. In February 2009, 13 per cent of unemployed men and women had been out of work for 52 weeks or more. By June 2011, this figure had increased to 20 per cent. The long-term unemployment rate is highest for young people aged between 15 and 24 years followed by men aged 55 to 64 years.

According to the ABS, “”long-term unemployed people were more likely than the short-term unemployed to have lost their last job (mostly through being laid-off, retrenched or because the job was temporary or seasonal) rather than having left it (either for unsatisfactory work arrangements or for other reasons such as returning to studies)””.

It follows that an employer, particularly a small business, takes a risk in hiring a long-term unemployed person. Successful business is about risk management and private sector employers are used to taking chances. However, there is little risk-taking in this instance if a small business can get rid of new employees who perform poorly – either immediately or after some time in the job.

The problem is that Labor”s reintroduction of the unfair dismissal laws – which had been junked by the Howard government with respect to employers employing 100 or fewer staff – has made risk-taking less attractive. This is a contributing factor to the disturbing increase in long-term unemployment since the introduction of Labor”s Fair Work Act.

There is no doubt that the Rudd and Gillard governments – with the support of the trade union movement – have acted with the best of intentions. It”s just that some well-motivated acts have unintended consequences. Last month, the Employment and Workplace Relations Minister, Bill Shorten, announced the introduction of a jobs bonus scheme under which some 10,000 employers who recruit and retain a worker aged 50-plus for more than three months will receive a $1000 payment.

Well, it might work. But this is doubtful. Mature-age workers tend to be stable employees and do not readily abandon their jobs. This makes them attractive, since employers will not waste money on training if they engage them. So there are already financial incentives in taking on older workers, irrespective of whether the government provides a $1000 taxpayer-funded handout.

The current disincentive to employing older workers is the cost – in money, legal expenses and time – of dismissing poor performers. There has been a significant increase in unfair dismissal claims since the introduction of Labor”s Fair Work Act. The risk to business in employing older workers is similar to employing younger workers.

On April 18 Brian Howe, the deputy prime minister during the Labor government in the early 1990s, addressed the National Press Club. He has been engaged by the ACTU to inquire into insecure work in Australia. Howe, an academic of long standing, spoke about “”holistic”” approaches, expressed “”societal concern”” and condemned the “”right-wing media””. Nothing new there.

Howe”s concern is that many employers are taking workers in casual capacities. Yet he appears to have no conception of why this might be so – despite commenting that industries which have “”low levels of unemployment have little casualisation””. In other words, the more successful businesses are prepared to engage full-time workers, while the less prosperous businesses are less inclined to take the risk.

Howe is clearly well-meaning. Yet he is one of the many concerned Labor, trade union and public service types who have never had the responsibility of raising money in a competitive business environment and having to make up a payroll each month. Howe”s background is university and Parliament. He doesn”t understand why small businesses think deeply before employing permanent staff.

It may be unfashionable to say so, but unemployment was never so low in the modern era as during John Howard”s prime ministership. Moreover, in Howard”s day, the young, women and older employers found permanent employment easier to obtain. Sure, this partly reflected the good economic times. But it also resulted from greater labour market flexibility, which reached its height under the Howard government.

Last October, The Sunday Age headed an article by Misha Schubert “”Even conservatives say the dole is too low””. The journalist was reporting comments by Ian Harper and Judith Sloan to this effect. The businessman Hugh Morgan has made similar comments recently. All three are correct.

The fact is that political conservatives seem to know more about unemployment and its consequences than those who depict themselves as progressives. It makes sense to increase the Newstart Allowance. But it makes much more sense to deregulate the labour market and encourage employers to take on staff.

Gerard Henderson is executive director of The Sydney Institute.