Top economists want JobSeeker boosted by $100+ per week and tied to wages



Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National University

Once about as high as the pension, the JobSeeker (Newstart) unemployment payment has fallen shockingly low compared to living standards.

It’s now only two thirds of the pension, just 40% of the full-time minimum wage and half way below the poverty line.

JobSeeker has fallen relative to other payments because while the pension and wages have climbed faster than prices, JobSeeker (previously called Newstart) has increased only in line with prices since 1991.

In an apparent acknowledgement that JobSeeker had fallen too low, the government roughly doubled it during the coronavirus crisis, introducing a supplement to enable people to “meet the costs of their groceries and other bills”.

But that supplement is being wound down, from A$225 per week to $125 on September 25, and again to $75 on January 1, before expiring on March 31.

After March, the single rate of JobSeeker (including the $4.40 per week energy allowance) will drop back to about $287.25 per week.


JobSeeker vs age pension


Source: Ben Phillips ANU, Services Australia

Ahead of a decision about any permanent increase expected early next year, The Conversation and the Economic Society of Australia asked 45 of Australia’s leading economists where they thought JobSeeker should settle.

Only four think it should revert to $287.25 per week.

All but eight want a substantial increase. More than half (24 out of 45) want an increase of at least $100 per week.



Economic Society of Australia/The Conversation, CC BY-ND

The results suggest the economists would be dissatisfied with a decision to merely increase JobSeeker by $75 per week in line with the supplement that is due to expire at the end of March.

The 45 members of the society’s 57-member panel who responded include Australia’s preeminent experts in the fields of microeconomics, macroeconomics economic modelling, labour markets and public policy.

Among them are former and current government advisers, a former member of the Reserve Bank board and a former member of the Fair Work Commission’s minimum wage panel.




Read more:
Top economists back boosts to JobSeeker and social housing over tax cuts in pre-budget poll


Many want an increase of about $150 a week to bring JobSeeker close to the age pension and 50% of median income.

Curtin University’s Harry Bloch asked (rhetorically) whether unemployed people had “lower needs than those on the aged pension”.

Labour market specialist Sue Richardson said keeping payments so low that people lost dignity and hope and suffered material deprivation hurt not only the people who were unemployed, but also the thousands of children who grew up in their households.

A scant incentive to shirk

She knew of no evidence that suggested a low rate of JobSeeker increased the likelihood of an unemployed person getting a job.

Jeff Borland said even if JobSeeker was increased by $125 per week, those on it would still earn less than all but 1% of full-time adult workers and would face plenty of remaining financial incentives to get paid work.

In research to be published in The Conversation on Monday he examines a real-life experiment: the temporary near-doubling on JobSeeker between March and September, and finds it played no role in creating unfilled vacancies.




Read more:
New finding: boosting JobSeeker wouldn’t keep Australians away from paid work


Emeritus Professor Margaret Nowak said JobSeeker had been driven to the point where it denied unemployed Australians the shelter, food and transport they needed to find work.

Former Liberal party leader John Hewson described the failure to adjust JobSeeker for three decades as “immoral”, and a national disgrace driven by “little more than prejudice”.

Going forward, there was overwhelming agreement among those surveyed that once JobSeeker was restored to an acceptable level, it should be linked to wages (in line with the pension) rather than increase with prices as before.



Economic Society of Australia/The Conversation, CC BY-ND

Two thirds of those surveyed want JobSeeker increase in line with wages, and of those who do not, several want the pension to increase more slowly in order to ensure the two move in sync.

Gigi Foster and Geoffrey Kingston propose a half-way house – increases in both the pension and JobSeeker halfway between increases in the consumer price index and wages.

Wages determine living standards

Others suggest practical measures to make JobSeeker better at getting Australians into jobs. Beth Webster suggests reducing the rate at which JobSeeker cuts out with hours worked to encourage part-time workers to take on more hours.

Tony Makin suggests a relocation allowance to help people take on jobs distant from their current place of residence.




Read more:
‘If JobSeeker was cut, the unemployed would be picking fruit’? Why that’s not true


None of the economists surveyed expressed concern about the budgetary cost of restoring the relative position of JobSeeker, estimated by the Parliamentary Budget Office to be $4.8 billion per year for an increase of $95 per week.

Several expressed a desire to put the issue behind them, increasing JobSeeker to a reasonable proportion of the pension or median wage and leaving it there so that, in the words of Saul Eslake, “this issue never arises again”.


Individual responses

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Daniel Andrews plans pilot for casual workers’ sick pay but Morrison government critical



Lukas Coch/AAP

Michelle Grattan, University of Canberra

The Victorian government plans a pilot scheme for up to five days sick and carer’s pay, at the national minimum wage, for casuals or insecure workers in priority industries.

Even though the initiative is at a very early stage, with $5 million in Tuesday’s state budget for consultation on the pilot’s design, the federal government immediately attacked the move.

Industrial Relations Minister Christian Porter said it “raises a number of major issues”.

Once underway, the pilot would run two years in selected sectors with high casualisation. It could include cleaners, hospitality staff, security guards, supermarket workers and aged care workers.

“The pilot will roll out in two phases over two years with the occupations eligible for each phase to be finalised after a consultation process that will include workers, industry and unions,” a statement from Premier Daniel Andrews’ office said.

Casual and insecure workers in eligible sectors would be invited to pre-register for the scheme.

While the pilot would be government-funded, any future full scheme would involve a levy on business.

Andrews said: “When people have nothing to fall back on, they make a choice between the safety of their workmates and feeding their family.

“This isn’t going to solve the problem of insecure work overnight but someone has to put their hand up and say we’re going to take this out of the too hard basket and do something about it.”

But Porter said a fully-running scheme would put “a massive tax on Victorian businesses”, which would be paying both the extra loading casuals receive and the levy.

“After Victorian businesses have been through their hardest year in the last century, why on earth would you be starting a policy that promises to finish with another big tax on business at precisely the time they can least afford any more economic hits?”

Porter said it would be better to strengthen the ability of workers to choose to move from casual to permanent full or part-time employment if they wished.

He said this was what had been discussed in the recent federally-run industrial relations working group process involving government and employee and employer representatives.

“It must surely be a better approach to let people have greater choice between casual and permanent employment than forcing businesses to pay a tax so that someone can be both a casual employee and get more wages as compensation for not getting sick leave – but then also tax the business to pay for getting sick leave as well.”

Porter claimed the Victorian approach would be “a business and employment-killing” one.

In the pandemic the federal government has made available a special payment for workers who test COVID-positive or are forced to isolate and don’t have access to paid leave. The Victorian government has provided a payment for those waiting for the result of a COVID test.

The Morrison government will introduce an omnibus industrial relations reform bill before the end of the parliamentary ar, following its consultation process.

A central objective will be to streamline enterprise bargaining. Scott Morrison told the Business Council of Australia last week: “Agreement making is becoming bogged down in detailed, overly prescriptive procedural requirements that make the process just too difficult to undertake”.

He said various issues needed addressing. “The test for approval of agreements should focus on substance rather than technicalities. Agreements should be assessed on actual foreseeable circumstances, not far fetched hypotheticals.” Assessments by the Fair Work Commission should happen within set time frames where there was agreement from the parties.

Morrison said key protections such as the better off overall test would continue but “our goal is to ensure it will be applied in a practical and sensible way so that the approval process does not discourage bargaining, which is what is happening now”.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital Signs: we’ll never cut unemployment to 0%, but less than 4% should be our goal



Shutterstock

Richard Holden, UNSW

One of the most concerning things that happens in any recession is the spike in unemployment. The COVID-19-induced recession in Australia and around the world is no exception – other than perhaps the magnitudes involved.

Being out of work is distressing, even in advanced economies with a social safety net (like Australia). Welfare payments rarely, if ever, replace the full loss of income from employment.

In many countries, such as the US, unemployment benefits expire after a certain period of time. This puts the unemployed at risk of being destitute. In Australia (and other countries) receiving unemployment benefits requires proving you are actively looking for work. These obligations can be quite onerous, even if well-intentioned.

Worse still, being unemployed can tilt the scales against an employer offering you a job.

As MIT and Harvard economists Robert Gibbons and Lawrence Katz noted in a landmark 1991 paper, if employers have some discretion over whom to lay off – as is often the case – the labour market will rationally infer that laid-off workers are less desirable employees.

High unemployment also leads to what economists call “labour-market scarring”. This means all those starting work in a bad labour market can suffer long-term economic effects. Either because they don’t get on the job ladder as early as they would have, or because they start off in a job that doesn’t build their skills as well as would have been the case in a strong economy.


Rarely has Australia’s unemployment rate fallen below 5%

Seasonally adjusted.
ABS Labour Force

These effects can be significant and are of particular concern during this pandemic, as University of Michigan economist Betsey Stevenson has pointed out in an excellent paper on how to mitigate those effects.

Finally, a job also has non-financial benefits. As US presidential candidate Joe Biden has rightly reminded us, a job is about more than a paycheque:

It’s about dignity. It’s about respect. It’s about being able to look your kid in the eye and say everything will be okay.

All of this points to why policy makers need to make low unemployment one of their core missions.

This involves central banks using monetary policy to reduce unemployment and smooth out the business cycle, and governments using fiscal policy to boost demand when it is flagging.

Searching for jobs

That said, there are two important imperfections in labour markets that make some amount of unemployment inevitable. The first is that employers and employees need to be matched together. This involves workers searching for the right job – a process that takes time.

As Peter Diamond, awarded the 2010 Nobel prize in economics for his pioneering work on “search theory”, has observed:

We have all visited several stores to check prices and/or to find the right item or the right size. Similarly, it can take time and effort for a worker to find a suitable job with suitable pay, and for employers to receive and evaluate applications for job openings.

Indeed, searching for better matches between employers and employees is an important contributor to labour market efficiency. As Diamond noted, in the US on average 2.6% of employed workers have a different employer a month later. Some people spending some time unemployed is part of a healthy labour market.

A second important friction was pointed out by another Nobel laureate, Joseph Stiglitz (joint winner of the economics prize in 2001 for his work on asymmetric information).

Efficiency wages

That is, employers might not want to pay their workers the bare minimum they can get away with. Paying above market – what is called an “efficiency wage” – can induce workers to work harder and more efficiently, because the prospect of losing their job is even more painful.

Another way to think about this was offered by George Akerlof (co-winner of the 2001 Nobel economics prize with Stiglitz and A. Michael Spence).

Akerlof brought insights from sociology into economics by viewing the contract between employers and employees as, at least in part, about “gift exchange”. As he put it:

According to this view, some firms willingly pay workers in excess of the market-clearing wage; in return they expect workers to supply more effort than they would if equivalent jobs could be readily obtained (as is the case if wages are just at market clearing).

What is ‘full employment’?

These frictions in the labour market mean full employment, practically speaking, is not zero. It’s almost surely not 1% or 2%, either. The level depends, in part, on how brutal we are willing to make being unemployed. It also depends on the level of the minimum wage.

I, for one, am glad Australia does not cut off unemployment benefits after 16 weeks
(as in the US state of Arkansas) and consign the jobless to abject poverty. I’m also glad Australia’s national minimum hourly wage is A$19.84 (about US$14) – double the US federal minimum of US$7.25.

Does that make unemployment higher here than in countries that take a harsher approach? It does. But it also makes us a more compassionate and empathetic society that takes human dignity seriously.

So when federal Treasurer Josh Frydenberg said a few weeks ago that once Australia’s unemployment rate is “comfortably below 6%” the task of “budget repair” should begin, I gasped.




Read more:
No snapback: the budget sets us up for an unreasonably slow recovery. Here’s how


If “comfortably below” means something like 4%, then fine.

Because of the labour market frictions mentioned above, and our approach to unemployment benefits, it’s going to be hard to get unemployment much below that in Australia.

But the idea we should tolerate unemployment of, say, 5.5% in normal times is, frankly, intolerable. Monetary and fiscal authorities should use all the firepower at their disposal to avoid that outcome.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Meet the Liveable Income Guarantee: a budget-ready proposal that would prevent unemployment benefits falling off a cliff



Ben Jeayes/Shutterstock

John Quiggin, The University of Queensland; Elise Klein, Australian National University, and Troy Henderson, University of Sydney

The economic crises that have punctuated the 21st century, most notably the global financial crisis and the COVID-19 crisis, have led to a growing realisation that alternatives to our present system are possible and perhaps inevitable.

In particular, there has been an erosion of the belief that the economy is able to provide a decent income to everyone who wants to work.

A number of proposals have been put forward in the wake of this realisation, among them

  • universal basic income, which would unconditionally provide every resident (children and adults) with a regular subsistence wage

  • a job guarantee in which the government would provide real jobs, at the minimum wage, to all unemployed Australians

Many seem utopian, which isn’t necessarily a bad thing – it’s good to look beyond the day-to-day to consider how things could be done differently.

In a new Australian National University Policy Brief we propose something practical, which we are calling a Liveable Income Guarantee (LIG).

Take the age pension..

It starts with one of the most successful institutions we’ve got: the age pension.

Before the age pension was introduced in 1908, retired Australians were highly likely to be poor. But now, on some measures, retired Australians are less likely to be in poverty than Australians of less than pension age.

Our proposal is to replicate this success for the entire population.

We are proposing a payment equal to the pension, and subject to the same asset and income tests, that would be provided to everyone who is willing to make a contribution to society consistent with their ability to do so.

…extend it to others

“Contribution” would be defined broadly to maximise contributions. Examples would include full-time study, volunteering, caring for children, ecological care, and starting a small business.

The biggest shift relates to the treatment of unemployed workers and single parents.

JobSeeker is set to return to the unliveable rates of the former Newstart after the end of December.

We are suggesting that instead it be lifted to the rate of the age pension, which is about where it used to be before unemployment benefits were frozen in real terms in the 1990s.


Newstart versus the age pension

Dollars per fortnight, single.
Source: Ben Phillips ANU, DSS

Parenting Payments have also been notoriously low, especially for single parents, whose support has been cut consecutively by five prime ministers from Howard to Turnbull.

Unlike some proposals for a universal payment to all citizens, the increased expenditure required for the liveable income guarantee would be relatively modest, as little as A$20 billion a year.

Do it for the price of tax cuts…

This is roughly comparable to the budget cost of the income tax cuts, primarily directed to high earners, legislated to take effect in 2022 and 2024.

The real barriers to the adoption of the proposal are ideological. The central assumption underlying economic policy in Australia has been that in a market economy everyone who wants a decent job is capable getting one.

It has followed that the unemployed are seen as either unwilling to work or suffering from particular deficits that need to be remedied by training and job readiness programs case by case.




Read more:
‘If JobSeeker was cut, the unemployed would be picking fruit’? Why that’s not true


Over the first two decades of this century, it has become evident this assumption is incorrect. The global financial crisis and the subsequent swing to austerity produced sustained high unemployment in much of the developed world.

While Australia avoided the worst consequences thanks to well-timed stimulus (here and in China) the unemployment rate has failed to fall below 5% as underemployment has climbed for more than a decade.

Any prospect of a rapid return to full employment have been dashed by the pandemic.




Read more:
The jobs market is nowhere near as good as you’ve heard, and it’s changing us


Longer term it is clear that many existing jobs will disappear as a result of technological change, and it isn’t clear that our current institutions will be able to manage the process.

While governments should commit to a return to full employment, they are unlikely to be completely successful.

Ready us for the future

The implementation of a liveable income guarantee would allow us to be better prepared in case they are not and to be better prepared for future disruptions, be they pandemics or anything else.

On the brighter side, technological progress has increased our productive capacity to the point where we can afford to support a much wider range of non-market contributions to a market economy. The crisis has shown us how important many of those contributions are.

Looking beyond the crisis, it is possible (relatively simple) to create a society in which everyone has a decent standard of living, and no one is excluded.

Providing dignity to everyone who makes a contribution would benefit us all.The Conversation

John Quiggin, Professor, School of Economics, The University of Queensland; Elise Klein, Senior Lecturer, Australian National University, and Troy Henderson, Lecturer in Political Economy, University of Sydney, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

‘If JobSeeker was cut, the unemployed would be picking fruit’? Why that’s not true



F Armstrong Photography/Shutterstock

Peter Davidson, UNSW

I’m not sure which does the most harm: the cut of A$150 per week in JobSeeker payments due this Friday or the sudden and coincidental volley of media reports about unemployed people refusing jobs, including fruit picking.

This narrative is jarring when there are 19 people unemployed or underemployed for every vacancy and only 3% of employers report that they are recruiting but can’t find enough applicants.

Are unemployment payments really that cosy since they almost doubled in April from $282.85 to $557.85 a week?

$557.85 a week for a single adult is around 80% of the full-time minimum after-tax wage of $669 per week, and a good less again as a proportion of what most entry level jobs pay, because most pay more than the minimum wage.

Five studies conducted in the United States where unemployment payments were lifted US$600 per week during the coronavirus crisis found no evidence they were discouraging people from finding jobs.

Some were making 70% more than they did while in jobs.

Unemployed workers would generally prefer to be in paid work, and in any event are usually required to search for it.

There are other reasons not to pick fruit…

Fruit pickers are often underpaid cash-in-hand.

Growers representatives have told a parliamentary inquiry that when JobSeeker payments were doubled, many workers collected their final cheques and went home.

But temporary migrants and young locals are often underpaid in such jobs.

Squeezed by powerful customers, employers with thin margins and a ready supply of labour have grown used to offering very low wages cash-in-hand.

In piece-work like picking where pay is tied to output, there’s no legal requirement to pay minimum wages.

A labour hire firm recently complained people weren’t taking up their offer of “at least $500 per week” to pick strawberries.

$500 is two-thirds of the minimum wage.

It’s not just the pay that discourages people from taking up crop picking: they need to be fit and able to travel for what’s often a short period of paid work.

This won’t work for many people on Jobseeker, including the quarter with disabilities, the third aged 45 or over, and the 10% caring for children.




Read more:
Unemployment support will be slashed by $300 this week. This won’t help people find work


There are ways to reduce under-payment and high turnover in such jobs.

Reducing our reliance on temporary migrants would be a first step.

Otherwise, employers won’t compete fairly to attract workers, and local workers will remain wary.

More direct contact between the employers and unemployed people and less reliance on labour hire firms would help build trust.

…and other reasons not to work more days

Jobseeker tops up the wages of many part-time workers.

It is cut by 50c for every dollar earned above $53 per week, then 60c for every extra dollar earned up to $128 per week, before cutting out completely for a single adult on $544 per week.

Former social security official David Plunkett calculates that before COVID and the effective doubling of JobSeeker, a worker on it gained a net $100 to $200 for working one to three days a week at the minimum wage, climbing to $269 for the fourth day, after which Jobseeker expired.

Since the new arrangements and top up that effectively doubled JobSeeker, the net gains have fallen slightly $100 to $175 for the first three days, before dropping to just $5 on the fourth.




Read more:
The compromise that might just boost the JobSeeker unemployment benefit


The problem isn’t the effective doubling of JobSeeker, it’s the sudden-death cut off of the top-up as soon as the last dollar of Jobseeker expires.

That flaw could be fixed by tapering the supplement out gradually (rather than increasing the “income free area” to $150 per week as the government is proposing).

There’s no need to force people to choose between poverty and entry-level jobs.

Even if, for example, Jobseeker was increased permanently to the pension rate, it would still be under 70% of the minimum wage after tax.

Incentives for part-time work can be fixed by reforming income tests and tax. Beyond that, the answer to periodic labour shortages, exploitation and high turnover in entry-level jobs is better entry-level jobs.The Conversation

Peter Davidson, Adjunct Senior Lecturer, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Keating is right. The Reserve Bank should do more. It needs to aim for more inflation



Ashwin/Shutterstock

Chris Edmond, University of Melbourne and Bruce Preston, University of Melbourne

Former prime minister Paul Keating isn’t alone in wanting the Reserve Bank to do much more to ensure economic recovery.

In an opinion piece for major newspapers he has said it ought to be directly funding government spending rather than indirectly by buying government bonds from third parties.

But we think there’s something else the Reserve Bank can do.

Governor Philip Lowe is right to call on governments to spend more, creating “fiscal stimulus”.

But we don’t think that absolves the Reserve Bank of the need to provide more “monetary stimulus”.

Simply put, the Reserve Bank needs to create more inflation. Quite a lot more.

For years now, the bank has chronically undershot its inflation target of 2% to 3% per year. This has to stop.


Consumer price inflation since the Reserve Bank’s 2-3% target


ABS Consumer Price Index, Australia

Inflation plays a vital role in government finances, through its influence on nominal income growth. Higher nominal income growth lowers outstanding debt as a fraction of income.

To appreciate the size of the effect, if average inflation runs at 1.5% per year rather than 2.5% per year (the bank’s central target), after a decade prices will be roughly 10% lower.




Read more:
No big bounce: 2020-21 economic survey points to a weak recovery getting weaker, amid declining living standards


As a consequence, public debt as a fraction of national income will be 10% higher, and that’s before taking into account the revenue implications of lower inflation.

Too much inflation creates its own problems, but so does too little.

Of course, the Reserve Bank’s options are limited right now. Short term interest rates are effectively zero and can’t go much lower without turning negative, an idea the bank has so far resisted.

The bank needs to commit to “too much” inflation

But there are things the bank can do, and they involve making clear its plans for when inflation recovers.

When economic growth revives, be it in 12 or 24 months, the bank will face a choice between raising rates to more normal levels, or continuing to keep them extraordinarily low.

The RBA should do the latter and promise serious inflation, more than it is comfortable with, for some time to come.




Read more:
Price-level targeting: how inflation-focused central banks can squeeze more from interest rates


Promising to overshoot its target band will raise inflation expectations and then inflation itself, lowering the real interest rate.

This will buttress the recovery, supporting economic growth. It will also greatly improve the state of government finances.

How much inflation should the RBA generate?

It should aim for average inflation of 2-3% over a long window, at least ten years.

This will place a clear upper bound on how much inflation is appropriate over the long term, while requiring substantial inflation for some time to make up for the sustained undershooting of its target.

It’s being tried in the United States

Such a policy might sound unusual. And there would be protests about credibility and the risks of changing institutional arrangements during a crisis.

But the United States Federal Reserve recently adopted such a policy after an extensive review.

There’s no reason Australia’s Reserve Bank couldn’t do the same.

As it happens, hardly any formal change is required. Its Statement on the Conduct of Monetary Policy says its goal is 2 to 3% inflation “on average, over time.”

So there’s no need to change the wording, merely the interpretation.

It could make clear that a practical change had taken place by referring to the new regime as a “price-level target”, since targeting inflation over a long time is equivalent to targeting a path for the overall level of prices.

It’d hold the bank to account

Regardless of the label, such a clearly enunciated approach would make monetary policy more effective and help the government with its finances.

And that’s not all. An average inflation target would provide a clearer benchmark against which to assess the bank’s performance and thus strengthen the accountability of one of our most important institutions.

Too often in the past the bank has excused its failure to hit its inflation target by appeals to a vague and shifting list of factors outside of its control.




Read more:
Vital Signs. Yet another year of steady rates. What’s the point of the RBA inflation target?


While some excuses may have merit, the existing regime does not well communicate how such undershooting determines what the bank will do in the future.

By contrast, an average inflation target would clearly communicate that whatever the excuses for undershooting, future policy will be set to overshoot until average inflation is back on target.

It’s appropriate for fiscal policy to take the lead right now. But monetary policy has to be ready to do its job too.The Conversation

Chris Edmond, Professor of Economics, University of Melbourne and Bruce Preston, Professor of Economics, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Reserve Bank ‘dallies with indolence’ instead of helping government pursue full employment: Paul Keating


Michelle Grattan, University of Canberra

Former prime minister Paul Keating has launched an extraordinary attack on the Reserve Bank, accusing it of having “one of its dalliances with indolence”, and describing it as “the Reverse Bank”.

Keating, who was treasurer in the Hawke government and once boasted of having the Reserve Bank in his pocket, said the bank’s job was “to help the government meet the task of full employment” and it was failing in this.

He criticised its officials for being “the high priests” of incrementalism, rather than doing what the situation called for.

His outburst, in a statement issued on Wednesday, followed a speech this week by the bank’s deputy governor Guy Debelle who canvassed the pros and cons of options for further monetary policy action if the bank’s board decided it was needed.

These included buying bonds further out along the curve, foreign exchange intervention, lowering rates without going into negative territory, and moving to negative rates.

Keating labelled Debelle’s contribution “meandering thoughts”.

“Knowing full well that monetary policy can now no longer add to nominal demand – something that now, only fiscal policy is capable of doing, the Reserve Bank is way behind the curve in supporting the government in its budgetary funding measures,” Keating said.

“For a moment, it showed some unlikely form in pursuing its 0.25% bond yield target for three year Treasury bonds and a low interest facility for banks.

“But now, after 600,000 superannuation accounts were cleared and closed down, with 500,000 of those belonging to people under 35 – a withdrawal of $35 billion in personal savings, and further demands arising from the employment hiatus in Victoria, [Debelle] yesterday strolled out with debating points about what further RBA action might be contemplated.”

Keating said that in his office when he was treasurer, the bank was nicknamed “the Reverse Bank”, because it was too slow raising rates in the late 1980s and too slow lowering them in the early 1990s – which gave Australia “a recession deeper than it would have otherwise had”.

As treasurer he’d “worn the cost of the bank’s indolence in the task of smashing inflation”. And as a measure of his giving the bank more discretion, as prime minister he’d worn the “great political cost” of the bank’s rate rises in 1994.

“As history has shown, when a real crisis is upon us the RBA is invariably late to the party. And so it is again,” Keating said.

The bank’s act had two objectives – price stability (not a problem at the moment) and full employment, Keating said.

“The Act says the Bank and the government should endeavour to agree on policies which meet that objective – in this case, employment.”

The bank “should be explicitly supporting the government so the country does not experience a massive fall in employment”, hitting particularly younger workers.

But instead of that, Debelle “conducts a guessing competition on what incremental step the Bank might take to help,” Keating said.

“These are the high priests of the incremental. Making absolutely certain that not a bank toe will be put across the line of central bank orthodoxy.

“Certainly not buying bonds directly from the Treasury – wash your mouth out on that one – what would they say about us at the annual BIS meeting in Basel?

“Not even ambitiously buying sufficient bonds in the secondary market, like the European Central Bank or the Bank of Japan.”

He said the bank should “shoulder the load. And in a super-low inflationary world, that load is funding fiscal policy. Mountainous sums of it.

“In an economic emergency of the current dimension that means putting the orthodoxy into perspective and doing what is sensibly required.”

Like other central banks, the Reserve Bank “has become a sort of deity, where lesser mortals might inquire, however respectfully, what the exalted priests might be thinking or have in mind for their prosperity or the country at large,” Keating said.

“The Governor and his deputies do not wear clerical collars and black suits. But that is the only difference in their comport and attitude.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Unemployment support will be slashed by $300 this week. This won’t help people find work



Stefan Postles/AAP

Bruce Bradbury, UNSW and Peter Whiteford, Crawford School of Public Policy, Australian National University

This week, support to unemployed Australians will be dramatically reduced.

In April, the new Coronavirus Supplement roughly doubled the level of benefits for unemployed people on the JobSeeker payment and a range of other working-age payments.

The supplement will drop from $550 to $250 a fortnight from Friday. This is before it is dropped entirely at the end of 2020.

While there has been increasing pressure from welfare groups to maintain a higher level of JobSeeker supplement, there have also been calls from within the government to remove extra supports, amid claims people are not looking for work.

Prime Minister Scott Morrison has warned about increased unemployment payments. As he said in June,

what we have to be worried about now is that we can’t allow the JobSeeker payment to become an impediment to people going out and doing work, getting extra shifts.

But will cutting support to unemployed Australians really help them get a job?

Our analysis shows there is considerable scope to increase JobSeeker payments before they might hinder people’s motivation to find paid work.

Lack of job searching is not the problem

Right now, there is little evidence a lack of job search effort is a significant problem for the economy.

Around 6.8% of the workforce is looking for work. But in July, Treasurer Josh Frydenberg acknowledged the real unemployment rate was closer to 13.3%, when “discouraged jobseekers” — not actively looking for work because their business is locked down or on hold — are included.

Treasurer Josh Frydenberg speaking at a press conference.
Treasurer Josh Frydenberg has noted the real unemployment rate is more than 13%.
Daniel Pockett/AAP

With about 1.6 million people on JobSeeker but only 130,000 job vacancies in May 2020, it matters little if some job seekers are more selective about the job offers they accept.

In fact, for the longer term health of the economy, it is important people find jobs that suit their skills. International evidence shows the provision of unemployment benefits slightly increase both the wages received when work is found and the stability (or duration) of the new job.

But would higher benefits be a problem as the economy recovers?

If benefits start to approach the level of minimum wages, some workers with low earning potential might decide the extra effort is not worth it — and so reduce their job search effort.

As the economy recovers, this will mean some potential jobs will go unfilled and government expenditure on JobSeeker will remain unnecessarily high.

Comparing JobSeeker to the minimum wage

However, our analysis shows Australia is in no danger of creating a disincentive for people to seek work because of higher JobSeeker payments.

We have compared Newstart and JobSeeker payments for single people with the minimum adult full-time wage (after tax) over the past three decades. This is a standard benchmark for assessing incentives to move from welfare benefits into work — assuming work is available.



Our analysis also looks at the payments provided to single pensioners. Pensioners received around 55% of the minimum wage up until 2009, when the pension was increased under the Rudd government. After that, net pension income was around 65% of the minimum wage. This is close to the commonly used poverty line, set at half the median household disposable income.

But for unemployed people on JobSeeker (or its predecessor, Newstart), the past two decades have seen a steady decline in their position relative to the minimum wage. It has fallen from around 50% in the 1990s to under 40% at the start of 2020 — well below the poverty line.

These calculations changed with the introduction of the Coronavirus Supplement in April, which almost doubled the payment for single unemployed people. Nonetheless, JobSeeker plus the supplement was still well below the adult minimum wage (76%, or 82% if we add shared accommodation rent assistance).




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On September 25, the Coronavirus Supplement will drop by $300 a fortnight. And the combined JobSeeker/supplement payment will fall back to 55% of the minimum wage until December 31.

Unless the federal government makes further changes, the supplement will be removed entirely at the end of the year. So those on JobSeeker will be back receiving less than 40% of the minimum wage.

The crisis isn’t over, why is support being wound back?

Neither the pandemic nor the economic crisis will be over by the end of 2020.

As the wage subsidy program JobKeeper is also wound back, next week and then again, next year, increasing numbers will become reliant upon JobSeeker.

Man wearing mask lines up outside Centrelink office.
The Australian economy could take years to recover from COVID-19.
Dan Peled/AAP

If the payment reductions continue as forecast, this will force many people well below the poverty line. A recent Australian National University analysis estimated an extra 740,000 people will be pushed into poverty.

This would not only be a disaster for the people directly affected, but also likely have large adverse economic effects. Deloitte Access Economics estimates withdrawing the Coronavirus Supplement support would be equal to a reduction in the size of the economy of $31.3 billion and an average loss of 145,000 full-time equivalent jobs.

The case to maintain much of the crisis-induced increase in payments is clear. In the short term, there will be no shortage of people looking for work. Maintaining payments at around the pension level — close to the poverty line — should be our policy objective.




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Even in the longer term, as labour demand increases, the large gap between welfare payments and minimum wages leaves plenty of room for permanent increases in income support, without creating a disincentive for people to look for work.

At a minimum, permanently increasing JobSeeker to 50% of the minimum wage — as was the case in the 1990s — should be an easily achievable target for Australia as it makes it way through the economic wreckage of COVID-19.The Conversation

Bruce Bradbury, Associate Professor, Social Policy Research Centre, UNSW and Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Budget deficit to hit $184.5B this financial year, unemployment to peak at 9.25% in December: economic statement



Lukas Coch/AAP

Michelle Grattan, University of Canberra

Treasurer Josh Frydenberg has announced massive budget deficits of $85.8 billion for the just-finished 2019-2020 financial year and $184.5 billion projected for 2020-2021.

Growth is set to be negative for last financial year and the current one. The government’s economic statement forecasts cuts of 0.25% in GDP in 2019-20 and a reduction of 2.5% in the current financial year.

Unemployment is expected to peak at about 9.25% in the December quarter.

Employment is forecast to fall by 4.4% in 2019-20, but recover by 1% in 2020-21.

The unemployment rate averaged 7% in the June quarter 2020, and is forecast to be 8.75% for the June 2021.

A table containing 'major economic parametres'

Treasury

The statement shows debt levels rising markedly in the wake of the pandemic, although the government emphasises Australia still has a low level of government debt-to-GDP compared to other countries.

Net debt is estimated to be $488.2 billion in June this year. This 24.6% of GDP.

Debt is then forecast to increase to $677.1 billion at June 30 next year, which would be a rise to 35.7% of GDP.

As the government looks to the recovery, Treasurer Josh Frydenberg said: “Our economy has taken a big hit. And there are many challenges we confront. We can see the mountain ahead and Australia begins the climb. We must remain strong. We must draw strength from our resilience as a nation and a people.”

Finance Minister Mathias Cormann said “We are in a better, stronger, more resilient position than most of other countries around the world.”

Defending the high debt level, Cormann asked “what was the alternative?”

The government admits the outlook is unpredictable, and revised numbers will come in the October budget.

“The economic and fiscal outlook remains highly uncertain,” the statement says.

One massive uncertainty is what happens in Victoria. The statement takes into account the present six weeks lockdown but this could be extended if the state does not soon get on top of the second wave of the virus.

The Victorian government on Thursday reported 403 new cases, and five deaths including a man in his 50s. There were 19 new cases in NSW.

The statement says GDP is forecast to have fallen by 7% in the June quarter, but will grow in the September quarter by 1.5%. In the calendar year of 2020, GDP is expected to fall 3.75%, but grow in calendar year 2021 by 2.5%.

Earlier this week, the government announced an extension of JobKeeper and the Coronavirus Supplement that goes with JobSeeker, although both will be scaled back after September.

Despite the government announcing these increases in support, the statement stressed the goverment’s economic response to the crisis was “temporary and targeted” with measures designed to support the economy without undermining the structural integrity of the budget.

a table containing 'budget aggregates

Treasury

Revenue is taking a major knock from the fallout of the pandemic.

Total receipts, including earnings of the Future Fund, have fallen by $33 billion in 2019-20 and $61.1 billion in 2020-21 since the budget update last December.

Since that update, tax receipts have been revised down by $31.7 billion for the just completed financial year, and $63.9 billion for the current financial year.




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“The outlook for tax receipts remains uncertain. This reflects both uncertainty around the economic outlook, and how this interacts with structural and administrative features of the tax system, such as the ability of taxpayers to carry forward losses to offset future income,” the statement says.

It says payments have increased by $187.5 billion over two years from the budget update.

They are expected to reach $550 billion for the 2019-20 year, which is 27.7% of GDP, and rise to $640 billion in the current financial year, representing 33.8% of GDP.

“This increase is as a result of the Government’s targeted responses to the COVID-19 pandemic to support Australia’s economy, as well as the impact of automatic stabilisers including the payment of unemployment benefits,” the statement says.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The compromise that might just boost the JobSeeker unemployment benefit


Michael O’Neil, University of Adelaide and Peter Gill, University of Adelaide

The government is about to make an historic decision.

The JobSeeker unemployment benefit (previously called Newstart) has scarcely increased in real terms since 1994.

In that time general living standards, as measured by real gross domestic product per capita, have almost doubled, climbing 83%.

Other benefits such as the age pension have broadly kept pace with living standards. They climb in line with wages rather than the slower-growing consumer price index.

In dollar terms the single rate is now just A$565.70 per fortnight, close to the poverty line and well below the $860.60 paid to single pensioners. Back in the early 1990s it was close to the pension.


Source: Ben Phillips ANU, DSS

The Organisation for Economic Co-operation and Development said in 2010 Newstart had fallen so low as to call into question its effectiveness in “enabling someone to look for a suitable job”.

In March, as the scale of the looming job losses from coronavirus and the responses to it became clear, the government effectively doubled JobSeeker, boosting the $565.70 single payment and other lower payments by a $550 per fortnight coronavirus supplement in an acknowledgement that unemployed people “need to meet the costs of their groceries and other bills”.

The increase took effect from April 27, but was temporary, for six months after it received royal assent, meaning it is due to expire in late September.




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The economic statement due on Thursday will provide an opportunity for the government to cushion the blow by either extending the life of supplement or permanently lifting JobSeeker.

It’ll also provide an opportunity for it to say no, allowing JobSeeker to collapse back to where it was.

An increase suggested to the recent Senate inquiry by the South Australian Centre for Economic Studies was $80 to $120 per week, enough to restore it to where it was relation to other benefits in the early 1990s.

Some Senators wedded to low JobSeeker

But the government will need to get over its seemingly ideological premise that the unemployed are in some way responsible for their own misfortune and are usually undeserving of the support needed to meet living costs.

This sentiment on display in the dissenting report by Coalition members of the Labor and Greens dominated inquiry which recommended JobSeeker be increased.

In explaining their position in April, after the the government had temporally doubled JobSeeker, Coalition Senators Wendy Askew and Hollie Hughes, argued that a permanent increase could carry with it “disincentive effects in respect of engagement with the workforce”.




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When the Coronavirus Supplement stops, JobSeeker needs to increase by $185 a week


Put plainly, they were concerned that if JobSeeker was boosted to a reasonable level (as it has been, temporarily) people mightn’t want to work.

Yet the transcript of evidence given by treasury officials at the inquiry reveals the department has never been asked to examine that question.

Asked whether the treasury had ever done any modelling of an increase in the payment now known as JobSeeker, deputy secretary Jenny Wilkinson relied “no”. Asked again: “You’ve never done that?” she replied “no”.

Others have done the analysis.

The compromise that might just stick

Deloitte Access Economics believes an increase would boost the size of the economy and boost the number of people employed by 12,000.

A compromise that might be acceptable to members of the Coalition who oppose lifting JobSeeker but support “job-ready” training programs, might be an increase in the JobSeeker allowance of, say, $80 per week, split into two.

Half of the increase would be a cash increase without conditions, the other half would be provided for accredited training.

With conditions in place to ensure participation in bona fide training, the increase could drive the skills development both employers and the unemployed want.




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The training that would emerge would be market-driven, responding to the post-COVID-19 needs of employers and potential employees.

The Productivity Commission has implicitly endorsed such an approach, reporting in May that there was “a manifest capacity to better allocate the $6.1 billion in government spending on vocational education and training to improve outcomes”.

JobSeeker could help, both supporting Australians who are out of work and supporting them to get back into work.The Conversation

Michael O’Neil, Executive Director, SA Centre for Economic Studies, University of Adelaide and Peter Gill, Research Associate, SA Centre for Economic Studies, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.