Vital Signs: amid the lockdown gloom, Australia’s jobless rate hits decade low of 4.9%

Richard Holden, UNSWIn other circumstances Treasurer Josh Frydenberg might be dancing a jig.

But the pall of the Greater Sydney lockdown, which has now spilled over to Melbourne declaring its fifth lockdown, meant there was no room for smiling yesterday about the latest jobs figures, showing Australia’s unemployment rate in June fell below 5% for the first time in a decade.

The labour force survey data from Australian Bureau of Statistics shows 22,000 fewer Australians were unemployed last month compared to May. This pushed the unemployment rate down to an eye-catching (if not yet eye-popping) 4.9%.

Next month’s figures, of course, are unlikely to be so rosy. But these numbers still enable us to understand the progress the Australian economy is making with a number of important issues predating the COVID crisis.

---

CC BY-SA

---

Importantly, the lower unemployment rate wasn’t due to a reduction in labour-force participation — sometimes known as the “giving up effect”, when folks just stop looking for work because they don’t expect to find a job. The participation rate was steady at 66.2%. In fact, the number of employed persons increased by 29,100 to 13,154,200.

There was even good news for younger Australians, with the youth unemployment rate down by 0.5 percentage points to 10.2%. This reflected a strong recovery from the pandemic, being 6.1 percentage points lower than a year ago in June 2020.

Total hours worked

The one statistic I always focus on is the total hours worked number. This is because the headline unemployment rate, as critics always point out, doesn’t tell us to what extent people are getting enough work.

On this measure there was slightly less good news. Total hours worked in June were down 1.8%, by 33.4 million hours to 1,781 million hours; and that’s seasonally adjusted, so its not just some “winter” thing.

---

Monthly hours worked in all jobs, seasonally adjusted

ABS Labour Force Survey, June 2021., CC BY-SA

---

Slow wages growth

In 2019 one could best characterise the Australian economy as barely growing in per-capita terms. Wages growth was stubbornly low, while unemployment and underemployment were unacceptably high.

Having recognised this — too late, mind you, but at least eventually — the Reserve Bank cut interest rates from 1.50% to 0.75% in an effort to get wages up, unemployment down, and inflation back into the central bank’s 2-3% target zone. Inflation has been outside its target band for the entirety of Philip Lowe’s governorship, which began in September 2016.

---

Read more:
Vital Signs: Why has growth slowed globally? It has something to do with technology

---

The pandemic pushed the RBA to drive the cash rate close to zero, and also buy government bonds to push down longer-term interest rates.

By looking at where unemployment, underemployment and wages growth stand relative to 2019 levels, we learn something about Australia’s pandemic recovery.

In doing so, we should not lose sight of fact the economy in general — and the labour market in particular — were not in good shape pre-COVID, and policies to address those issues have long been needed.

Edging closer to where we need to be

So, how’s that going? In some sense, pretty well.

June’s 4.9% unemployment rate is the lowest since June 2011. Getting down to something with a “4” in front of it edges Australia closer to reducing the slack in the labour market sufficiently to push wages up.

But the task is certainly not complete.

The aggressive monetary policy being used by the RBA and the “Frydenberg pivot” to aggressive fiscal policy at this year’s federal budget are both aimed at reducing unemployment and hence increasing wages.

However, no one really knows how low unemployment needs to get in Australia to getting wages moving again in earnest. The RBA’s official position is maybe 4.5%. Lowe has said it may well be a fair bit lower.

The smart path, arguably, is “let’s find out” — the central bank should keep using monetary policy and the treasury keep using fiscal policy until we see real wages growth at a sustained level. My own guess is that means getting the unemployment rate down to just below 4%.

---

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

---

Reigniting an immigration debate

The backdrop for these improvements in the labour market is a closed international border. This is likely to become a hot debate — especially since Lowe fired the starter pistol last week by suggesting Australia’s historically high levels of immigration had been helping keep wages low.

Those were rather careless, or at least ill-advised, remarks from the central bank governor, contrary to solid academic evidence pointing the other way.

He may say more on this at a future date — perhaps after some discussion and reflection. But, as he is so fond of saying, “only time will tell”.

Richard Holden, Professor of Economics, UNSW

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

Frydenberg spends the budget bounty to drive unemployment down to new lows

Peter Martin, Crawford School of Public Policy, Australian National UniversityNever before has a budget spent so much to supercharge the economy after the worst of a recession has already passed.

The economy bounced back from last year’s COVID recession far more sharply than the treasury (or just about anyone else) expected.

The bounty from the higher-than-expected tax collections that flowed from more people than expected in work, a much higher-than-expected iron ore price, and lower than expected unemployment benefits, should amount to A$26.8 billion this financial year, $15.5 billion the next, and $18.6 billion the year after that.

But rather than bank those riches and improve the budget bottom line, as the Coalition’s budget strategy used to require it to do, the government has instead decided to spend the lot.

---

---

It will spend $21 billion of this year’s $26.8 billion; it will spend or give up in new tax concessions $26.9 billion — far more than next year’s $15.5 billion bounty, and so on.

Treasurer Josh Frydenberg has come good on his historic promise to keep spending way beyond the crisis, to drive the unemployment rate down below where it was when the pandemic started.

---

Read more:
View from The Hill: Frydenberg finds the money tree

---

The budget predicts an unemployment rate of 4.75% by mid-2023 and 4.5% by mid-2024.

If delivered (and the treasurer’s revised strategy published in the budget requires him to keep spending until it is), it will mark what the budget papers describe as, “the first sustained period of unemployment below 5% since before the global financial crisis, and only the second time since the early 1970s”.

---

---

In the same way as Australia emerged from the early-1990s recession with a dramatically lower inflation rate because the Reserve Bank was determined to salvage something from the carnage, Frydenberg has decided to exit the COVID recession with an ongoing lower floor under unemployment.

---

Read more:
Less hard hats, more soft hearts: budget pivots to women and care

---

Both the treasury and Reserve Bank believe Australia can sustain much lower unemployment than the 5-6% it has grown used to. The treasury’s estimate is 4.5%; the Reserve Bank’s is nearer 4%. Before COVID, the United States managed 3.5%.

If achieved, it will mean hundreds of thousands more Australians providing services, drawing paycheques, and paying tax. And no longer on benefits.

---

---

A dramatic budget graph tracking the fortunes of every Australian whose payroll was reported to the tax office throughout 2020 shows the biggest victims of the COVID recession — by far — were those without post-school education. At the deepest point of the COVID recession in May, they were almost three times as likely to have lost their jobs as Australians with degrees.

The budget provides an extra $400 million for low-fee or no-cost training for jobseekers, to be matched by the states; an extra $481 million for the transition to work employment service directed at Australians aged 24 and under; and a further $2.4 billion to the Boosting Apprenticeship Commencements program.

---

Read more:
Budget 2021: the floppy-V-shaped recovery

---

But most of what it intends to do for jobs is the indirect result of a barely precedented expansion in spending and tax concessions in all sorts of areas.

The extra $17.7 billion it is spending on aged care over four years ought to create many jobs, as should the extra $13.2 billion it is spending on the National Disability Insurance Scheme.

The $1.7 billion it is spending on making childcare more affordable should both create jobs in the sector and free up more parents to return to work.

An extra $20 billion in business tax concessions should help as well.

---

Read more:
Cuts, spending, debt: what you need to know about the budget at a glance

---

The budget’s break with the past isn’t its dramatic expansion of discretionary spending. That’s common in recessions. What’s unusual is that spending is being ramped up when we are not in recession.

In the words beloved of economists, the spending is “pro-cyclical” rather than “counter-cyclical”. It is designed to supercharge our exit from recession rather than merely bring it about.

And there’s little sign of the spending stopping.

If this government or the next achieves success in driving the unemployment rate down to 4.5%, it will want to go further. It will keep going further right up until we get inflation near the top of the Reserve Bank’s 2-3% target band and wage growth in excess of 3%, neither of which this budget foresees in forecasts going out four years.

---

Read more:
Budget splashes cash, with $17.7 billion for aged care and a pitch to women

---

Government debt, anathema to the Coalition when Labor ran it up during and after the global financial crisis, isn’t much of a constraint.

The Reserve Bank holds much of the government’s debt (it didn’t during Labor’s time) and is buying as much as it needs to to keep interest rates low. Recently, interest rates have been rising, but not for most of the government’s borrowings, which are long-term.

The budget papers show that even with net government debt at 34% of GDP and heading to 44%, interest payments on that debt are much less of a drain on the budget than they were back in the mid 1990s when net debt hit 18% of GDP.

---

---

And the times have changed. Worldwide, few nations have an aversion to government debt, especially not the United States. In Australia, the only side of politics that used to complain about debt is in currently in office.

Before COVID, the fiscal strategy spelled out in the budget as part of the Charter of Budget Honesty required the government to eliminate net debt.

Frydenberg’s revised strategy merely requires him to stabilise and then reduce net debt “as a share of the economy”.

His priority is driving down unemployment. If that helps expand the economy and so drives down net debt as a share of the economy so much the better. But he wants to do it regardless.

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.

The successor to JobKeeper can’t do its job. There’s an urgent need for JobMaker II

workskil/Shutterstock

Renee Fry-McKibbin, Crawford School of Public Policy, Australian National University; Peter M. Downes, Crawford School of Public Policy, Australian National University, and Warwick J. McKibbin, Crawford School of Public Policy, Australian National UniversityUntil the end of last month one million workers were paid by JobKeeper.

This month there are none. Treasury thinks up to 150,000 will lose their jobs.

Credible estimates put the number higher, at as much as one quarter of a million.

In its place, the government introduced a A$4 billion JobMaker Hiring Credit. It will give employers who can demonstrate that a new employee will increase overall headcount (and payroll) $200 per week if the new hire is aged 16-29, or $100 if the new hire is aged 30-35.

Billions on offer, little takeup

Employers will get nothing for new hires aged 36 and over — no matter how disadvantaged and no matter how suitable.

The scheme hasn’t got off to a good start. It is reported to have had only 609 applications in its first seven weeks.

The October budget said it would attract 450,000 applications, creating 45,000 jobs.

The low takeup isn’t surprising.

Evidence shows when unemployment is high, the best way to target disadvantaged groups (such as young jobseekers) is not to target them, but to target high employment growth more broadly.

High employment growth disproportionately helps less-advantaged workers because they are further down the hiring queue.

The $4 billion appropriated for JobMaker is still available to be spent. If spent well, it would help consolidate what so far has been a very solid recovery.

---

Read more:
JobMaker is nowhere near bold enough. Here are four ways to expand it

---

But it needs to be simplified. JobMaker II could be set up as a tax rebate on the quarterly increase in firms’ payrolls, say 60% on any increment above 6%.

Firms that were on JobKeeper in the March quarter (its final quarter) would be allowed to deduct their JobKeeper receipts from their payroll in estimating the starting point for the calculation.

JobMaker II could save 100,000 jobs

If those firms retained their workers (and the rebate was set at 60% on any increase in payroll beyond 6%) they would receive a little over half their March quarter JobKeeper payment in the June quarter.

Most of the money would go to firms and disadvantaged workers who still need it.

The ordinary job matching process would be allowed to work, without some jobseekers being given preference over others because of factors such as their age.

And firms already thriving would have an incentive to increase their employment by even more.

But it should be announced this week

The proposal would have to be implemented quickly to maintain the momentum established by JobKeeper. With JobMaker as it is, it will slip away.

The main thing required is for the treasurer to make an announcement setting out the broad outlines.

JobMaker II could help older women.
Anderson Guerra/Pexels

The week after Easter is a time when business owners will be taking stock – working out whether they can afford to continue to carry workers who until the end of March were supported by JobKeeper.

Our modelling suggests that refashioning JobMaker along the lines we have suggested could save and generate 100,000 to 130,000 jobs over the next six months.

It would keep employment 1% higher than it would have been, generating higher wage growth and higher tax revenue leading to a lower budget deficit.

With interest rates close to zero, the employment effect would be sustained.

The impacts would be greatest for young and for low-skilled workers, with the bulk of the benefits flowing to wages rather than profits (as regrettably happened in high profile cases as a result of JobKeeper).

And without the discrimination implicit in age targeting, other genuinely disadvantaged groups, including low-income women over 35, would be better off.

Those women would be in a better position to build their superannuation balances and be less exposed to homelessness.

---

Read more:
In defence of JobMaker: not perfect, but much to like

---

The economy seems on track for a rapid recovery. But with the pandemic continuing and the outlook uncertain, it’d be wise to take out insurance.

With interest rates low, even a more expensive JobMaker II would pay for itself.

Renee Fry-McKibbin, Professor of Economics, Crawford School of Public Policy, Australian National University; Peter M. Downes, Research Associate, Centre for Climate and Energy Policy, Crawford School of Public Policy, Australian National University, and Warwick J. McKibbin, Chair in Public Policy, ANU Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy, Australian National University

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

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

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”.

Michelle Grattan, Professorial Fellow, University of Canberra

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.

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.

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.

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.”

Michelle Grattan, Professorial Fellow, University of Canberra

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

Mapping COVID-19 spread in Melbourne shows link to job types and ability to stay home

Shutterstock

Melanie Davern, RMIT University; Mary-Louise McLaws, UNSW, and Ori Gudes, UNSW

COVID-19 provides a stark reminder of inequity and the spread of disease. These aren’t new ideas and can be traced back to John Snow’s cholera maps and Charles Booth and his colour-coded maps of occupation types and poverty in the 19th century. Today, as case numbers soar in Melbourne, large clusters of COVID-19 cases have been identified across the northern and western suburbs, raising questions about occupation types and socio-economic differences across the city.

One of the most important messages from government during the pandemic has been to work from home if you can. Though what happens if your work isn’t suited to this?

---

Read more:
Two weeks into Melbourne’s lockdown, why aren’t COVID-19 case numbers going down?

---

Snow and Booth were forefathers of modern geographical information systems (GIS) analysis. It’s a powerful tool for mapping and visualising differences or inequities across cities and the spread of disease. We mapped the connection between occupation types, indicating the ability to work from home, and the locations of COVID-19 cases across Melbourne in the recent second wave.

Why is equity a health issue?

Hotspot suburbs were first identified and ring-fenced in early July. A hard lockdown was applied to the 3,000 residents of nine high-density public housing estates in inner Melbourne.

Ring fencing is a powerful method of containing a disease. It’s most appropriate where a specific location has a distinctive pattern of risk. It should also be applied without bias.

As the public housing towers lockdown reminded us, there is an inequity in health.

---

Read more:
Our lives matter – Melbourne public housing residents talk about why COVID-19 hits them hard

---

Many people associate equality with treating everyone the same regardless of their needs. This is very different to equity, which is about treating people according to their needs. Unlike equality, equity is providing people with extra help when it is needed.

The picture below makes the concept of equity easier to understand.

Craig Froehle/Medium, CC BY

In the context of this pandemic, a recent discussion of housing affordability raised the issue of equality versus equity.

---

Read more:
Overcrowding and affordability stress: Melbourne’s COVID-19 hotspots are also housing crisis hotspots

---

We see a stark difference between the initial transmission of COVID-19 and the second wave. The earliest cases were concentrated in Melbourne’s wealthier areas and associated with international travel. In the second wave we have seen a different pattern of spread across disadvantaged areas of Melbourne.

This pattern is possibly linked to inequity associated with living and work conditions. People with higher education tend to work in occupations that often enable them to work from home, making it easier to self-isolate.

Outer areas of Melbourne have had more cases of COVID-19 cases in the second wave and this might be associated with job types and education levels. Residents living in inner areas of Melbourne are more likely to hold tertiary qualifications needed for occupations more suited to working from home.

What does mapping reveal?

We analysed Australian Bureau of Statistics Census data on employment types from the Australian and New Zealand Standard Classification of Occupations. We identified 93 major occupation types suitable for working from home.

We linked and mapped these occupation data along with COVID-19 incidence according to local government areas. The map below shows data from July 16.

Data: DHHS, July 16, Author provided

The map reveals lower proportions (shown by lighter-coloured areas) of people employed in occupations suitable for working from home in many outer northern and western areas of Melbourne. In particular, the proportion is low in Hume, one of the local government areas where COVID-19 cases have been concentrated.

In the inner and outer eastern areas of Melbourne, residents are more likely to be able to work from home. Nillumbik in the outer north-east has the highest proportion of people able to work remotely. It has very few cases of COVID-19.

Greater Dandenong is an exception to this pattern. As a manufacturing hub for Melbourne, it has a low proportion of people in occupations suitable from working from home, but has few cases.

COVID-19 is spread through community transmission or close contact with others who are infected, as happened in meatworks factory clusters in northern and western Melbourne. Greater Dandenong may have been protected by the small number of cases across south-eastern Melbourne where more residents have occupations suitable for working from home.

The Victorian Department of Health and Human Services updates COVID-19 incidence data hourly. We first sourced data on July 16, a week after the Melbourne-wide lockdown began, to understand the patterns of occupation types and COVID-19 clusters as they evolved. To continue monitoring, we have developed a data dashboard, which is shown below.

Ori Gudes, Author provided

We hope this data dashboard will be released in coming days with updated data.

Using inclusive data to protect everyone

The related patterns of occupations and COVID-19 incidence remind us of the importance of the well-known relationships between health and place.

---

Read more:
Your local train station can predict health and death

---

This pandemic takes advantage of inequity and our most vulnerable communities. It shows us why we must include the full spectrum of society (not only those we know best) when we make decisions, communicate and ask people to work from home.

Many workers are engaged in casual and insecure employment and work is a critical determinant of health. Our mapping provides evidence that can help authorities decide where and how to focus preventive measures when planning public health interventions.

These methods of GIS analysis and easily understood maps should be freely available. The community will then be able to interrogate the data so they can realise in close to real time the rationale for public health directives.

These same principles have been used to understand health and liveability in cities though the Australian Urban Observatory to inform city planning.

---

We thank Weijia Liu of UNSW for assisting with data collection in this study.

Melanie Davern, Senior Research Fellow, Director Australian Urban Observatory, Co-Director Healthy Liveable Cities Group, Centre for Urban Research, RMIT University; Mary-Louise McLaws, Professor of Epidemiology Healthcare Infection and Infectious Diseases Control, UNSW, and Ori Gudes, Senior Research Fellow, Geospatial Health Lab, University of Canberra, and Adjunct Senior Lecturer, School of Public Health and Community Medicine, UNSW

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