Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why



Shutterstock

Brendan Coates, Grattan Institute; Matthew Cowgill, Grattan Institute, and Tony Chen, Grattan Institute

After managing the first stage of the COVID-19 crisis so effectively, the government now faces a bigger challenge: getting us back to work.

The official employment figures indicate the scale of what’s needed. In the past two months number of Australians with a job has fallen by 835,000. Millions more are in jobs kept on life support by JobKeeper.

Employed Australians, total

Includes Australians regarded as still employed because they are on JobKeeper.
ABS 6202.0

The Reserve Bank’s latest public forecast has the unemployment rate peaking at 10% and then falling to 6.5% (baseline scenario) or 5% (optimistic scenario) by mid-2022.

In Grattan Institute’s latest report, The Recovery Book, released this morning, we argue this isn’t ambitious enough.

The case for ambition

The bank and the government ought to aim for something better, closer to 4.5%.

This is the rate it has previously identified as “full employment”, the lowest Australia can sustainably achieve without stoking inflation.

It would mean bringing unemployment down 1.5 percentage points further than it might otherwise fall over the next two years – to somewhere between 4% and 5%.

Projected unemployment with and without extra fiscal stimulus

RBA forecasts linearly interpolated between 6-month intervals. ‘Full employment’ corresponds to the RBA’s pre-COVID estimate, plus and minus one standard error band.
Grattan calculations, RBA May 2020 Statement on Monetary Policy; Lucy Ellis, 2019 Freebairn Lecture in Public Policy

The bank has passed the baton

With the bank’s cash rate already cut to 0.25%, conventional monetary policy (cutting the cash rate) has run out of steam.

Unconventional policy will help.

The Reserve Bank is advancing cheap money to private banks for onlending to businesses, buying government bonds to keep the three year bond rate near 0.25%, and has pledged to keep the cash rate at 0.25% for the next three years.

The bank can and should do more, but the rest will have to be done by government spending and tax measures, so-called fiscal policy, of the kind that has already been proved effective in suppressing unemployment.

We’ll need $70 to $90 billion

We estimate that reducing unemployment by 1.5 percentage points by mid-2022 would require additional stimulus of A$70 billion to A$90 billion over the next two years, equivalent to between 3% and 4% of GDP.

This is on top of the more than $160 billion committed to JobKeeper and other coronavirus supports to date.

Here’s how we make the calculation.

First, to reduce unemployment by that much we estimate that real gross domestic product needs to grow by about 4 percentage points more than forecast over the next two years.

The estimate is based on previous work by economist Jeff Borland. Jeff kindly updated his calculation with us for this article, finding that each one percentage point increase in annual GDP growth reduces the unemployment rate by around 0.38 percentage points.




Read more:
Why even the best case for jobs isn’t good. We’ll need more JobKeeper


Second, we assume each dollar of stimulus in a particular year increases GDP in that year by between 80 cents and one dollar (some of the rest is saved and some leaks overseas).

This estimate of “fiscal multiplier” is slightly higher than that used by treasury during the global financial crisis but is in line with recent academic work finding that stimulus measures are more effective when monetary policy is out of ammunition.

If the fiscal multiplier isn’t as high – or if the recovery is more sluggish than expected, more stimulus might be needed.

There’s little risk of overkill…

A few weeks ago Reserve Bank Governor Philip Lowe raised the possibility that the crisis had pushed the minimum sustainable rate of unemployment higher, from 4.5% to nearer 5%, on the face of it making a case for less ambition.

His concern was “scarring” – the risk that some of the people who lose their jobs will become so damaged they become unsuitable for future employment, meaning that employers looking for staff would rather bid up the wages of existing workers than employ them, fuelling inflation.

But, if anything, his concern is a powerful argument for spending more, and more quickly, in order to avoid scarring. There’s good evidence sustained high unemployment hurts the economy in the long term.




Read more:
The charts that show coronavirus pushing up to a quarter of the workforce out of work


And if the extra spending did fuel inflation, it mightn’t be such a bad thing.

Inflation has been below the bank’s target for years. If it gets above it and becomes a problem, the bank can dampen it by raising rates.

…and little time to lose

The extra stimulus will need to be announced soon: on or well before the federal budget scheduled for October. Fiscal measures take time to have their biggest effect.

We are facing a “fiscal cliff” when measures including JobKeeper and the enhanced JobSeeker payment are withdrawn at the end of September. To escape it, they will need to be wound down more gradually, as the international Monetary Fund warned last week.

There are plenty of ways to maintain support including further cash payments to households, along the lines of those in the global financial crisis showed were effective in boosting spending, as well as spending on things such as social housing, roads and school maintenance.

Fear of debt needn’t hold us back

Extra stimulus will mean extra government debt. But the Australian government can now borrow for 10 years at a fixed interest rate below 1%. Adjusted for inflation, that’s a negative real interest rate, making debt more affordable than it has been in living memory.

There will naturally be concerns that further debt will place a burden on younger generations. But they are the generations that will be lumbered with the costs of worse than necessary unemployment, some of it very long term unemployment, unless we act.

In the worst case, they’ll ask why we didn’t do more.




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


The Conversation


Brendan Coates, Program Director, Household Finances, Grattan Institute; Matthew Cowgill, Senior Associate, Grattan Institute, and Tony Chen, Researcher, Grattan Institute

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

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



James Gourley/AAP

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

The Morrison government’s changes to welfare payments were among its most significant responses to the coronavirus crisis.

In April, the new Coronavirus Supplement roughly doubled the level of benefits for unemployed people on the JobSeeker Payment (called Newstart until March) and a range of other working-age payments.

But this huge increase will not last, with the $550 fortnightly supplement due to expire in late September.

If we want to keep unemployed Australians out of poverty in future, significant changes will be required to the base rate of JobSeeker.

According to my analysis, an increase of $185 a week is needed.

Debate brewing over the future of JobSeeker

A political debate is now brewing about what happens next to the JobSeeker Payment.

Before coronavirus, there had been consistent calls across parliament, business and community groups to raise the rate of Newstart/JobSeeker, which has scarcely increased in real terms since 1994.




Read more:
Coronavirus supplement: your guide to the Australian payments that will go to the extra million on welfare


Prime Minister Scott Morrison appears to be holding firm to the idea that the increased payments will stop later this year.

As he recently said,

we’ve put a COVID supplement in place for the period of the pandemic and that’s what we’ve budgeted for and that’s what our policy is.

But Labor and the Greens say there should be a permanent increase to the JobSeeker Payment (although they do not agree on an amount). Some Coalition MPs are also pushing for a boost.

Millions of Australians will need JobSeeker support

There are currently about 1.6 million Australians receiving the JobSeeker Payment, while the Coronavirus Supplement also goes to recipients of other payments, including Youth Allowance, Parenting Payment, Farm Household Allowance and Special Benefit.

In December 2019, there were more than 400,000 people receiving these payments – and possibly more now.

It is also possible that many of the estimated 6.1 million people currently on JobKeeper will need to claim JobSeeker as the former is phased out. So, would the government really halve income support for more than two million people at the end of September?

As the Grattan Institute has pointed out, cutting income support in this way this would be “a recipe for a second downturn”.

The Coronavirus Supplement and the “benefit cliff”

While the Coronavirus Supplement is a crucial element of support for newly unemployed Australians, it is not well designed. This reflects the speed with which it was developed and the fact it was intended to be temporary.

The chart below shows how the supplement combines with the basic JobSeeker Payment for a single person, and how the package of assistance changes by hours of work per week, paid at the minimum wage of $19.49 per hour.



The Conversation, CC BY-ND

What is most striking here is the “benefit cliff”: a person working 27 hours per week takes home around $720, but a person working 28 hours takes home $508. This is the result of the loss of the entire Coronavirus Supplement when the last dollar of JobSeeker is lost under the current income test.

This also creates significant anomalies: a person working up to three hours per week would have a higher disposable income than someone working 28 to 31 hours per week. And someone working 38 hours would have a lower disposable income than someone working between 19 and 27 hours.




Read more:
What’ll happen when the money’s snatched back? Our looming coronavirus support cliff


The same benefit cliff applies to couples, but because of the relaxation of the couple income test, the effect is not felt until higher levels of income.

At the moment, these anomalies and the benefit cliff are not very pressing because many people on payments will have reduced hours of work, if any.

But as workplaces open up and people return to employment, these design issues will become more problematic. Put simply, the Coronavirus Supplement in its current form should not be continued.

We need to increase the basic JobSeeker rate

This means that to continue to adequately support unemployed Australians and avoid a double dip economic downturn, the basic rates of payments need to be increased.

Last month, a Senate inquiry released its report into the adequacy of Newstart/JobSeeker.

The report by non-government members made 27 recommendations, including:

once the Coronavirus Supplement is phased out, the Australian Government increase[s] the JobSeeker Payment, Youth Allowance and Parenting Payment rates to ensure that all eligible recipients do not live in poverty.

They also recommended that

the Australian Government set a national definition of poverty. The Government should immediately commence work in collaboration with academic experts and the community sector to determine this definition.

Keeping people out of poverty

Clearly, we need to look at how to make the payment more adequate immediately, without waiting for an inquiry to determine how much is enough – a process that could take months.

There is a simple benchmark already available that can be used. This is the rate of pension paid to the aged, people with disability and carers. Including supplements, a single pensioner currently receives up to $944.30 per fortnight.

When the Coronavirus Supplement ends, a single person on the JobSeeker Payment will receive $574.50 (including the Energy Supplement) – a gap of $370 per fortnight or $185 per week.

Setting working-age payments at the same rate as pensions will significantly simplify our overly complex system and provide a consistent treatment of all adults.

It will reduce incentives for people to seek to qualify for higher payments.

It would also mean that if the federal government sets up an inquiry into poverty standards – as the Senate recommended – we would not have to worry about anomalies in current payment rates. We could focus on clear principles of adequacy for all Australians instead.

JobSeeker must increase by about $185 a week

In January, the Australian Council of Social Service called for a minimum $95 a week increase to Newstart.




Read more:
How to tweak JobKeeper, if we must


This would have applied at the time to around 850,000 people, at a cost of about $3.8 billion a year.

I estimate that an increase of $185 per week could cost around $7.4 billion, but this does not factor in the projected increase in the number of people needing support.

If we have more than two million people on working age payments in September this year, this would imply a rough budget cost of around $17 billion in a full year.

Raising JobSeeker payments is a substantial budgetary cost. But the current cost of the Coronavirus Supplement over a full year is likely to exceed $30 billion.

The alternative of cutting rates is also extremely costly: a deep increase in poverty among millions of Australian households and the likelihood of a double dip recession.The Conversation

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.

We need to plan for life after JobKeeper now. We need to make it portable



Shutterstock

John Quiggin, The University of Queensland

As an emergency response to the potential mass unemployment created by the sudden lockdown, the Morrison government’s JobKeeper program has been reasonably successful.

An estimated 700 000 employers, accounting for 4.7 million workers have signed up.

On the other hand, the sign up of workers has been been about one million less than expected.

Plenty of problems have emerged with limits on coverage.

Some reflect the difficulty of defining a “job” in an environment in which permanent employment has been eroded in favour of casual employment and contracting and the gig economy.




Read more:
How to tweak JobKeeper, if we must


Others seem arbitrary, such as the effective exclusion of local government and university employees, and workers whose employers are companies owned by foreign governments.

There will be bigger problems as time goes on.

Working life will change

Many workers will need to move.
Dan Peed/AAP

JobKeeper helps workers keep their existing jobs, but it can’t do anything for those who are already unemployed, who leave their jobs, or who need to switch employers.

As the crisis continues, the number in these categories is going to grow, while the number of workers protected by the scheme will shrink.

In six months time, when JobKeeper is due to end, it seems reasonable to assume that most of the restrictions requiring businesses to close their doors will have been lifted.

Shops, cafes, gyms and bars will be open, with adaptations for social distancing.

But other parts of the economy won’t be anything like the “normal” that existed before the crisis.

Even after the domestic restrictions end, large-scale international travel won’t resume until an effective vaccine is found and distributed widely enough so that (at a minimum) all intending travellers can be vaccinated.

Tourism will be very different, as will work and commerce, with the shift to online working, shopping and medicine only partly reversed.




Read more:
This time is different: Australia’s tourist numbers may take years to recover


A much smaller number of people coming into the country (even if long-term arrivals are be allowed in subject to quarantine) means weaker construction and education industries.

And even if we recover fully, our customers in the rest of the world will not. Europe is already in a deep recession. The pandemic was slow to reach the United States, but the likely impacts on both health and the economy look to be even worse.

These shocks would be a challenge even to a strong economy. But Australia’s performance before the crisis was sluggish at best.




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


Unemployment had barely come down from the levels reached during the global financial crisis and under-employment had reached all time highs. Inflation was persistently below the Reserve Bank’s target range, reflecting the overall weakness of the economy.

In these circumstances, the idea that the economy will magically “snap back” to normal once restrictions are lifted is a dangerous fantasy.

If we are to avoid an era of sustained high unemployment similar to the one we had in the early 1990s, the government must act to stop it happening.

JobKeeper should be made portable

The first step should be to convert JobKeeper into a wage-subsidy program, in the hands of workers, not tied to previous employment. Unemployed workers could assign the subsidy to whichever employer willing to hire them under standard wages and conditions.

There are plenty of difficulties with such a program. The most immediate is the need to ensure that it creates additional jobs, rather than allowing employers to sack existing workers and replace them with subsidised new hires.

A second lot of problems arises, as with JobKeeper, because of the increasing prevalence of non-standard forms of employment.




Read more:
Despite huge coronavirus stimulus package, the government might still need to pay more


These problems are not reasons to abandon the idea of wage subsidies. Rather, they imply that the government should be thinking about these problems now, rather than deferring the problem with the assertion that everything will return to normal in six months.

Much more will be needed to avoid mass unemployment.

Public services such as health and education will need to employ more people to deal with the extra requirements of social distancing, and the need for training and retraining.




Read more:
Our ailing aged care system shows you can’t skimp on nursing care


Restructuring the economy will require the abandonment of free-market doctrine in favour of direct government involvement, including public ownership where necessary, at least for a while.

And while it is appropriate to meet the immediate needs of the economy through increased borrowing, we will ultimately need increased revenue, and we will probably need to forgo the lavish legislated tax cuts that were due to kick in from the mid-2020s.The Conversation

John Quiggin, Professor, School of Economics, The University of Queensland

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

Were it not for JobKeeper, unemployment would be 11.7%, up from 5.2% in one month. Here’s how the numbers pan out



ABS

Jeff Borland, University of Melbourne

After all the forecasts and speculation, now we know the worst.

Today’s numbers from the Australian Bureau of Statistics lay out the catastrophic impact of COVID-19 on the Australian labour market.

Total hours worked fell 9.2% – in just one month, between March and April.


Percentage fall in hours worked

Months from start of recession.
Author’s calculations from ABS 6202.0

The scale and speed are difficult to comprehend.

By comparison, in the major recessions of the 1980s and 1990s, hours worked fell by 6% – but after 18 months.

Women have been hurt more than men, losing 11.5% of the hours worked in March, compared to men who lost 7.5%.

Queensland and NSW have so far fared better than other states.


Percentage fall in hours worked by state


ABS 6202.0

Predictions of much bigger job losses for the young than the old have been proved correct.

Workers aged 15 to 24 losing about 11% of employment compared to 3.4% for those aged 25 to 54, and 4.3% for the over 55s.

The official rate of unemployment in April 2020 rose to 6.2%. This is the highest rate since July 2015.




Read more:
What’ll happen when the money’s snatched back? Our looming coronavirus support cliff


It doesn’t seem a big rise amid talk of a new great depression, but this is one of those times when you need to read the fine print.

To calculate its official rate the Australian Bureau of Statistics follows International Labor Organisation conventions in classifying employment and unemployment.

These classify as employed anyone who worked zero hours but was still being paid or who believed they had a job to go back to.

Much worse than it looks, the bureau says so

This is important because the JobKeeper scheme means many workers in Australia fit these categories. It makes a difference.

For this reason, the bureau has provided an adjusted rate of unemployment which counts these workers as unemployed.

It puts our unemployment rate at 11.7% in April, up from 5.2% in March.

It is more in line with what we have been seeing in Canada and the United States.


Unemployment rates, January 2019 to April 2020


ABS 6202.0 and Canndian and US statistical agencies

Under-employment is also an important part of the story. Workers who kept their jobs are now much less likely to be working the hours they want.

Between March and April the rate of underemployment (working fewer hours than wanted) jumped from 9.8% to 13.7%.




Read more:
The Reserve Bank thinks the recovery will look V-shaped. There are reasons to doubt it


And many workers have also withdrawn completely from looking for work.

In the past month the labour force participation rate fell by 2.5 percentage points.

Again, women have been hurt more than men, with an extra 2.9% of women out of the labour force compared to an extra 2.1% for men.

Statistically, these people have vanished. They are not employed, but they are not counted as unemployed because they say they are no longer available for work.The Conversation

Jeff Borland, Professor of Economics, University of Melbourne

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

Let’s “SnapBack” to better society with more secure jobs: Anthony Albanese


Michelle Grattan, University of Canberra

Anthony Albanese says Australia must use the pandemic experience to move to a more resilient society, creating more permanent jobs and revitalising high value manufacturing.

In his fifth “vision statement”, delivered against the background of the government foreshadowing an extensive post-crisis reform agenda, Albanese is giving a broad outline of Labor’s priorities for change.

The Monday speech, issued ahead of delivery, comes a day before parliament resumes for a three-day sitting expected to be more combative than the previous two one-day sittings. It also precedes Josh Frydenberg’s economic update on Tuesday – the day the treasurer was, pre-pandemic, due to deliver the budget, now delayed until October.




Read more:
Grattan on Friday: The delicate art of political distancing during the pandemic


Referring to the government’s “SnapBack” terminology, Albanese says: “Let’s not SnapBack to insecure work, to jobseekers stuck in poverty, to scientists being ignored.”

“It’s no time for a ‘SnapBack’ to the Liberal agenda of cutting services, suppressing wages and undermining job security.

“This pandemic has shown that Labor’s values of fairness and security and our belief in the power of government to shape change to the advantage of working people are the right ones.

“A constrained fiscal position does mean difficult choices. But a reform agenda that doesn’t work for all Australians isn’t one we should pursue”.

Albanese says Labor has been constructive during the crisis, not allowing “the perfect to be the enemy of the good”; he contrasts its approach with the Coalition’s negativity against the Labor government during the global financial crisis.

While Australians have been getting through the crisis together, it has been tougher for some than others, including those who have lost jobs and businesses, he says.

“Sharing the sacrifice to get through the crisis together has to mean working to secure a recovery in which no one is left behind.

“We have to be clear in recognising that those with the least, have suffered the most through this crisis – something that must change.

“It’s critical that we are still saying , ‘we’re all in this together’, after the lockdown has come to an end,” Albanese says.

“We must move forward to having not just survived the pandemic, but having learned from it.

“To secure a more resilient society, given just how quickly things can change, through no fault of anyone.

“To better recognise the contributions of unsung heroes, like our cleaners, supermarket workers and delivery workers. To honour our health and aged care workers.

“To recognise that young people have done more than their share.

“Young people deserve better than an economy and society that consigns them to a lifetime of low wages, job insecurity, and unaffordable housing.

“We must ensure that what emerges is a society that no longer seems stacked against them, or denies them the opportunity and economic security of older generations”.

Albanese says this is a once-in-a-political lifetime event that “creates once-in-a-century opportunity to renew and revitalise the federation” and “a once-in-a-generation chance to shape our economy so it works for people and deepens the meaning of a fair go”.

“We must build more permanent jobs, an industrial relations system that promotes co-operation, productivity improvements and shared benefits,” he says.

“We must revitalise high value Australian manufacturing using our clean energy resources.”

He also urges nation building infrastructure including high speed rail and the local construction of trains; a decentralisation strategy including restoring public service jobs in agencies such as Centrelink that deliver services to regional areas; a conservation program to boost regional employment; and governments working with the private sector and superannuation funds to deliver investment in social and affordable housing.

“A housing construction package should include funding to make it easier for essential workers to find affordable rental accommodation closer to work.”

Albanese says that “too much of the risk in our economy has been shifted onto those with the least capacity to manage in tougher times.

“The broadest burden has been put on the narrowest shoulders.

“Our economy has become riskier, and we need to think through what that means for us all.

“We need to realise that a good society can’t thrive when the balance between risk and security falls out of step.”

Albanese says there needs to be an emphasis on growth, “because only inclusive economic growth can raise our living standards.

“We need to put more emphasis on secure employment – especially for the next generation of younger workers who nowadays have little idea of the meaning of reliable income or holiday pay”.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.

Coronavirus redundancies are understandable, but there are alternatives



Shutterstock

Robyn Johns, University of Technology Sydney

Redundancies are attractive to organisations in crisis. Although the payouts cost money upfront, they can reshape the remaining workforce to make it leaner and more fit for purpose.

On the other hand they can demoralise that workforce, and they are far from good for the rest of the economy.

One alternative, available to the employers of as many as 6.6 million Australians for the next six months, is JobKeeper.




Read more:
JobKeeper is quick, dirty and effective: there was no time to make it perfect


Another is being tried with apparent success by Domain Group, the real estate listings and journalism firm majority owned by Nine Entertainment Holdings, which also owns newspapers including The Age and The Sydney Morning Herald.

Domain, and the real estate industry in general, has been hard hit by plummeting listings and plateauing home prices.

Project Zipline

Because it is part owned by the public and listed on the Australian Securities Exchange, it has had to explain its approach to shareholders.

Its April 26 announcement notes that about 45% of its cost base relates to staff and employee-related expenses.

“We had the option of taking the standard path of reducing hours, stand downs and redundancies, chief executive Jason Pellegrino explained on the Domain website.

He chose another option: Project Zipline

employees were offered the opportunity to participate in a share rights program whereby they could receive a percentage of their salary package over the next six months in share rights, or alternatively elect to reduce working hours

The target is a 20% reduction in staff costs, while retaining employee talent and “momentum for the long term”.

It’ll also help align the employees and the organisational interests.

Domain’s group director for employee experience, Rosalind Tregurtha says there has been a 90% take up of the options offered.

Sacrifices at the top

The executive leadership and board are role modelling by taking greater proportions of their own remuneration in share rights: 30% and 50%.

It has had to work quickly so the savings can start from May.

The work has included preparing information packs for managers and employees, briefing managers, asking employees to chose options, working with Link Market Services to get offers out and processing the changes for the more than 600 employees on the payroll.

Zipline is a case study of an organisation working quickly with its workers to find a solution that works.

It mightn’t work elsewhere. Other options for businesses include

  • offering greater work flexibility including shortened weeks and job sharing

  • freezing or limiting recruitment

  • restricting or banning overtime

  • increasing the scope of jobs

  • allowing employees to take accrued leave

  • directing employees to take unpaid leave under the government’s stand down provisions

  • seeking voluntary redundancies

Whatever option works the best, for many employers doing nothing is not an option.




Read more:
Coronavirus lays bare the trauma of losing your job


It is important to consider, as Domain did, that while demand for their services might have slowed for a time, there is every likelihood that in the not too distant future things will pick up.

The firms that have done all they can to retain their industry knowledge and company experience will be the best placed for revival.The Conversation

Robyn Johns, Senior Lecturer in Human Resource Management and Industrial Relations, University of Technology Sydney

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

90% out of work with one week’s notice. These 8 charts show the unemployment impacts of coronavirus in Australia


Alex Collie, Monash University

More than 31% of people who have lost work during COVID-19 are recording high levels of psychological distress — a rate four times more than employed Australian adults. Many lost work without notice and are facing high levels of financial stress.

These findings are part of our national study of people who have lost their jobs or have had their work hours reduced during the COVID-19 pandemic.




Read more:
How will the coronavirus recession compare with the worst in Australia’s history?


Since late March nearly 800,000 Australians have lost their jobs. Millions more have had their work hours reduced or are working differently.

Unemployment is predicted to rise to between 10% and 15%.

Centrelink has been overwhelmed with people applying for the JobSeeker payment.

The negative impacts of prolonged unemployment on mental and physical health has been long recognised, and unemployment could emerge as the major public health crisis from COVID-19.




Read more:
More Australians are worried about a recession and an increasingly selfish society than about coronavirus itself


The early findings from 611 people enrolled in the study are outlined below. The charts show the acute impacts affecting people in the first few weeks after social distancing measures and travel restrictions were introduced and many businesses closed.

Job loss happened very quickly

Almost 36% of our survey respondents lost their jobs, and about 64% are no longer working, though they remain employed.



CC BY-ND

Two-thirds of people in the study reported losing work, or losing their jobs, with zero or one day’s notice. About 90% lost work with less than one week’s notice.



CC BY-ND

Incomes have dropped sharply

Before COVID-19 81% of people in the study reported an average weekly income of A$500 or more. The same people reported large drops in their income, with just under 29% reporting more than A$500 of income in the most recent week.



CC BY-ND

Most of the study data was collected after people lost jobs but before government stimulus payments such as JobSeeker, the coronavirus supplement and JobKeeper reached people’s bank accounts. Accordingly, almost 52% of people reported having no income in the most recent week.

People are under severe financial stress

Not surprisingly given the situation outlined above, many people are already experiencing considerable financial stress. People who have lost their jobs reported significantly higher levels of financial stress than survey respondents who have lost work but have remained employed.



CC BY-ND

Many also indicated they would find is difficult to raise A$2,000 within a week.



CC BY-ND

Psychological distress is very high

Rates of psychological distress are much higher in people losing work during COVID-19 than we typically see in working age Australians. More than 30% of people are recording high levels of distress, a rate almost four times that usually observed in employed Australian adults. Another third of study participants have moderate distress, again much higher than we normally observe.




Read more:
What if I can’t pay my rent? These are the options for rent relief in Australia


A larger proportion of people who had lost their job reported high levels of distress compared to those who had lost work but were still employed.



CC BY-ND

Most people are seeking government support

About 66% of study participants had already applied for Centrelink payments, intended to apply or had registered their intent to apply. Once again, more people who have lost their jobs were in this category (77%) than those who had lost work but were still employed (59%).




Read more:
JobKeeper payment: how will it work, who will miss out and how to get it?


More than 28% of participants reported that they were not eligible for any Centrelink benefits.



CC BY-ND

Looking forward to working again

As well as understanding people’s current financial and health status, the study asked people their thoughts about the future. About 71% said they were not confident of being back in paid work in one month’s time.

People were much more positive about their job prospects in three and six months, with almost 68% of people saying they were somewhat confident or very confident they would be back in paid work in six months’ time.



CC BY-ND

What next?

The high rates of psychological distress show that unemployment is much more than an economic problem. It is also a serious public health dilemma.

The study will track people’s engagement in work and their health over the rest of 2020 to understand who is most affected and how health and work change over time as restrictions ease, businesses reopen and the economy recovers.


If you have lost work or lost your job during COVID-19, and you are aged 18 or over, you can participate in the study by visiting www.covidstudy.net.




Read more:
Despite huge coronavirus stimulus package, the government might still need to pay more


The Conversation


Alex Collie, Professor, Monash University

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

That estimate of 6.6 million Australians on JobKeeper, it tells us how it can be improved



Shutterstock

Roger Wilkins, University of Melbourne and Jeff Borland, University of Melbourne

JobKeeper is by “no means perfect”. Treasury Secretary Stephen Kennedy used those exact words when he appeared before a Senate committee on COVID-19 on Tuesday, going on to observe that getting it right would “require continuous work”.

We have dug into the JobKeeper numbers to work out how it could be improved.

Room for improvement. Treasury Secretary Steven Kennedy.
Mick Tsikas/AAP

The Morrison government announced JobKeeper on March 30. For a cost of A$130 billion, employers of eligible workers in eligible businesses will receive a flat $1,500 per fortnight wage subsidy for up to six months, irrespective of the worker’s previous wage.

The most striking insight from those figures is the number of workers that are expected to receive the payment – more than 6.6 million, six out of every ten private sector workers.

It doesn’t quite jell with another number – the number of workers treasury expects JobKeeper to keep in work.

We can get an idea of this from Treasurer Frydenberg’s statement on April 14 that “treasury estimates the unemployment rate would be 5 percentage points higher without JobKeeper.”

The labour force is 13.7 million. Allowing for the fact that some of the workers who lose jobs will withdraw from the labour market and not be counted as unemployed, the implication is that JobKeeper will save, at most, one million jobs.

Payments to 6.6 million, to save 1 million

Put crudely, JobKeeper will go to 6.6 million Australians in order to save the jobs of around one million

Of course, it is also designed to benefit workers who lose hours but are still employed. Taking this into account explains only some of the difference.

Reserve Bank Governor Philip Lowe expects total hours worked to fall by around 20% over the first half of the year, 2.6 million full time jobs’ worth. That is a long way short of 6.6 million.




Read more:
JobKeeper is quick, dirty and effective: there was no time to make it perfect


It isn’t surprising that coverage of JobKeeper is broader than predicted job loss. That was inherent in the design. What is surprising is the size of gap between the predicted number of payments and the predicted number of jobs at risk. This has three important implications.

1. Mutual obligation

If JobKeeper does end up being paid in the name of 6.6 million Australians rather than the one million or so that would need it to stay in work, it will be a substantial subsidy to business. Many businesses will have received $1500 per fortnight for workers they would have kept on anyway.

This can be justified as a means of putting those businesses on a stronger footing to stay afloat during the shutdown and expand when it is over, maintaining high employment into the future. But such support comes with an obligation. Businesses that receive this sort of wage subsidy are implicitly entering into a contract with the community to maintain employment when JobSeeker ends. This commitment should be made explicit.

2. Investigation

The incredibly rapid onset of COVID-19 means the eligibility criteria for JobKeeper are based on changes in monthly revenue. Any other approach would have delayed payments. But using revenue as a trigger provides an incentive for businesses to manipulate month-to-month revenue.

That makes it imperative that JobKeeper scheme is accompanied by substantial monitoring. One way to do it is by cross-referencing claims for JobKeeper with other data on the impact of COVID-19.

As an example, the chart below compares the actual size of falls in employment by industry between mid March and early April with shares of inquiries to the Tax office about JobKeeper by industry. Some industries appear to be outliers – with relatively high shares of inquiries but relatively small job losses.


Jobs lost versus inquiries about JobKeeper by industry


ABS 6160.0.55.001, ATO figures via news.com.au

The chart is rudimentary.

It shows the accommodation and food services industry lost the most jobs, but nowhere near the most inquires about JobKeeper.

The most were in the professional, scientific and technical services industry, which lost nowhere near as many jobs.

As time goes on, it should be possible to monitor claims in ways that are more sophisticated.

3. Scope to extend JobKeeper

Forecasts – even those based on the most relevant and up-to-date information – can be wrong. This isn’t a criticism. Making forecasts is hard.

But it might be that 6.6 million turns out to be an overestimate. If so, it creates an opportunity.




Read more:
Why temporary migrants need JobKeeper


It would allow JobKeeper to be extended to some of the workers who at present miss out, among them casual employees in their job for less than 12 months and the temporary visa holders who are currently excluded.

Such a change would be consistent with the stated goal of trying to keep workers connected to their workforce. It will be needed when the crisis is over, and it would be the right thing to do for equity, ensuring there is a safety net for all of us.

The treasury secretary is correct. JobKeeper should be anything but set and forget.The Conversation

Roger Wilkins, Professorial Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne and Jeff Borland, Professor of Economics, University of Melbourne

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

The next employment challenge from coronavirus: how to help the young



Icons8 Team on Unsplash, CC BY-NC

Jeff Borland, University of Melbourne

Even before COVID-19, young Australians were doing it hard in the labour market.

Slower economic growth and the increasing employment of older Australians since the global financial crisis had been crowding them out.

In recent research Michael Coelli and I estimate that crowding out reduced the proportion of young Australians aged 15 to 24 years in employment by 4 to 5 percentage points since the global financial crisis.

As a result, more young people have become long-term unemployed or have had to gain full-time work through part-time work. And many of those who have found work have needed to spend extra time and resources (doing things such as unpaid internships) to get it.

Now, young Australians are going to be hardest hit by the COVID-19 recession.

Partly this is because the young are always hardest hit during economic downturns – needing to make the transition from education to work at a time when there are few new jobs on offer.

Young Australians are still reeling from the GFC

Look at what happened after the global financial crisis.

The chart below uses data from the Household, Income and Labour Dynamics in Australia survey to show changes in employment to population ratios over time compared to 2008, which was the start of the global financial crisis.

The proportion of the population aged 25 to 54 years in employment fell for several years before bouncing back.

But the decline in the proportion of young who were employed was much larger – almost double the size – and took longer to reverse.

Young Australians went into the global financial crisis doing increasingly better than older Australians and came out of it doing increasingly worse.


Change in employment-to-population ratio, by age group

Percentage change from ratio in 2008.
HILDA

COVID-19 should be worse

This crisis brings brings with it extra reasons to believe young will be hard hit.

First, a sizable group of older workers are likely to delay retirement to rebuild their superannuation balances. This will make it even harder for young jobseekers to find jobs.

Second, the young account for a disproportionate share of workers in industries being most affected by COVID-19 shutdowns, such as hospitality and retail trade.

Third, the young are also a large proportion of casual employees who have been in their jobs for less than 12 months.

That means they will not be eligible for the JobKeeper payment, making them more likely to be laid off and less likely to be rehired than workers who are.




Read more:
JobKeeper payment: how will it work, who will miss out and how to get it?


Worryingly, the disadvantaged young are likely to be the hardest hit of all.

To see this, we can again draw on experience from the financial crisis.

The chart below presents the same information on changes in the employment/population ratio as the chart above – this time for groups within the 20 to 24 age group.

Those with bachelor’s degrees were largely unaffected.

Those who were in full-time study at the time suffered a drop in employment, but recovered after a decade.

But those not in full-time study and who do not have a bachelor’s degree saw a massive fall in their likelihood of employment of 11 percentage points, which has only partly been reversed.


Change in employment-to-population ratio, 20 to 24 year olds

Percentage change from ratio in 2008.
HILDA

Why should we worry about the impact on the young?

We should worry about the impact on the young because it matters for equity today, but also for the long-term consequences.

We know that what happens to people at the start of their time in the labour market will affect what happens to them in the rest of their working lives.

Many international studies have shown that trying to move into employment during a major economic downturn cuts the probability of employment and future earnings for a decade or more.

Why this occurs is less well-established. Reasons suggested include being forced to take lower quality jobs, losing skills and losing psychological well being.




Read more:
What we missed while we looked away — the growth of long‐term unemployment


The best way to improve the outlook for young Australians is to get back to high rates of job creation as quickly as possible. It is what the government is trying to achieve by keeping jobs open through JobKeeper and other initiatives.

In the meantime, there is a pressing case for programs targeted at the young to improve their prospects of employment when the economy recovers.

Priority should be given to the low skilled and long-term unemployed.

Recommendations made by the Employment Services Expert Advisory Panel on enhanced services to assist job seekers with high barriers to employment would be a good place to start.

New graduates are in great danger

Something also needs to be done for the many young people who will graduate over the next 12 months.

To prevent them having a spell of unemployment, they could be encouraged to undertake further study – with a holiday from Higher Education Loans Scheme loans
and free TAFE courses for 2021.

Allowing young people to build and maintain contact with the labour market through scaled-up and government-funded paid internship programs would be a further valuable step, although its implementation would need to be timed to match the economic recovery.The Conversation

Jeff Borland, Professor of Economics, University of Melbourne

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