Peter Whiteford, Crawford School of Public Policy, Australian National University and Bruce Bradbury, UNSWGreater Sydney is in its third week of lockdown, with no clear end in sight. The situation calls for support both for businesses and households suffering severe income loss in the weeks ahead.
Greater Sydney makes up about one-fifth of the Australian population, so is a significant chunk of our economy and community.
It’s worth noting when the (now extinct) Coronavirus Supplement was announced on March 22 2020, there were 179 new cases per day for all of Australia. When the (also now extinct) JobKeeper Payment was announced a week later, there were 383 new cases per day.
There were 112 new cases announced in NSW alone on Monday.
A federal government responsibility
In June, Prime Minister Scott Morrison indicated business support was a state government responsibility. But income support for households is a federal government responsibility.
In 2020, the Morrison government showed great flexibility. JobKeeper supported employers to maintain part-wages for workers who would otherwise be stood down, and the Coronavirus Supplement gave additional support to those who lost their jobs.
These programs went a long way towards addressing a weakness of Australia’s social security system — the lack of insurance against sudden income loss when workers are laid off (for whatever reason). Indeed, for a while, the Coronavirus Supplement also worked to address another major weakness, the below-poverty line income for the long-term unemployed.
JobKeeper and the Coronavirus Supplement ended earlier this year. Most recently, the federal government has built on existing schemes to assist people during natural disasters, to support those during lockdowns or quarantine.
The last few months in Melbourne and Sydney show the COVID crisis is far from finished. Morrison has flagged that further financial support is being considered by the government. Treasury is reportedly working on options.
There are currently two main forms of support.
The COVID-19 Disaster Payment
The first main support is the COVID-19 Disaster Payment. This kicks in once a lockdown has gone on for more than a week. For those losing under 20 hours work, the payment is $325 per week, and for those losing 20 hours or more of work, the payment is $500 per week.
There are several eligibility criteria: recipients must be unable to attend work and have lost income, they can’t have access to appropriate paid leave and they can’t be receiving an income support payment, a state pandemic payment or the Pandemic Leave Disaster Payment for the same period.
Last week, Morrison announced the liquid assets limit of $10,000 would be waived from the third week of a lockdown.
Pandemic leave payment
The second key support is the Pandemic Leave Disaster Payment, where an appropriate local health authority has told people to self-isolate or quarantine, or for those who need to care for someone with COVID-19. This includes Australian residents and those with a working visa.
The payment is $1,500 for each 14-day period someone needs to self-isolate or quarantine. A new claim must be made each 14-day period and Services Australia has set up accelerated application processes.
As with the COVID disaster payment, those with any income from paid work or other leave entitlements, or on income support payments, are not eligible.
How adequate are these measures?
Whether support is adequate depends on the spread of the virus and its economic impact in coming weeks. But there are already gaps in support.
It is confusing to have two payments at different levels, with people required to quarantine receiving greater support than those locked down, even when financial losses may be similar.
As we have already noted, both payments have significant exclusions. With the COVID-19 payment, apart from being unavailable for the first week, people must submit a new claim for each additional week of lockdown.
What about those already on welfare?
While the government increased the base rate of JobSeeker Payment earlier this year, Australia still has the second lowest “replacement rate” (relative to wages) for the unemployed in all OECD countries.
Another significant gap is most of the current help cannot go to people already receiving income support, although many of them may lose income in lockdown.
Welfare recipients who have to go into isolation or quarantine can access a one-off crisis payment (equal to a week’s pay at the maximum basic rate of their payment), but this is only available twice in a six month period.
According to Australian government data, in May, nearly one in four people receiving Youth Allowance (Other) and more than 20% of those receiving JobSeeker had part-time earnings, which is crucial to help people paying rent and bills. If they lose earnings, their benefits will increase, but by less than half the earnings lost.
We keep hearing reports about how small business is suffering badly.
Small businesses have many fixed costs — most notably rent — that will not be supported. More generally, so far, most of the costs of the lockdowns have been borne by either employees, employers in locked down industries, or government.
But a wider sharing of the costs via rent and interest moratoriums for affected businesses and households should be considered. This requires co-ordinated action by the state and federal governments.
Importantly, state governments are looking at their own measures. Last week, Victoria announced it would trial up to five days of sick or carer’s leave, at minimum wage rates, to workers in high-risk industries, including aged care, cleaners, supermarket workers, hospitality workers and security guards. However, this will not start until early 2022.
NSW has been pushing the federal government to jointly devise a new scheme to save jobs. An announcement is expected imminently.
Whatever this is, governments need to be realistic about what businesses and households are facing. The longer lockdown lasts, the more people will need longer-term solutions to costs they can’t get away from, like mortages, rents and basic living expenses.
Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University and Bruce Bradbury, Associate Professor, Social Policy Research Centre, UNSW
Kathryn Daley, RMIT University; Belinda Johnson, RMIT University, and Patrick O’Keeffe, RMIT UniversityOf the more than 870,000 Australians who lost their jobs in the first few months of the COVID-19 crisis, 332,200 – or 38% – were young Australians aged 15-24.
By June 2020, as the overall unemployment rate hit 7.4%, the youth unemployment rate spiked to 16.4%, with a further 19.7% underemployed (working fewer hours than they wanted).
As of February the overall unemployment rate had fallen to 5.8%, compared with 5.1% in February 2020. The youth unemployment rate meanwhile was 12.9%, compared with 11.5% the year before, and a further 16% were underemployed.
Prime Minister Scott Morrison has enthused about there now being “more jobs in the Australian economy than there were before the pandemic”. But that’s true only for those 25 and older: 77,600 more are employed than before the crisis. For those aged 24 and under, 74,100 fewer have jobs.
So clearly the pandemic has hit younger workers the hardest. The reasons for disproportionate impact aren’t complicated. Young people are more likely to work in casual jobs – the first to be excised in hard economic times – and in those sectors most affected by border closures, lockdowns and other measures – retail, hospitality, tourism.
Yet the federal government’s policy responses, injecting billions of dollars into the economy to support businesses and employment, have compounded this impact through deliberate yet flawed policy design.
JobKeeper has kept proportionally fewer young people in jobs. Changes allowing withdrawal of superannuation will hurt them more in the longer term. And JobMaker, the program designed specifically to encourage employment of younger workers, has proven a monumental flop.
Shut out of JobKeeper
The centrepiece of the federal government’s support measures was the A$100 billion JobKeeper program, initially paying a subsidy of $750 a week before tapering and finally being axed at the end of March.
The Reserve Bank of Australia estimates JobKeeper payments kept at least 700,000 workers off the dole queue. But to qualify, employees had to have been working for their employer for a minimum of 12 months.
This disproportionately excluded younger workers – being more likely to be recent workforce entrants, to switch jobs more than older workers, and to be in employed in casual or other forms of insecure work.
To illustrate, Australian Bureau of Statistics data from August 2019 shows young people comprised 17% of the workforce yet accounted for 46% of all short-term casual employees.
Of those employed casually, 26.4% of young people had been with their employer for less than 12 months, compared to 6.5% of those aged 25 and over. So one in four young people employed casually were not eligible for JobKeeper, compared with only one in 16 of their older counterparts.
Drawing down superannuation
JobKeeper’s design thus pushed proportionally more younger workers on to the dole queue. It also likely contributed to more of them dipping into their superannuation savings under the provisions announced by the federal government in March 2020.
Those provisions allowed Australians affected by the economic crisis to withdraw up to $20,000 from their superannuation accounts (in two rounds of $10,000 each – one last financial year, another this financial year).
The Industry Super Australia estimated about 395,000 people under 35 completely drained their super accounts.
This emptying of accounts is not surprising given the average superannuation balance by age 30 is about $28,000 for men and $23,700 for women.
But it means many will have considerably less super to retire on. The long-term cost of a 25 year-old withdrawing $20,000 is more than $100,000, compared with about $37,000 for a 50-year-old, according to estimates by financial comparison site Canstar.
Spend now, lose later
There’s also evidence the design of the super-access scheme has allowed unnecessary withdrawals. While those taking out money have had to declare they need the money to pay for essential items (such as rent or bills), there has been no scrutiny of this prior to approval.
Indeed, according to credit-scoring company Illion about two-thirds of the funds withdrawn this financial year was spent on discretionary items such as clothing, furniture, restaurants and alcohol.
As former prime minister Paul Keating has put it, the government has relied on individuals “ratting their own savings” to buttress its own stimulus spending.
More work needed
The one program meant to specifically address youth unemployment, the JobMaker Hiring Credit, has so far proven a failure. Its aim is to incentivise employers to hire job seekers aged 16 to35 with a weekly $200 subsidy, creating 450,000 jobs over two years. But in late March, Treasury officials revealed it had so far led to just 609 hires.
All unemployment is costly for individuals, families and the wider community. But high and long-term youth unemployment can have particularly dire consequences that reverberate for decades. It creates the risk of “scarring”, suppressing an individual’s job and income prospects over their entire life. That ultimately requires the government picking up the tab.
Youth unemployment was already a significant issue prior to the COVID crisis. Now, with younger people hit hardest by the pandemic’s economic impacts, it’s imperative to ensure an entire generation is not permanently disadvantaged.
Kathryn Daley, Senior Lecturer & Program Manager – Youth Work and Youth Studies. School of Global, Urban and Social Studies, RMIT University, RMIT University; Belinda Johnson, Lecturer and Program Manager, Social Science (Psychology), School of Global, Urban and Social Studies, RMIT University, RMIT University, and Patrick O’Keeffe, Lecturer, Bachelor of Youth Work and Youth Studies, RMIT University
Elise Klein, Australian National University; Kay Cook, Swinburne University of Technology, and Susan Maury, Monash UniversityDuring COVID-19 the government ran what turned out to be a giant real-world experiment into what happens when you boost someone’s unemployment benefits and free them of the “mutual obligation” to apply for jobs.
On April 27 2020 the government as good as doubled the $565.70 per fortnight JobSeeker payment, lifting it by $550 per fortnight for what turned out to be six months. In September the boost dropped to $250 per fortnight, and in December to $150 per fortnight.
Next Thursday the boost vanishes, although the base rate of JobSeeker will climb by a less-than substantial $50 a fortnight, leaving recipients $100 a fortnight worse off than they have been, $500 per fortnight worse off than back when JobSeeker doubled and back well below the poverty line.
From Thursday April 1 they will also be subject to much more demanding work tests, having to show they have applied for a minimum of 15 jobs a month, climbing to 20 jobs a month from July 1.
On top of that the government has announced
- a return to compulsory face-to-face meetings with Jobactive providers
- work-for-the-dole after six months of unemployment
- a dob-in line for employers to report jobseekers who seem not to be genuine
- increased auditing of job applications to ensure they are legitimate
They are the sort of “mutual obligations” that were scrapped while JobSeeker was doubled.
Yet the government’s natural experiment where they doubled benefits and freed recipients of “mutual obligations” provides us with an opportunity to examine how a more generous approach affected recipients and whether, as the government says, a tougher approach is needed in order to compel people to work.
During last year’s more generous approach, we conducted an online survey of JobSeeker recipients and found that (contrary to what appears to be the government’s expectation), it was helping get people into work.
Freed of “mutual obligations”, many were able to devote time to reengaging with the workforce.
As one respondent said,
I was able to focus on getting myself back into the workforce. Yes, mutual obligation activities PREVENT people from being able to start a new business or re-enter the workforce as an employee
And the extra income freed recipients to do things that would advance their employment prospects; either through study, through properly looking for work, or buying the tools needed to get work.
I could buy things that helped me with employment — equipment for online work, a bicycle for travel, a proper phone”
An Australia Institute review of unemployment payments and work incentives in 33 OECD countries found something similar — that higher payments correlate to lower unemployment.
Another respondent said the suspended mutual obligation requirements made it easier to care for an elderly parent during pandemic and their recovery from major surgery.
Another said she had been able to focus on her health needs and her children.
People on social security are often accused of being dependent on welfare, but it’s often the economy and society that are dependent on their unpaid labour.
Yet (except for during the worst of the pandemic) these people have been denied a safety net that ensures their survival.
The inadequacy of payments goes to a major and enduring flaw in the Australian social security system — its inability to recognise all of the productive activities people undertake, including unpaid care largely undertaken by women.
The decisions the government took during 2020 made a major difference to the lives of people outside the formal workforce.
They enabled them to turn their attention away from day-to-day survival towards envisioning and realising a more financially and emotionally sustainable future for themselves and their dependants.
The flow-on benefits, to all of us, ought to be substantial.
The government ought to be very interested.
If it was, it would examine the findings further, but they don’t seem to be on its radar.
Elise Klein, Senior Lecturer, Australian National University; Kay Cook, Senior Lecturer, Justice and Legal Studies Department, Swinburne University of Technology, and Susan Maury, PhD candidate in Psychology, Monash University
Fifty dollars sounds like a lot. But the increase in the JobSeeker unemployment benefit announced by Prime Minister Morrison on Tuesday is $50 per fortnight, which is just $25 per week. It will replace the temporary Coronavirus Supplement of $75 per week, which is itself well down on the $275 per week it began at in March last year.
It’s hard to see the increase as anything other than a cut, especially when coupled with another change which will allow recipients to earn other income of only $75 per week before JobSeeker gets cut. That’s down from the present $150 per week.
As the prime minister said, it’s better than it would have been if things returned to the level we had before special coronavirus provisions. At that time, recipients could earn only $53 per week before having their payment reduced.
But it’s not particularly generous. The Age and Sydney Morning Herald are quoting senior government sources as saying the $50 per fortnight increase in the rate was the lowest figure the party believed would be palatable to the public.
Morrison justified the increase of $50 per fortnight – rather than $150 (which would have kept what’s left of the coronavirus boost in place) or $100 or any other figure – by saying it will bring the payment to
41.2% of the national minimum wage, which puts us back in the realm of where we had been previously
Taking account of taxes paid and superannuation received by minimum wage workers gives a slightly higher replacement rate of 42.3%. That takes it back to roughly where it was at the end of the Howard government in 2007.
However, there’s no readily apparent reason why that should be a benchmark.
During the life of the Howard government the level of the single payment fell from around 50% of the minimum wage to 42%, meaning what’s proposed will return it to its lowest point relative to other benefits under Howard.
JobSeeker and age pension as a proportion of the minimum wage 1990-2021
Morrison also said the increase was the largest permanent increase in the unemployment benefit since 1986. It’s an increase of 9.7%.
During the Hawke and Keating administrations, the payment increased 23% in real terms. During the Whitlam administration it increased 50%. This means that while what’s offered is substantial by the standards of recent decades, it’s less so in the longer run.
But what about the supplements?
Morrison also argued in his press conference JobSeeker is more adequate than the base rate would suggest because
on top of that, if they’re receiving Commonwealth Rent Assistance, that payment would increase to $760.40; and on top of that, the average value of stand-alone supplements, the energy supplement and so on, is an additional $13.03. So the suggestion that anyone who was on JobSeeker is simply on that payment alone and there aren’t additional supports that are provided is not correct.
It’s true all people on income support receive the energy supplement (included in the figure above). But for a single person on JobSeeker, the supplement is only $8.80 per fortnight or less than 65 cents a day.
Many people do indeed get rent assistance, but after paying rent they become worse off rather than better off.
That’s because to get the maximum rate of rent assistance for a single person of $140 per fortnight (9% of the minimum wage), that person has to be paying around $310 per fortnight in rent. If that person is paying more, they get no extra help. The maximum is also lower for people in shared accommodation.
Private sector renters are amongst the worst off recipients of income support.
Other supplements such as the remote area allowance are indeed available, but are of no help to people who do not live in remote areas and may be inadequate to cover the higher costs involved. Supplements for help with language and literacy are only paid to people in special educational programmes.
Producing an average that includes supplementary payments most people don’t receive is inherently misleading.
How Australia compares
Net replacement rates measure the proportion of previous in-work income that is maintained after several months of unemployment. They are the benchmark used by the the prime minister to compare benefits to the minimum wage.
Using two months in unemployment as the measuring point (and using the most recently published 2019 rankings) before the pandemic, Australia’s replacement rate was the lowest in the OECD — even after rental assistance was added in.
Unemployment benefit, share of previous income after two months
When the maximum rate of Coronavirus Supplement was briefly in force in 2020, Australia moved to around the OECD average.
The new rate from April 2021 will move Australia from the lowest to the second lowest, ahead of Greece only.
Unemployment benefit, share of previous income, after Australian increase
It should be acknowledged Australia’s system is based on different principles to many other OECD countries in which workers and their employers make contributions to and withdrawals from unemployment insurance.
But the difference in philosophy does not change the brutal reality that when Australian workers lose their job, their incomes fall more than in almost any other high income country.
Even after what the government has trumpeted as a historic increase, there will be few developed countries where people will be as worse off after losing work. Any permanent increase is welcome, but there is a long way to go.
Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University and Bruce Bradbury, Associate Professor, Social Policy Research Centre, UNSW
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”.
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
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.
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.
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.
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.
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.
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”.
Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
The federal government will extend the JobSeeker Coronavirus supplement for an extra three months, to the end of March, at a cost of $3.2 billion.
The supplement, which is currently $250 a fortnight, will be at a reduced rate of $150 a fortnight during that period.
Prime Minister Scott Morrison said the financial “lifeline” that had been extended during the COVID crisis could not be allowed now to hold Australia back, as the country moved into the next phases of recovery.
The extension is a recognition that longer-term assistance is needed for the high number of people who will be unemployed early next year and that extra stimulus is needed to help lift the economy out of recession as soon as possible.
But the government is still avoiding the question of what change it will make to the base JobSeeker rate, which was widely recognised as inadequate long before the pandemic.
At the same time, the government is pushing a tougher approach to trying to ensure people take what jobs are available.
Morrison told a news conference mutual obligation requirements were being enforced. There were nearly 260,000 suspensions between September 28 and October 31, and from August 4 to October 31, 242 payments were cancelled.
“So the mutual obligation requirements are there and we are serious about them. But we are also serious about the support we need to provide to Australians,” Morrison said.
“We are seeing confidence return, whether it’s on the NAB measures just released today, the ANZ measures showing confidence getting above where it was pre-pandemic or the Westpac figures that were released for last month,” Morrison said.
“Australia is safely reopening and it needs to remain safely open. Jobs are returning. Job advertisements have doubled since May on the most recent figures in October, and we know that employers are looking for people to come back to work and we need to ensure that we have the right settings in place to support that.”
The shadow minister for families, Linda Burney, said the government would “cut unemployment support by $100 per fortnight after Christmas.
“With the Morrison Government expecting 1.8 million Australians to be on unemployment support by the end of the year, now is not the time to cut unemployment support. There are simply not enough jobs for every Australian who needs one.”
As soon as the COVID-19 pandemic caused businesses to shut down, state governments acted to avoid evictions by introducing moratoriums, and the federal government introduced the Coronavirus Supplement of A$550 on top of the fortnightly JobSeeker payment. These measures were intended to enable 1.6 million Australians to ride out the pandemic-related business shutdowns.
This welcome but temporary support is being withdrawn. The JobSeeker supplement was reduced to A$250 a fortnight from September 26. It will end in January 2021.
Our modelling for Victoria shows the tapering down and withdrawal of the JobSeeker supplement will cause crippling rental stress for unemployed and underemployed private renters. In Melbourne, we have found the unemployed will face the same problem of rental stress as those on the former Newstart allowance experienced before the pandemic. (Rental stress is defined as a low-income household spending more than 30% of its income on housing costs.)
Before COVID, private rentals in nearly all capital cities were already unaffordable for unemployed and low-income renters even in typical share households. What makes the scenario worse than before COVID are the sheer numbers affected. Many of these people may have had incomes prior to the shock that enabled them to maintain higher rents.
To illustrate the extent of the rental stress crisis we modelled rental affordability for the typical low-income household types in Victoria. The first chart shows the effects of the withdrawal of the supplement on rent affordability for two and three sharers and lone-parent families. The second chart later in this article shows the effects across a range of household types.
The modelling shows the interim rate (A$250) of the Coronavirus Supplement will help for a limited number of household types, particularly in the outer part of Melbourne and regional towns like Ballarat. However, it will not help many households in the inner region of Melbourne where rentals will remain unaffordable. This pattern is worrying because that’s where many of the jobs will become available once economic recovery is under way.
Households with more than one adult receiving the supplement will be better off than lone-parent households. That is because all the adults in those households receive the supplement, and lone-parent households generally need to rent properties with more than one bedroom.
The scenario here plays out across Australia, but is particularly bad for Victorians because the extended lockdown has deferred recovery.
COVID impacts have hit low-income households hardest
Is is important to note that the COVID economic shock has hit low-income households particularly hard. Those in precarious work, young adults and women have had the biggest hits to their incomes and jobs.
In Melbourne increases in unemployment are concentrated in inner-city suburbs like Brunswick and St Kilda. This reflects the loss of jobs for young people in hospitality and retail.
Job losses have also occurred in working-class areas such as Brimbank, Melton and Hume. These losses reflect the impact of shutdowns in the processing, manufacturing and transport sectors.
It is predicted it will take some time for earnings to return to pre-COVID levels. This means renters who have not been able to get jobs will once again be in dire rental stress in most capital cities when the Coronavirus Supplement cuts out in January 2021.
What about household savings?
The Finder Consumer Sentiment Tracker shows household savings have temporarily increased. But it is difficult to assess how much reserve people on JobSeeker payment have been able to lay down, relative to the loss of normal earnings. Any optimism on this count needs to be tempered by the observation that the Coronavirus Supplement did not start until late April and early May — five to six weeks after the job losses started.
Our modelling shows that even during the temporary tapering down of the supplement until January 2021, there will be a rental crisis in cities like Melbourne. These findings can be extrapolated to other capital cities and the scenario will be worse in Sydney.
Cutting the JobSeeker supplement is risky policy because the labour market has not “snapped back”. People who depend on unemployment payments will now face the same problem of rental stress as those on NewStart experienced before the pandemic. But this stress will be more widespread than before. This underscores the need to develop policy that counters the risk of rental stress.
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.
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
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.
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.
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
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…
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.
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.
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.