If JobSeeker was cut, would people be out there picking fruit?

Dr Peter Davidson (Senior Lecturer, UNSW Sydney) 13/9/20

This is the unabridged version of my article published on the Conversation on 23/9/20:

https://theconversation.com/if-jobseeker-was-cut-the-unemployed-would-be-picking-fruit-why-thats-not-true-145951

I’m not sure which does the most harm: the cut of $150pw in Jobseeker Payments due on 25 September or the volley of media reports about unemployed people refusing jobs that precede it.

This narrative is jarring when there are 19 people unemployed or underemployed for every job vacancy and just 3% of employers report they are recruiting yet can’t find enough applicants. Are unemployment payments really that cosy, now that they’ve almost doubled to $562 a week? [1]

Unemployment payments for a single adult are currently 84% of the fulltime minimum wage after tax ($669pw), though few workers in entry-level jobs are paid exactly the minimum wage.

Recent US research that surprised many economists suggests a replacement rate at this level need not discourage employment. A COVID-related $600pw increase in Unemployment Insurance did not stop people from returning to work, even though 70% were making more on UI than their previous wage. Unemployed workers generally prefer paid work, and in any event are usually required to search for it.

But not everyone gets the minimum wage

We know from many Inquiries that temporary migrants and young locals are often underpaid in hospitality, retail and crop-picking jobs.[2] Could it be that employers in industries with thin margins (squeezed by dominant players like the big retailers) and a ready supply of labour have grown used to offering cash-in-hand payments of $10-$20 an hour?

In piece-work systems like crop picking where pay is tied to output, there’s no legal requirement to pay minimum wages. A labour hire firm recently complained that people weren’t taking up their offer of ‘at least $500pw’ (two-thirds of the minimum wage) to pick strawberries.[3]

It’s not just the pay that discourages people from taking up these jobs: you must be fit and able to travel for a limited period of paid work. This won’t work for many people on Jobseeker, including the 24% with disabilities, 38% aged 45 or over, and 10% caring for children.

There are solutions to under-payment and high turnover in horticulture, hospitality and retail jobs. Reducing our over-reliance on working holiday-makers and international students to fill entry-level jobs is the first step. Otherwise, employers won’t do what it takes to attract workers, and local workers will remain wary. It’s about trust as well as money. More direct contact between the employers and unemployed people and less reliance on labour hire would help. Expanding and improving the Seasonal Worker Program would benefit both farmers and Pacific Islander communities, and New Zealand’s Recognised Seasonal Employer scheme are options to consider.

What about incentives to work part-time?

Before the changes on 25 September, Jobseeker Payment was reduced by 50c per dollar earned above $53pw, then 60c up to $128pw, cutting out completely for a single adult at $544pw. This means Jobseeker tops up minimum wages until you work four days a week at the minimum wage.

Former social security official David Plunkett’s models (@DPlunky) inform us that before COVID, you gained a net $100-$200 for working 1-3 days a week, rising to $269 on the fourth day (when Jobseeker expired). Since the $275pw Coronavirus Supplement was introduced, net gains declined slightly to $100-$175 for the first three days, before dropping to $5 on the fourth. The problem here isn’t the higher unemployment payment – it’s the sudden-death cut out of the Supplement as soon as the last dollar of Jobseeker Payment expires.

This flaw could be fixed by tapering the Supplement out gradually (a better move than increasing the ‘free area’ to $150pw to encourage short-hours work as the government proposes). Adjustments to tax offsets for unemployed people would also help make part-time jobs more worthwhile, notwithstanding higher unemployment payments.[4]

Net gain from working one to five days a week at the minimum wage

Days worked per weekonetwothreefourfive
Gross earnings ($pw)151302452603754
net gain – pre-COVID19 ($pw)100159198269385
net gain – August 2020 ($pw)981451755121

Source: David Plunkett

Conclusion

There’s no need to force people to choose between poverty and entry-level jobs. If, for example Jobseeker was increased permanently to the pension rate, it would be around 70% of the minimum wage after tax.

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


[1] National Skills Commission, Jobs in Demand, July 2020; ABS Labour Force, July 2020.

[2] Fels A & Cousins D (2019), Report of the Migrant Workers’ Taskforce. Australian Government, Canberra;
 Berg L & Farbenblum B (2017), Wage theft in Australia. Migrant worker justice initiative. In 2017-18 over 800,000 temporary visas with work rights were issued (Wright C & Clibborn S (2020), A guest-worker state? Economic and Labour Relations Review 2020, 26(3) pp465–473).

[3] Steve Austin, Radio interview with Jim Chalmers, ABC Brisbane Drive Monday, 31 August 2020. The Horticultural Award prescribes that piece rates must enable an ‘average competent worker’ to earn at least 15% above the minimum wage.

[4] For 3 day’s work, tax of $56pw is payable post COVID, compared with $22pw previously.

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