My article on full employment in the Sydney Morning Herald, 1 March 2022
Peter Davidson Adjunct senior lecturer at the Social Policy Research Centre, UNSW Sydney Morning Herald, March 1, 2022
The econocrats at Treasury and the Reserve Bank threw everything they could at the deepest recession in living memory when COVID arrived. Higher unemployment payments, wage subsidies, infrastructure investment, interest rate cuts and government bond-buying were all deployed to save jobs and incomes.
Now that they expect unemployment will fall this year to its lowest level in 50 years, they now want to keep it there as long as possible.
A similar thing happened after World War II, when unemployment fell in the war economy and governments decided to use the same economic tools to maintain “full employment” in peacetime. They managed their budgets and interest rates to sustain demand for goods and services so the workforce was fully employed.
It worked: for almost 30 years there was no major downturn and prosperity was widely shared as incomes grew and unemployment remained below 3 per cent.
We turned our backs on full employment in the 1970s, forsaking people to the unemployment queues. High unemployment was rationalised as the unavoidable side effect of the fight against inflation and budget deficits.
We have an opportunity to again put people affected by unemployment and inadequate incomes at the heart of economic policy. Will we commit to full employment, or have we lost our ability to imagine a society where practically everyone seeking employment can have a decent job?
Australia’s unemployment rate has fallen from seven per cent to 4.2 per cent, with 90,000 new workers finding jobs during November last year as our economy bounced back faster than expected.
The pull of “return to normal” is strong. We hear dark warnings from bank economists about an upsurge in inflation, employers about labour shortages, and deficit hawks about ballooning public debt.
So let’s take a moment to imagine full employment.
Most importantly, it would lift a million people on unemployment payments out of poverty. Being excluded from paid work is a tragic human experience. For too long, millions have been held hostage to economic policies that deliberately kept unemployment above 5-6 per cent for fear of a breakout in inflation.
For this sacrifice to the nation, they receive the $45-a-day JobSeeker Payment and live in destitution. We’re so conditioned to high unemployment that people affected are routinely blamed for not trying hard enough. The JobSeeker regime is brutal: life-sustaining payments are automatically suspended for minor infractions like missing a job centre appointment.
It won’t be easy to reduce unemployment further because those still on unemployment payments belong to groups that are regularly screened out of job interviews. Four out of five have been on income support over a year, one in three has a disability and four in 10 are over 45 years old. Each is a person, often losing hope, repeatedly rejected. Yet if there are enough vacancies, and we invest in decent employment services, training and wage subsidies, employers will consider people overlooked in the past.
In a modern economy where a third of workers, mainly women, are employed part-time and a quarter are in casual jobs, full employment means adequate and secure working hours as much as having a job.
Many people in retail, hospitality, caring and labouring jobs struggle to survive on a few days of paid work a week. Many don’t know how much they’ll earn next week or whether they’ll still have a job. Low unemployment alone won’t fix this, but it’s heartening to see underemployment decline as unemployment falls.
Australia used to pride itself as a place without rigid class distinctions, where everyone could make a decent living and be equally valued and respected. Now it’s claimed that people refuse some entry-level jobs because “Australians won’t do them”.
That’s become the excuse for widespread abuse of temporary migrant workers in jobs where minimum wages are honoured in the breach. Full employment can help fix this, provided we don’t rush to fill those jobs again with temporary migrants without robust protections against exploitation.
Along with workplace relations reforms, sustained full employment would help restore decent pay increases for most workers. The last time wages grew at a decent clip (over 4 per cent) was in the boom years before the global financial crisis when unemployment hovered around 4-5 per cent.
Full employment and higher incomes, not budget cuts and high interest rates, are the best solutions to the “cost-of-living” problem.
Lower unemployment, adequate working hours, higher pay, decent income support and more reliable demand for the goods and services our businesses sell – what’s not to like?
There are hurdles to overcome. We need a comprehensive system of workforce planning to ensure vacancies don’t go unfilled and employers have the skilled workers they need.
Governments would have to work with employers and unions to avert any future wage-price spiral without recourse to high interest rates. We’ll have to dampen speculation in assets like housing and shares. We’ll need productivity-enhancing public and private investment.
The first, vital step is to reject harsh austerity policies. The budget deficit is declining as unemployment falls and spending cuts would jeopardise this. Public debt is sustainable as long as output, incomes and jobs grow faster than the interest payments, as they did in the post-war period.
The real budget challenge for future governments is to raise the revenue we need to close yawning gaps in essential services like health and aged care and income support safety nets.
In the pandemic, millions of us felt the fear of losing our job. For years before that, our incomes barely kept up with inflation. We owe it to ourselves to seize this opportunity to restore full employment.
Dr Peter Davidson is adjunct senior lecturer at the Social Policy Research Centre, UNSW, and principal adviser at the Australian Council of Social Service.
The deepest recession in a century last year was followed by the fastest jobs recovery in the first six months of this one. What does this mean for people who find themselves unemployed? What role can career guidance play?
In brief:
There are 1% more jobs than before the recession but that doesn’t mean the labour market is tight – if it was, wages would be growing much faster.
There are still five unemployed and under-employed people per vacancy, together with a greater number of people seeking to change jobs.
A sharp recession followed by a quick recovery creates a lot of churn in the labour market – with many unfilled vacancies, even though many people are seeking employment.
One reason is ‘mismatch’: people can’t just abandon their rental and move to regional Australia to pick crops, and employers are still reluctant to take on people unemployed long-term, older people, or people with disability.
Most people on Jobseeker Payment have received income support for over a year, and they remain at the end of the queue.
Career guidance and training have a vital role to play in helping people adjust to these rapid changes in the jobs market, and preparing them for the jobs that are available.
People who are unemployed or returning to the paid workforce after providing fulltime care need more than a careers website – they need professional career guidance.
The government has established a plethora of career advice programs for people on income support, but less than one in ten people in relevant target groups have access to them.
The main employment services program, jobactive, is designed to push people into the first available job, not to offer career advice.
At $44 a day, unemployment payments make it hard for people to commit to further education and training.
Benefit rules restrict access to longer courses, and adults in those courses must move to the much lower Austudy or Abstudy payments.
If we’re serious about lifelong learning, building an agile workforce, and reducing poverty, all this must change.
The overall picture: jobs lost and gained since the recession
I’ll begin with some figures that give a sense of scale of the roller-coaster ride we’ve been through in the labour market.
Figure 1 shows the breath-taking scale of job losses in the recession from March to May 2020. Worst affected were young people (17% of their jobs were lost), women (8%) and part-time workers (13%). This was the first recession that disproportionately affected women and part-time jobs, since it was service industries that bore the brunt, including hospitality, tourism and the arts. Casual workers were especially hard hit, with 28% leaving their jobs during the recession.
The impact soon spread to fulltime and male-dominated jobs. As lockdowns were eased later in 2020 (outside Melbourne) there was a rapid recovery in female and part time jobs, followed by a slower recovery in male and fulltime jobs.
By June 2021, there were 1% more jobs than before the recession a year earlier – slower jobs growth than in a ‘normal’ year, but an extraordinary result given the pandemic. The jobs recovery extends across male and female employment, and full and part-time jobs. Overall monthly hours worked recovered more slowly, reflecting the impact of the downturn on part-time working hours.
Of course, the Delta variant and prolonged lockdowns could overturn those gains.
Figure 1
Source: ABS Labour Force data
How hard is it for people to find employment?
There may be more jobs, but that doesn’t mean it’s easier for everyone to find one. Figure 2 compares trends in unemployment, under-employment and job vacancies. All were fairly stable until the recession. Then, from February to May 2020, unemployment rose by 33%, under-employment rose by 44%, and the number of people employed but stood down (mostly on JobKeeper payment) rose by 300%. If those stood down are included (an ‘adjusted unemployment’ measure used by the Treasury), the unemployment rate rose from 8% to 19%.
Over the same period, job vacancies fell by 43%.
As lockdowns eased and employment recovered, finding a job wasn’t as hard but in May 2021 there were still five unemployed and under-employed workers per vacancy. If we include people changing jobs or entering the labour market, the average number of applicants for each job is much higher.
Figure 2
Source: ABS Labour Force data. Note: ‘stood down’ includes ‘no work available’ Most of these people were on JobKeeper Payment.
The number of vacancies has reached a long-term high, but it doesn’t follow that the labour market is ‘tight’ and workers can drive a hard bargain for higher pay. Vacancies are high because last year’s massive job losses created more than the usual ‘churn’ in the labour market. A recent British report puts it this way:
“In a fire alarm test, work is switched off as everyone troops out the building and mills around outside. When they head back into the building, you get a queue forming at the entrance. The queue forms despite there being a perfect match between the supply of workers and demand for them (desks), because it takes time to overcome the entrance bottleneck.” Understanding the labour market – pandemic not pandemonium, 2021
Bottlenecks are also likely to emerge, and vacancies will take longer to fill, when jobs are suddenly restored after a lockdown. People can’t just abandon their hard-won rental in the city and move to pick fruit or work in hotels in Cairns. Also, many people were understandably reluctant to work in public-facing jobs while the virus was still circulating.
A growing mismatch between jobs and skills
A few years after a recession, the labour market usually settles down and vacancies are filled more quickly, but many people are still left behind. The reasons for this include mismatches between their skills and capacities and those employers want, and also the perception that some people don’t fit the mould of the ‘ideal worker’ (discrimination on the basis of age, colour, or disability).
This mismatch is aggravated by the restructuring of jobs that occurs during recessions and recoveries. The pandemic has lifted the pace of job restructuring. As more people work from home, demand for services in inner cities has fallen. Employers are advancing their plans to invest in new information technology and automation.
Figure 3 shows that the recession boosted higher-skilled employment at the expense of entry-level jobs. Professional jobs increased over the year to August 2020 while middle-tier and entry level jobs declined. Since last August, it’s likely that many lower-skilled jobs were restored as the impact of lockdowns on service industries such as hospitality eased. However, the shift to higher-skilled jobs is a long-standing trend.
Figure 3
Source: ABS Characteristics of Employment Note: ANZSCO skill levels.
Those left behind
High unemployment can become self-perpetuating. Once people are out of paid work for a year or more, their skills and confidence wane and employers are reluctant to hire them. Those already unemployed long-term before the downturn find themselves at the end of a longer queue.
Figure 4 profiles people receiving Jobseeker and Youth Allowance payments before and after the recession.
Before the downturn, of the 886,000 recipients of unemployment payments, three-quarters had received income support for over a year, four in ten were aged 45 years or more, and four in ten had a disability (these groups are not mutually exclusive).
In the recession, the number of people on unemployment payments peaked at around one and a half million. The share of recipients unemployed for less than a year rose sharply from 28% to 57%, while the share of young people on unemployment payments rose from 18% to 31%.
In the recovery, those closer to employment found jobs and the profile of unemployment payments shifted back towards older people, people unemployed long-term and those with disabilities – though the impact on the careers of young people entering the labour market last year will be profound.
In May 2021, there were around 1.2 million people on unemployment payments including about 900,000 on income support for more than a year. Long-term unemployment rises sharply a year after a downturn, but it can take a decade to get back down to the pre-recession level.
Figure 4
Source: Department of Social Services income support data. Note: The recession commenced in April 2020. The orange bars show the overall increase in recipients from before the downturn (March 2020) to one year later (March 2021). ‘Parents’ refers to principal carers of a child under 16 years. There are more people on unemployment payments than classified as unemployed by the ABS, since many older recipients and people with disability are temporarily exempted from job search requirements.
Career guidance and training plays a vital role after a recession
Career guidance and training comes into its own when dealing with mismatches in the labour market. People who lose their jobs or enter the labour market after a recession need guidance and support to search for the right jobs, and to re-skill so they have a real chance to secure one.
Yet the prevailing ethos of employment assistance in Australia is ‘work first’. The idea is that people should be pushed to apply for a large number of jobs (currently 20 a month) in the hope that if they pick up entry-level work, they can build their career from there.
One problem with this approach is that these days, most entry-level jobs are part time and casual, so the job might not pay enough to meet basic living costs and it might not last. In 2017, of all hospitality workers 79% were casuals, along with 58% of labourers, 55% of farm workers, 45% of cleaners and 48% of sales assistants. Most jobs obtained by jobactive participants are part-time.
In recent years, the government has recognised that many people searching for employment need career guidance and training. This year’s Federal Budget extended for a year the $500 million Jobtrainer program (matched by State governments). The National Skills Commission and Careers Institute map trends in demand and supply for skills and jobs across the country. That intelligence is used to inform the purchase of Jobtrainer courses, and to inform unemployed people about jobs and courses available to them.
It’s one thing to use sophisticated workforce modelling to inform programs like jobactive and Jobtrainer. As practitioners on the ground know, it’s another thing entirely to connect the right person with the right course and the right employer in the local labour market. The new Local Jobs program – which funds employment facilitators and task forces in each labour market region to better connect employment and training with the needs of employers and unemployed people – should help.
Commonwealth career guidance programs are expanding, but many still miss out
Professional career guidance can also help, whether in an education or employment services setting. A plethora of Commonwealth career support programs are used by people on unemployment payments, including:
Career Transition Assistance program – offering professional career guidance to older unemployed workers to help them recharge their careers;
Transition to Work – offering career advice, job search assistance, training and social support to young people facing labour market disadvantage;
Skills for Education and Employment – offering language, literacy and numeracy training;
Aside from the widely-criticised Parents Next program, the main problem with this complex array of programs is that it reaches only a small fraction of people searching for employment who are likely to need career guidance. Table 1 compares the number of participants in these programs with their potential target groups. Most jobactive participants (of whom there were 1.3 million in December 2020) do not have access to professional career guidance, only low-level help with job search and resumes backed by the information available online via the Careers Institute.
Table 1
Program
Number of Places Filled (2020 or 2021)
Potential Target Group (December 2020)
Transition to Work
43,000 1.
237,000 3.
Skills for Education and Employment
14,000 1.
403,000 4.
Career Transition Assistance
5,000 1.
349,000 5.
Parents Next
82,000 2.
470,000 6.
Potential Demand in jobactive Caseload
1,327,000 7.
Total
144,000
1,797,000
Sources: responses to Senate Estimates questions, DSS social security payments statistics (December 2020) Note: Comparison of participants in various career guidance programs for unemployed people with the number potentially needing such support (noting that not all necessarily do). 1. in January 2021 2. through 2020 3. People under 25 years in jobactive 4. People with CALD backgrounds or lacking Year 10 qualifications in jobactive 5. People 50 years and over in jobactive 6. Principal carers in jobactive and people on Parenting Payment 7. jobactive is not designed as a career guidance program, though many participants (in addition to groups listed above) are likely to need it.
While not everyone searching for employment needs career guidance, it’s very likely that more than one tenth of people on unemployment payments do, given their disadvantaged profile.
The government expanded career support in this year’s Budget, including Transition to Work for young people. The decision to un-cap the Skills for Education and Employment program is welcome, given that 44% of adults lack the literacy skills required in everyday life and that many who have lost jobs recently do not have English as a first language, but there’s a long way to go.
What should happen to career guidance and training for unemployed people?
A new career guidance program should be established to make this essential service available to all people searching for employment who need it. This would have components for the different ‘target groups’ above. It would extend to those who currently miss out, including:
Parents on income support with school-age children (replacing Parents Next);
Carers of people with disability returning to the paid workforce;
Middle-aged unemployed workers who need to reboot their careers.
Unemployment payment rules that restrict participation in further education and training should be eased, including restrictions on full time courses extending beyond 12 months and excessive requirements to apply for jobs while studying. The Austudy and Abstudy payments for adult students should be increased to the same level as the Jobseeker Payment, which should itself be raised from $44 to $65 a day to lift people out of poverty.
ACOSS has developed a suite of proposals to recover jobs after the pandemic. We must ensure that people are not left behind on unemployment payments long-term after the economy recovers. Career guidance and training to help overcome the mismatch between their skills and capacities and those needed by employers in a rapidly changing labour market is a key part of this.
I researched and prepared the draft for this submission for Council on the Ageing (COTA) Australia for a Senate inquiry into precarious employment in April 2021. Final version is of course COTAs publication.
There has been a fair bit of musing in the media about whether voters have become more left-wing in their policy preferences since the onset of Covid19. It seems plausible to suspect that health and economic shocks of the magnitude of those experienced this year would cause people to update their beliefs about the appropriate role that the state should play in supporting/insuring people’s incomes. So, has Covid19 put wind in the ideological sails of the left?
We can get a sense of the answer to this question using a mixture of BES and PACER data. Each survey series has asked, at various points, the following two survey questions:
Using the 0 to 10 scale below, where the end marked 0 means that government should cut taxes a lotand spend much less on health and social services, and the end marked 10 means that government should
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]
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 $150pw to encourage short-hours work as the government proposes). Adjustments to tax offsets for unemployed people would also help make part-time jobs more worthwhile, notwithstanding higher unemployment payments.[4]
Net gain from working one to five days a week at the minimum wage
Days worked per week
one
two
three
four
five
Gross earnings ($pw)
151
302
452
603
754
net gain – pre-COVID19 ($pw)
100
159
198
269
385
net gain – August 2020 ($pw)
98
145
175
5
121
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.
Suddenly, the idea of a “job guarantee” is back in vogue.
Lawyer, academic, land rights activist and founder of the Cape York Institute Noel Pearson has come out of it favour of it, University of Newcastle labour market specialist Bill Mitchell has a document before the prime minister, and the Per Capita think tank is pushing for a youth-only guarantee.
The idea is that the government would make an unconditional job offer at a minimum wage to anyone willing and able to work. There would be no need for the Newstart unemployment benefit (now called JobSeeker).
It is not widely known that it’s been tried before, by the Keating government in 1994. The scheme was limited to the long-term unemployed, making it more manageable than a scheme that offered employment to everyone who was unemployed.
Working Nation
The centrepiece of Working Nation, unveiled by Prime Minister Paul Keating in February 1994, the so-called “Job Compact” guaranteed subsidised employment for six to 12 months to everyone who had been unemployed for more than 18 months.
This article draws on my research into what happened, including interviews with senior government officials from that time.
By late 1993 300,000 people had been reliant on unemployment payments for more than 12 months.
The idea was that paid work experience in regular jobs would improve their chances of securing unsubsidised jobs by renewing their confidence and skills, and instilling confidence in employers about their ability to work.
We started off wanting to guarantee the long-term unemployed a job. We thought that’s what this agenda was all about (official, department of prime minister and cabinet)
The original plan was for most of the job placements (70%) to be offered through a private sector wage subsidy scheme, Jobstart, which had a good record for placing people in ongoing jobs.
The other jobs would be provided through the New Work Opportunities program (which offered community organisations a 100% wage subsidy to employ people fulltime for six months) and Jobskills (which offered a combination of part time paid employment and training run by community organisations).
When fewer private employers than expected took on Jobstart wage subsidies (134,000 in 1995) the job guarantee could only be fulfilled by expanding public and community sector jobs (to 123,000 positions).
As has been the case in other overseas public sector job creation schemes, these jobs often turned out to be very different to mainstream jobs, reducing transitions to unsubsidised jobs.
And as the number of subsidised jobs ballooned, their quality declined. And instead of case managers matching jobs and experience to needs, the process became a conveyor belt.
There was some dissatisfaction even within the department of prime minister and cabinet about how it was going. It appeared to be going the [old] way of not treating people as individuals, just putting people into any program that was coming along (official, department of prime minister and cabinet)
And the language of the program became increasingly punitive.
You often start with a great idea and later it gets modified. Focus groups showed the public were really down on the unemployed and sole parents. That got reflected back in the ‘reciprocal obligation’ language, which was not how we originally had it (official, department of prime minister and cabinet)
Only one third of the participants were in unsubsidised jobs three months after the subsidies ended. The official evaluation of the “net impact” of the program (the extent to which it increased the probability of employment) was a 28% improvement from Jobstart, 11% for Jobskills and 4% for New Work Opportunities.
‘High cost, low outcomes’
The Job Compact was expected to reduce the number of people on unemployment benefits for more than 18 months by 50% in its first year, but the actual decline was less than 20%.
The official evaluation pointed to its “high cost and low outcomes”, and concluded it was “not the most appropriate strategy for assisting the long-term unemployed”.
It said subsidised public sector jobs should be created only to help “the most disadvantaged clients who may not meet the job readiness requirements of many private employers”.
Right now, 700,000 people have been on unemployment benefits for more than a year, making the case for some sort of large-scale investment in paid work experience and training strong.
Subsidised jobs can help reduce long-term unemployment, as shown by the success of the Future Jobs Fund in the Britain and small-scale wage subsidy schemes in Australia.
Britain’s Conservative Government has just announced plans to generate 350,000 subsidised community jobs for unemployed young people.
But Australia’s experience with the Job Compact shows guarantees are no panacea.
Subsidised jobs help, but they’re no panacea
When subsidised jobs schemes are scaled up to offer jobs to everyone who is unemployed, their costs increase and their quality and their impact on future employability diminish.
We will need large-scale programs to create jobs, and we should offer the 700,000 people who are already long-term unemployed all the help they need to secure them.
But that needn’t always mean subsidised jobs. Many who are unemployed will benefit from training, others from their employment service provider partnering with an employer to skill them up.
Higher unemployment is a price we’ve paid to control the virus. It will take a mix of measures to ensure that cost is only temporary.
In an emergency, governments improvise. Two new systems of income support have been announced in just over a week to keep us going as much of the economy shuts down. On 30 March, the Government announced a $130 billion wage subsidy scheme to keep people employed. This followed the announcement on 23 March of a $66 billion income support package for people who lose their jobs. That earlier package is the subject of this article.
Its centrepiece was a new payment dubbed a ‘welfare wage’ that draws us into the unfamiliar terrain between our traditional income support system and the unemployment insurance common to other OECD nations. It doubles the Jobseeker Payment (formerly Newstart Allowance) for single adults to around $560 a week via a new ‘COVID Supplement’, and extends the increase to existing recipients of employment-related and student payments.
There are tensions between these two systems. Income support (pensions and allowances) is designed to meet basic expenses for people in families with few resources. Unemployment insurance compensates individuals for a loss of income from employment, and isn’t as strictly means-tested.
With large parts of the economy shut down by governments to protect our health, both are needed (along with the wage subsidies), and fast. So the new income support package must meet conflicting objectives and be simple to administer. By what magic can we pull this off?
Closer to a Basic Income, but not a universal one
The welfare-wage brings us closer to a ‘Basic Income’ scheme: a minimum income floor that covers essential living costs, extending further up the family income scale than traditional income support. When it was announced, the welfare-wage (like the Jobseeker Payment) was confined to singles earning up to $27,000 and couples on up to $50,000. A week later it was extended to people whose partners earned up to $80,000.
This is not a ‘Universal’ Basic Income, which extends to everyone and (for that reason) is unlikely to be high enough to cover essential living costs.
An idealised Basic Income would guarantee that different types of families can reach the same minimum living standard unless they face exceptional costs. In addition to the minimum cost of supporting a single adult, it should take account of the largest variable costs: an extra adult or children in a family, and housing costs.
Our traditional income support system fails to do this.
The Jobseeker Payment for single unemployed people is just $282 a week, $190 less than the pension– similar needs, vastly different payments.
Over a million migrants, who are for the most part unable to leave Australia now, are excluded from income support should they lose their jobs. They include many temporary migrants, asylum seekers, and people on bridging visas while their applications for permanent residency are processed.
The maximum rate of Rent Assistance for private tenants on low incomes is $70 a week for a single adult, less than a quarter of rents for a one bedroom flat in our three largest cities.
Plugging the gaps
The first step is to patch these and other gaps in the safety net. The COVID Supplement, which the Government indicates will expire in September 2020, doubles the Jobseeker Payment for singles and extends to each partner in a couple. This is welcome news to those struggling on Newstart, and will help middle income-earners with higher spending commitments who face a sharp drop in income if they are laid off.
Yet from a Basic Income perspective, the COVID Supplement opens up fresh anomalies. Based on research by Saunders and Bedford on the minimum costs of low-income households, a couple without children needs 1.5 times the income of a single adult to reach the same living standard, a sole parent with two young children needs twice the single rate, and a couple with two children needs 2.2 times the single rate.
The COVID Supplement, when combined with existing social security payments, strongly favours couples without children, who receive 1.8 times the single rate. A sole parent with two children fares relatively poorly at 1.5 times, while a couple with two children receives 2.2 times the single rate. This is due to couples receiving twice the single COVID Supplement instead of 1.5 times (as for pensioner couples), and the absence of a COVID-related allowance for children.
Basic living costs and social security payments for different unemployed families (May 2020)
Sources: Saunders P & Bedford M (2017), New Minimum Income for Healthy Living (MIHL) Budget Standards for Low-Paid and Unemployed Australians, Social Policy Research Centre, UNSW Sydney; Department of Human Services (2020), Guide to government payments, April 2020.
1. Includes Jobseeker Payment, Family Tax Benefit & Energy Supplement & Rent Assistance. (pension rates added for comparison – refers to Age and Disability Pensions and Carer Payment – Rent Assistance & Energy Supplement are also included in these amounts).
2. In 2016.
3. Children are aged 8-11 years.
All things equal, families with children or high rent payments are likely to face greater hardship than others who lose their jobs. Improved child and rental supplements would help (the maximum rate of Family Tax Benefit Part A already extends, in part, to families with two children on up to about $90,000 so an increase in this payment would help many middle-income families).
The COVID Supplement does not apply to pensions. From a social insurance perspective, it might be argued that in contrast to people losing their jobs, their financial situation won’t change much. Yet it’s likely that the cost of essentials will rise and indexation won’t compensate until after the event.
From a pure Basic Income perspective, a single person with a low income would receive the same amount altogether whether on a pension or allowance payment. Similarly, after the emergency, the single Jobseeker payment would be the same as the pension.
An equitable income floor
In designing its welfare-wage, the government has sensibly ‘started at the bottom’ – those at risk of destitution and those already on Newstart who face it daily. Gaps and anomalies in the new income support ‘floor’ could be solved by extending income support to new and temporary migrants and, at the cost a bit more complexity, by offering additional support to families with children, private tenants, and people on pension payments based on their relative needs.
An equitable income floor, together with the wage subsidies, could shield most low and middle income households from financial hardship arising from either a lack of income, or a sudden large drop in income. This should be backed by policies like the JobKeeper Payment that keep as many people as possible employed, and wider economic and employment policies to keep job opportunities open for those already unemployed, and young people unfortunate enough to enter the labour market in these hard and extraordinary times.
Denmark is an international leader in employment programs. It spends far more than most countries on employment assistance for unemployed people. Since its activation (‘activering’) reforms in the 1990s, it has a proud record of keeping unemployment low and especially reducing long-term unemployment. Contrary to neoliberal orthodoxy, the Danes achieved this despite having one of the highest unemployment benefits in the OECD.
A new report finds that changes announced in 2016 shifted the efforts of Municipal employment services away from the more disadvantaged and longer-term unemployed people towards others who were ‘easier to place’ in jobs.
I was there completing by PhD fieldwork in 2013 when those programs were reviewed, and warned that the proposed changes could weaken employment services for people unemployed long-term. That warning was based on experience of the transition from the Job Network to Job Services Australia in Australia.
So this is a story of two countries, performance-based funding of employment services, and how the best paid plans can go astray.
This is the fourth part of my blog on neoliberalism. It goes back further in time (a few centuries in fact) to trace the origins and revival of neoclassical economics. I ask the following questions:
What is neoliberalism?
Where did it come from?
What explains its ascendancy in the 1980s?
And its decline in the 2010s?
The star-studded cast of this blog includes Adam Smith, Karl Marx, Jeremy Bentham, Alfred Marshall, Friedrich Hayek, John Maynard Keynes, and Milton Friedman.
Here’s the rap version: Keynes Vs Hayek rap (just kidding, but hey this is good!), and a two minute slideshow version from Robert Skidelsky.
This is the third part of my blog on neoliberalism, which asks the following questions:
Were the economic policies of the Hawke-Keating governments neoliberal, or simply pragmatic?
Was ‘Fightback’ a triumph of neoliberalism or the beginning of its decline?
Did it advance or retreat under Howard and Costello?
What’s left of neoliberalism?
The star-studded cast of this blog includes Dani Rodrick, John Quiggin, Bob Hawke, Paul Keating, Paul Kelly, Alan Bond, John Hewson, John Howard, and Peter Costello.
Need to Know 