Category Household Finances

COVID-19: Our most vulnerable workers need more help

The Morrison Government’s stimulus package is a welcome set of measures to keep businesses open and put money in the hands of people most likely to spend it. But the package doesn’t do much to help workers who will lose some or all of their incomes in coming weeks and months. The Government must be ready and willing to step in with further assistance for this group when needed.

A lot of people are going to be unable to work over the coming weeks. The steep drop in the number of tourists and international students arriving in Australia has already meant that some people have lost shifts, or seen their work dry up entirely. The ban on non-essential public gatherings will also dent employment.

Many of us should be able to weather the coming economic storm. Australians who are fortunate enough to be able to work from home, or who have paid leave they can draw on when they need it, may get through the economic turbulence relatively unscathed, at least provided our employers stay in business.

But a large number of Australian workers are vulnerable if they can’t work, especially for an extended period. Over a third – around 37 per cent – of Australian workers do not have paid leave entitlements. There are about 12.5 million Australian workers. About 2.4 million of them are casual employees – with no paid sick or annual leave, and no entitlement to ongoing work – and a further 2.2 million are self-employed.

Low-paid workers are much less likely to have paid sick leave than other workers. Among people who earn less than $800 a week, only 46 per cent have paid sick leave. Another 4 per cent are self-employed, and the remaining half are casual workers without paid leave entitlements.

People on this level of income are unlikely to have a lot of savings set aside to see them through periods when their shifts dry up, or they lose their jobs entirely.

Young people are disproportionately likely to be in casual work and not have paid leave. But casual work is not just for young people who are putting themselves through university. More than a quarter of people in their 30s, 40s, and 50s do not have paid sick leave – either because they’re casual workers or they’re self-employed. About 1.5 million parents – which is about a third of all working parents – have no paid leave.

Most workers without paid sick leave are in industries that are especially vulnerable to shutdown. More than 400,000 casual and self-employed people work in cafes and restaurants – an industry that will be hit hard  over the coming weeks. Not many of the 20 industries with the largest number of workers without paid leave entitlements are likely to be able to continue as normal over a period of widespread self-isolation.

Australia has a lot of people who are not entitled to paid sick leave. Casual workers, by definition, have no job security – no guarantee of ongoing employment, nor of a certain number of shifts. As businesses close and people avoid public places, many casual workers will lose their jobs, or at least some of their income.

The Government’s stimulus package, quite appropriately, provides support to business to keep the lights on and keep the pay cheques going out to workers over the period ahead. But when people do inevitably lose their jobs, the safety net might not be strong enough to catch them.

The Government will give one-off $750 payments to concession-card holders and people who were on a benefit such as the Age Pension, family payments, or Newstart, as at last Thursday. But if you lose your job tomorrow, you’re out of luck.

More worrying still, people might have to wait a while to get even the regular, meagre level of public assistance. In 2018-19, the typical applicant for Sickness Allowance had to wait 35 days for their claim to be processed – and half of applicants waited longer. The median processing time for Newstart was 15 days. These times could well blow out further if the system is overwhelmed by new applications, and if growing numbers of Centrelink and Services Australia staff have to self-isolate.

It would be very bad for Australia over the coming weeks and months if workers who should isolate themselves decide to keep showing up to work because they are not entitled to paid leave.

Any further stimulus – and more may well be needed – should put this group front and centre.

This post has been updated to correct a minor error. Unfortunately some numbers in the text were from an older version of the Characteristics of Employment survey; the correction does not affect any charts.

Co Authors :

As the COVID-19 crisis deepens, few Australians have much cash in the bank

Australians are staying home in droves and businesses are closing by the hour. This is good for public health, but bad for many peoples’ incomes. And many Australians don’t have enough cash in the bank to get them through a sustained period of little or no income.

About 10 per cent of working households have less than $90 in the bank, according to Grattan Institute analysis of ABS survey data. Half of working households have less than $7,000 in the bank.(This data is a couple of years old, but the picture is unlikely to have changed materially for most households — data from the RBA shows that households’ financial assets increased a little between 2018, when the ABS survey was conducted, and September 2019, the latest quarter for which the Bank has published data.)

‘Working households’ — those in which at least one person had a paid job — are likely to be the hardest hit by this crisis. Many households that rely on payments such as Newstart or the Age Pension were already doing it tough before the crisis, but the crisis will not cause their incomes to fall. Retirees living off the Age Pension and their private savings are also unlikely to suffer cash-flow problems.

As you might expect, working households on lower incomes tend to have less in the bank. Among working households in the bottom fifth of household income, the median total bank account balance is just $1,350. For households in the top fifth of the income distribution, the median is $24,400 in the bank. The meagre savings of many low-income workers are a big worry because they are most likely to be employed as casuals and therefore not have paid sick leave or annual leave.  

What really matters in the weeks and months ahead is how long households are able to sustain themselves if their income disappears, or is drastically reduced. To roughly measure this, we can calculate how many weeks’ income each household has in the bank. For example, if a household has a weekly income of $2,000, and $4,000 in the bank, then it has two weeks’ income in the bank.

Our analysis shows that half of working households have 5.6 weeks’ income or less in the bank. The bottom 40 per cent of working households have about 3 weeks’ income or less in the bank. A quarter of all working households have less than one weeks’ income in the bank. Even at the top, about 40 per cent of the highest fifth of income earners have less than 4 weeks’ income in the bank.

It’s clear that many Australian households will need help if they lose their livelihoods through the COVID-19 crisis. They should be a high priority for the Morrison Government as it puts together its second economic support package.

Note: this post was updated on 20 May 2020. The third graph was added to the post. No other changes were made.

Co Authors :

COVID-19: Giving people early access to their super is the right move

The Prime Minister has announced that people who lose their jobs or have their hours cut because of the COVID-19 crisis will be able to take up to $20,000 from their super accounts – $10,000 this year and a further $10,000 next year. It’s a good move. It will put money in the hands of people when they need it most. Retirement incomes would fall if workers withdraw their super, but not by as much as you might expect, especially for middle-income earners. Instead it’s government, via higher Age Pension payments, that could bear much of the cost.

Early withdrawals may not mean big falls in retirement incomes

Our modelling suggests that a 35-year-old who takes the full $20,000 allowed from their super will see their balance at retirement fall by around $58,000. For someone earning the median wage of about $60,000 today, they can expect their total super income through retirement to fall by around $80,000 in today’s dollars. But their total retirement income would fall by only $20,000 in today’s dollars, or around $800 each year. The Age Pension is means tested – the higher your super balance, the less pension you get. So workers who take money from their super will lower their super balance at retirement, but they will receive more Age Pension – helping to soften the blow.

The story is a little different for high-income earners. The total retirement income of a worker earning around $110,000 a year today (more than 90 per of workers of that age) would fall by around $70,000, or around $2,700 a year, if they withdrew the full $20,000 from their super over the next few months. They would lose the same amount in superannuation as a middle-income earner, but receive less Age Pension to compensate, since they’re ineligible to receive an Age Pension for most or all of their retirement.

Of course, many workers would be withdrawing their super at a bad time: the value of the ASX 200 has already fallen by about 40 per cent in the past month. If markets recover next year, that $20,000 in withdrawn super could soon enough be worth about $30,000 again. If that’s the case then the hit to retirement incomes is larger: $33,000 over the course of retirement for the median worker and $106,000 for a worker at the 90th percentile of all wage earners.   But for many Australians facing bankruptcy in the coming months, it’s a trade-off that may well still be worth it.

Putting cash in people’s pockets now is the priority

Australians are in the middle of an enormous liquidity crunch due to COVID-19. More businesses are closing by the hour. Casual workers will be particularly hard hit, but many part-time and full-time employees will soon become unemployed or have their hours reduced.

Most workers, including many on middle and high incomes, don’t have much money in the bank for a rainy day. Half of Australian working households – those with at least one employed person – have less than $7,000 in the bank, including mortgage offset accounts. About 20 per cent have less than $500.

The Government is temporarily doubling the rate of Newstart and accelerating people’s access to the payment by relaxing the assets test. But even a higher rate of Newstart won’t cover many people’s costs, especially people who are on higher incomes. Even at the top, about 40 per cent of the highest fifth of income earners have less than 4 weeks’ income in the bank.

Diverting superannuation money from retirement into Australians’ wallets today is not without cost. But it will put money into the hands of people when they most need it. And they need it now.

Co Authors :

Tracking economic uncertainty in the age of COVID-19

A defining feature of the COVID-19 crisis is the uncertainty it’s created. Just how deadly is COVID-19? Will relaxing lockdowns lead to second and third waves of infections? And how far off is a vaccine, if we ever get one? These questions have enormous implications for our health and prosperity. Yet there are still no good answers.

The uncertainty could be very costly for the Australian economy. Firms are unlikely to invest, and households unlikely to spend, unless they’re confident COVID-19 won’t re-emerge.

Economic uncertainty spiked to recession levels in March but fell a bit in April

The Economic Policy Uncertainty Index, created by US-based economists Scott Baker, Nick Bloom, and Steven Davis, measures the frequency of articles featuring words such as ‘economics’, ‘policy’, and ‘uncertainty’ across eight major Australian newspapers. The creators have shown that past bouts of uncertainty have foreshadowed declines in investment, employment and GDP.

The Economic Policy Uncertainty Index for Australia rose sharply in March to levels higher than during the Global Financial Crisis. The index fell a little in April but remains well above pre-COVID-19 levels.

And while economic uncertainty in Australia might be declining in response to our ccess in controlling the virus here, uncertainty globally remains at record highs especially in the world’s two largest economies: the United States and China.

Financial measures of uncertainty tell a similar story

The S&P/ASX 200 VIX, commonly referred to as the ‘investor fear gauge’, measures sentiment about the future volatility of the ASX 200 index of Australian equities based on options prices. It hit its highest level in 10 years on 18 March, the day the Federal Government recommended all Australians abroad should return home as soon as possible. The VIX has declined since then but remains above its pre-crisis trend.

Uncertainty matters for Australia’s economic recovery

Research from the Reserve Bank of Australia in 2016 found that high uncertainty causes households to save rather than spend, and firms to act more cautiously, reducing investment and employment growth. More recent research by the creators of the Economic Policy Uncertainty Index suggests that United States GDP could decline by 11 per cent by the end of 2020, and about half of the fall could be due to the record high levels of uncertainty.

The shutdowns to control the spread of COVID-19 in Australia have hit consumer and business confidence hard. An ABS survey of businesses released this week found more than two-thirds expected a reduction in turnover or cash flow as a result of COVID-19 in the next two months, compared to 53 per cent that expect their operations to be restricted by government public health responses.

The investment, hiring, and spending required for a strong recovery are unlikely to occur until the uncertainty is resolved. While the Federal Government is spending almost $200 billion in the next six months to insulate Australians from the economic costs of COVID-19, there will be no sustained economic recovery in Australia until we’re certain we’ve got the virus under control. And unfortunately, even if COVID-19 lockdowns soon end, the uncertainty over whether they’ll need to return won’t go away.

Co Authors :

Job losses caused by COVID-19, electorate by electorate

Workers right across Australia have been hit hard by the COVID-19 shutdowns, but some electorates have been hit harder than others.

What we looked at

To find out the job-loss story electorate by electorate, we use ABS data on the share of payroll jobs lost in each large sub-state region (called a Statistical Area 4, or SA4) between the week ending 14 March and the week ending 18 April.[1] Payroll jobs are those where workers are paid through Single Touch Payroll (STP) software. The data captures most workers in Australia: about 99 per cent of employers with 20 or more workers and 71 per cent of employers with 19 or fewer workers use STP software.

We estimate the share of payroll jobs lost in each electorate by taking the share of jobs lost in all SA4s overlapping the electorate, and then calculating a weighted average job loss based on the percentage of the electorate’s residents living in each overlapping SA4 in 2016.[2] Job losses in electorates are mapped on where workers live, rather than where they work.[3]

What we found

Unsurprisingly, electorates with large tourism industries and a high share of hospitality workers have been hit especially hard. The two worst-affected electorates are Cowper (11.6 per cent of jobs lost) and Lyne (10.7 per cent), around the Mid North Coast of NSW and Coffs Harbour. The third and fourth worst-affected are Fairfax (10.2 per cent) and Fisher (10.2 per cent), covering the Sunshine Coast in Queensland. A larger share of workers in these electorates are employed in accomodation and food services, which saw 33 per cent of jobs lost by 18 April. Of the 10 worst-hit electorates, five are in Queensland, four in NSW, and one in South Australia.

But even those electorates least affected by COVID-19 have suffered big job losses. The outer-suburban Sydney electorate of Chifley lost 4.4 per cent of jobs between 14 March and 18 April, followed by Greenway in suburban Sydney (4.4 per cent), Fremantle (4.6 per cent), and Brand in outer-suburban Perth (4.6 per cent). Of the 10 least affected by COVID-19, five are in Western Australia, four in NSW, and one in the Northern Territory.

Rural and regional electorates have been hit harder than metropolitan electorates

Workers living in rural and regional electorates have been hit much harder than workers in the major cities.

Eight of the 10 hardest-hit electorates are in rural and regional areas. Half of all rural electorates lost more than 7.5 per cent of jobs between 14 March and 18 April, compared to 16 per cent of inner-metropolitan electorates and 11 per cent of outer-metropolitan electorates.

Nine of the 10 hardest-hit electorates are held by the Coalition. Tanya Plibersek’s inner-city electorate of Sydney, which ranked 10th with 8.9 per cent of jobs lost, was the hardest-hit Labor electorate.

Nine of the 10 least-affected electorates are in inner- or outer-metropolitan areas, five of them held by the Coalition and five by Labor.

We plan to update this Blog post as the ABS releases updated job loss data.

Underlying data

You can download the underlying data on federal electorates ranked by the share of jobs lost as well as the electorates regional classification, state and sitting member here.

 

[1] More recent ABS payroll data shows the total number of jobs lost from the week ending 14 March to 2 May (7.3 per cent) is broadly in line with job losses to 18 April (7.1 per cent). However a regional breakdown of the more recent data is not yet available.

[2] Take the electorate of Corangamite in western Victoria as an example: in 2016 Corangamite recorded 96.3 per cent of residents living in the Geelong SA4, where 7.0 per cent of jobs have recently been lost; and 3.7 per cent of residents living in the Warrnambool and South West SA4, where 8.6 per cent of jobs have recently been lost. From this we estimate that Corangamite has lost 7.06 per cent of jobs, calculated from 0.963 times 7.0 plus 0.037 times 8.6.

[3] Job losses in the ATO payrolls data are recorded based on the individual’s residential address as stated on their income tax return.

 

 

Co Authors :

Researcher at Grattan Institute

The latest jobs data shows urban electorates are now being hit hardest by COVID-19

New ABS data on firm payrolls shows the changing shape of job losses from COVID-19. Previously hard-hit rural electorates in Queensland and NSW with large tourism industries have regained some jobs, while many urban electorates are now among the hardest hit.

Hard-hit rural electorates are recovering as hospitality and retail reopen

Our previous analysis of job losses to mid-April showed that rural electorates, particularly those in Queensland and NSW with large tourism industries, had lost a greater share of jobs than city electorates.[1] Then, nine of the 10 hardest-hit electorates were held by the Coalition. Tanya Plibersek’s inner-city electorate of Sydney was the hardest-hit Labor electorate.

Now, new data to 30 May shows that previously hard-hit rural electorates recovered some of their lost jobs through May. For instance, the electorates of Cowper and Lyne on the mid-north coast of NSW recovered nearly half of their lost jobs between mid-April and the end of May. The electorates of Fairfax and Fisher covering the Sunshine Coast in Queensland also bounced back a bit. In mid-April, they had lost 10.4 per cent of the jobs they had in mid-March; by the end of May, that figure had fallen to ‘only’ 7.6 per cent.

Job gains since mid-April have been strongest in hospitality and retail, which regained 7.3 and 3.4 per cent of the jobs lost since 14 March.

Overall, firm payrolls to 30 May show job losses from COVID-19 have slowed. Total payroll jobs increased by 1 per cent through May, with 7.5 per cent of jobs lost since mid-March, compared to 8.9 per cent in the week ending 18 April. Most electorates gained jobs between 18 April and 30 May.

Urban electorates are now the hardest hit

The new data show that nine of the 10 hardest hit electorates are now either inner- or outer-metropolitan. Eight of the top 10 are held by Labor, and the remaining two are held by the Greens and an independent. The electorates of Melbourne (held by the Greens’ Adam Bandt) and Sydney (held by the ALP’s Tanya Plibersek) are the worst and second-worst affected electorates.

Many of the-hardest hit electorates in urban areas have suffered further job losses since mid-April. One reason is the sharp fall in second jobs, which in part reflects the fact that JobKeeper payments are limited to a single job for an individual employee. People who live in inner-city electorates are more likely to hold multiple jobs.

Another explanation of the figures is the shift in job losses towards industries more heavily focused in urban areas. For instance, the information media and telecommunications sector suffered big job losses between mid-April and the end of May, from 8.5 per cent to 10.5 per cent. Job losses in professional, scientific, and technical services also increased over that period, from 4 per cent to 4.4 per cent. These ‘second-round’ job losses may well intensify even as job losses from COVID-19 in sectors directly affected by spatial distancing continue to dissipate as the economy reopens.

The worsening story in inner-city electorates also reflects data revisions from the ABS, especially around JobKeeper. For example, the share of jobs lost in the electorate of Sydney were revised from 8.9 per cent to 10.8 per cent for mid-April. Jobs lost in the electorate of Melbourne were revised up to 10.1 per cent, from 7.8 per cent previously, and from 7.5 per cent to 9.5 per cent in the inner-city electorate of Wills in Victoria. These data revisions reflect the impact of JobKeeper itself, including expanded coverage of smaller employers through the ATO’s single-touch payroll system since it’s the mechanism for delivering JobKeeper payments, as well as other refinements of the ABS approach.

Note and underlying data

You can download the underlying data on federal electorates ranked by the share of jobs lost as well as the regional classification, state and sitting member here.

As noted above, the ABS has also revised its earlier data releases. As a result, the change in payroll jobs between 14 March and 18 April has also changed since our previous Blog post. To show the effect of the revisions, we include both our old and new estimates for the change in jobs between 14 March and 18 April in the data sheet provided.

[1] Grattan Institute previously estimated the COVID-19 job-loss story electorate by electorate between the week ending 14 March and the week ending 18 April, using ABS data on the share of payroll jobs lost in each large sub-state region (called a Statistical Area 4, or SA4).

Co Authors :

Early release of super doesn’t justify higher compulsory contributions

A big part of the Morrison Government’s response to COVID-19 has been allowing people early access to their superannuation. At the same time, compulsory super contributions are legislated to climb from 9.5 per cent of wages to 12 per cent over the next five years.

Many in the super industry argue that these scheduled increases must go ahead to repair the damage done to the super balances of Australians who withdrew some or all of their super during the COVID crisis.

But new Grattan Institute modelling shows that most Australians will have a comfortable retirement even if they’ve spent some of their super early.

Withdrawing super early will cost you less than you might think

Under the Government’s scheme, people who have lost their job, or 20 per cent of their work, were allowed to withdraw up to $10,000 from their super between April and June, and can take out another $10,000 between July and September.

Since April, 2.9 million people have applied for early access to their super, totalling $30.7 billion to dateOver 500,000 Australians have cleared out their super accounts entirely. And Treasury now expects total withdrawals to reach $42 billion by Christmas.

Retirement incomes will fall for workers who have withdrawn their super, but not by as much as you might expect. The government, via higher Age Pension payments, will bear much of the cost.

A 35-year-old who takes the full $20,000 allowed from their super will see their balance at retirement fall by around $58,000.

Someone earning the median wage of about $60,000 today can expect their total super income through retirement to fall by about $80,000 in today’s dollars. But their total retirement income would fall by only $24,000 in today’s dollars, or about $900 each year, because their lower super balance at retirement would be largely offset by larger pension payments.

The story is a little different for the lowest and highest income earners. They would lose the same amount in accumulated superannuation as a middle-income earner, but receive less extra Age Pension to compensate.

Australians that have withdrawn their super early will still have adequate retirement incomes

System defaults like the rate compulsory super need to be set so they work for most Australians. And while around one in five Australians have accessed their super early, that leaves four in five that haven’t.

Policy makers can only justify forcibly lowering someone’s living standards during their working life – by lifting compulsory super – if we are protecting them from even worse outcomes in retirement.

Nonetheless, our modelling shows that Australians can look forward to a comfortable retirement with compulsory super contributions of 9.5 per cent, even if they take the full $20,000 from their super.

Workers on all but the highest incomes will retire on incomes at least 70 per cent of their pre-retirement (post-tax) earnings – the so-called ‘replacement rate’ benchmark used by the OECD and others.

The median worker earning around $60,000 who takes out $20,000 in super at age 35 would see their replacement rate fall from 89 per cent to 88 per cent, assuming compulsory super stays at 9.5 per cent, still well above the 70 per cent benchmark.

Even if COVID means they remain unemployed for the next three years, making no super contributions, that worker would still end up with a retirement income of 86 per cent of what they earned in the years before retirement. And the more than 500,000 Australians that have emptied their super accounts completely, the impact on their retirement incomes is likely to be smaller since they have, by definition, withdrawn less than $20,000.

Retirement incomes would also remain adequate even for the many Australians who access their super early and work part-time or go on to take significant career breaks, such as to care for children. For example, someone who works for 32 years at the median income, and takes out $20,000 in super, will see their retirement income drop from 87 per cent to 85 per cent of their pre-retirement earnings. A median worker that only works 27 years and takes $20,000 in super would see their retirement income fall from 84 per cent to 81 per cent of their pre-retirement earnings.

 

The prospect of lower super returns – more likely because of the COVID recession – barely alters these findings. The reason is simple: for many Australians, most of what they lose in less accumulated super is made up for via larger Age Pension payments.

Many low-income workers will still receive a pay rise when they retire, even if they withdraw the full $20,000 from their super today.

Of course, some low-income Australians remain at risk of poverty in retirement – especially those who rent. But struggle even more before they retire.

And boosting Rent Assistance would do far more than higher compulsory super to help these vulnerable Australians, and without reducing their take-home pay before they retire as higher compulsory super would.

COVID-19 is just one more reason why compulsory super shouldn’t rise

Before COVID-19, there were good reasons to abandon the planned increases in compulsory super. COVID-19 is just one more reason.

Higher compulsory super would reduce workers’ take-home pay and do little to boost the retirement incomes of many Australians, while widening the gender gap in retirement incomes. The Government’s early release scheme does nothing to change that story.

The government will bear much of the cost of the super early release scheme via higher pension payments when today’s workers retire.

But raising compulsory super to 12 per cent would make the problem worse, since higher super costs the budget more in extra super tax breaks than it saves in lower Age Pension spending for decades to come. It’s a $2 billion a year hit to the budget once super hits 12 per cent, and those extra super tax breaks skew heavily to the wealthiest 20 per cent of Australian workers.

But most importantly, higher compulsory super would also exacerbate the economic problems caused by COVID-19. Past Grattan work has shown that higher super comes at the expense of workers’ wages. And the Reserve Bank agrees: it’s forecasting lower growth in wages next year when compulsory super begins to rise.

Scheduled increases will see household savings rise at a time when aggregate demand is weak.

Raising super in the midst of a deep recession would only slow the pace of economic recovery. And that would be bad news for all Australians, regardless of the size of their super account.

Co Authors :

8 in 10 hardest-hit federal electorates are now in Victoria

Updated ABS payroll data shows that job losses due to COVID-19 were clearly concentrating in Victoria, even before Stage 3 and 4 restrictions took effect across the state.

As of 11 July, 8 of the 10 hardest-hit electorates across Australia were in Victoria, with the exceptions being the NSW seats of Sydney and Kingsford Smith. The 3 hard-hit electorates were Gippsland, Monash, and Mallee, all in rural Victoria.

The number of jobs in Victoria was 7.3 per cent lower in mid-July than in mid-March, a deeper fall than any other state. In inner Melbourne, the number of jobs was down nearly 10 per cent from mid-March. There were also further job losses in NSW in the last two weeks of the data, due to rising fears of the virus.

These figures capture only the start of the Stage 3 lockdowns which were extended to all of Melbourne and the Mitchell Shire from 8 July.

The subsequent introduction of Stage 4 restrictions in Melbourne and the Stage 3 restrictions across regional Victoria will only add to the job losses in coming data releases.

Rural and inner-metropolitan electorates continue to be hit hardest

Our previous analysis of job losses to the end of May found that urban electorates were most affected by COVID-19, with 9 of the 10 hardest hit electorates in inner- or outer-metropolitan areas.

The updated data show that most of the job losses are still in urban electorates, but some parts of rural Victoria have also been affected in recent weeks. Of the top 10 hardest-hit electorates, 6 are in inner-metropolitan areas and 4 are rural. Five are held by the ALP, 4 by the Coalition, and 1 by the Greens.

Across all inner-metropolitan electorates, four-fifths have lost more than 5 per cent of their jobs since the start of the pandemic, and more than one-fifth have lost more than 7.5 per cent of their jobs. Of the electorates which have lost more than 7.5 per cent of their jobs, all but one are either in Victoria or in urban NSW.

On an industry level, the heaviest job losses are still in the accommodation and food sector, followed by arts and recreation. There has been a recent decline in jobs in the agriculture, forestry, and fishing industries.

Underlying data

You can download the underlying data on federal electorates ranked by the share of jobs lost as well as the regional classification, state, and sitting member here

Co Authors :

Our economic institutions are forecasting policy failure. Governments will have to spend up big to avoid it.

Australia is in for a long and damaging economic slump, unless governments inject substantially more fiscal stimulus.

The July budget update forecast that unemployment would hit 9.25 per cent in coming months. The Reserve Bank is forecasting unemployment to hit 10 per cent by Christmas. Treasury apparently expects unemployment to remain above 6 per cent for the next half-decade.

That would be a disastrously sluggish recovery – as slow as the recovery after the 1990s recession – widely seen now as a failure of macroeconomic policy.

It would be a slower recovery in unemployment than Australia experienced after the 1980s recession. It would also be substantially slower than the US experienced after the Global Financial Crisis, when unemployment fell from a peak of 10 per cent in 2009 to 5.7 per cent five years later.

The US after the GFC should be no one’s idea of a rapid labour market recovery. Yet that’s the scenario Australia is drifting towards.

The recovery is expected to take years

The Parliamentary Budget Office recently published new projections of the Australian economy’s potential – the level of economic activity we could achieve with full employment and no idle equipment. The figures published by the PBO suggest our potential output this financial year is around $1.96 trillion. The Reserve Bank’s latest forecasts anticipate us producing goods and services worth only around $1.82 trillion. The gap between our actual and potential output – the ‘output gap’ – is expected to be around $140 billion or 7.5 per cent.

It’s inevitable that we’ll have a large output gap this year – the second-largest state in the country has been in some form of lockdown for most of the financial year so far. But the really scary part is that the output gap could persist for more than half a decade. The PBO has followed the standard budget assumption that it will take seven years to return to potential — which would mean we won’t close the gap between actual and potential output until 2027-28. In total, the output gap over the period between now and mid-2027 is projected to be around $620 billion in inflation-adjusted terms.

This projection should shock. If it comes to pass, we’re in for the better part of a decade with the economy operating well below potential, with unemployment higher than it could be and living standards below where they could be.

Deep recessions leave ugly scars, but the worst can be avoided

A recession this long and deep would leave ugly scars. Recent work by officials at the Treasury found that when youth unemployment goes up by 5 percentage points – as it has in recent months — the wage that new graduates can expect to receive goes down by 8 percentage points, and they’re less likely to be employed in the first place. The effect on graduates’ wages lasts for years: over a decade they lose the equivalent of half a year’s salary compared to otherwise-equivalent young people who graduated into more benign economic conditions. A recent staff working paper from the Productivity Commission came to a similar conclusion – economic downturns have big and long-lasting effects, particularly on young people.

But the Treasury authors show that the worst effects can be avoided if unemployment falls quickly. For instance, if unemployment returned to pre-recession levels within three years, the hit to young workers’ wages over the decade would be halved.

Governments need to act

Faced with this scenario – a long and deep recession with sluggish recovery – policy makers should do everything in their power to stimulate the economy.

In normal times, Australians would look to Martin Place in Sydney, with the expectation that the Reserve Bank would deliver enough of a boost through monetary policy to get us out of the slump. But the Bank has cut its cash rate 0.5 percentage points and now finds itself at, or least close to, the lowest it can go. This is unlike past downturns – in the wake of the GFC, the RBA cut the cash rate by 4.25 percentage points. It cut by 2-2.5 per cent during earlier, much smaller, shocks – the Asian financial crisis and 2001 financial bubble. The RBA just hasn’t had the same room to move this time.

The RBA can and should do more, but it cannot do enough by itself. The Federal Government must step up.

The Government acted quickly and commendably to support households and businesses through the acute crisis period. The actions weren’t perfect, but they’ve helped turn what looked likely to be an unprecedented economic catastrophe into something more like a conventional terrible recession.

But the fiscal taps look set to be turned off in the coming months, as the emergency support is withdrawn. The fall off the ‘fiscal cliff’ might be cushioned a bit by the boost from households that have saved more during shutdown, and households that have withdrawn their super savings, but fiscal policy looks set to be a drag on growth.

More – much more – fiscal support is going to be needed over the months and years ahead.

In June, Grattan Institute called for additional fiscal stimulus of about $70-to-$90 billion over the next two years. Those numbers now look too small.

Based on the updated RBA forecasts, we now estimate additional stimulus of about $100-to-$120 billion is needed. This would be enough to cut the unemployment rate by about 2 percentage points relative to where it would otherwise be by the end of 2022. It would bring unemployment back down to around 5 per cent – around the level the RBA expects is needed to get wages growing again. And governments will need to spend more in the years beyond to keep it there.

Extra stimulus will mean extra government debt. But the Australian government can now borrow for 10 years at a fixed interest rate below 1 per cent. 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 wear the cost of high unemployment unless we act.

Australians should not settle for a prolonged slump, with all the scarring and misery it brings. Our leaders should prepare a plan now to get unemployment down as quickly as possible. The Reserve Bank and Treasury are forecasting economic policy failure. Australian governments should be prepared to spend, and spend big, to avoid it.

Note: this post was amended on 11 September to clarify the nature of the potential output figures published by the PBO. The PBO does not engage in economic forecasting. The potential output estimates published by the PBO used the government’s pre-COVID estimate of potential, adjusted for reduced migration.

Co Authors :

The JobSeeker rise is not enough

Australians on unemployment benefits will receive an extra $25 a week under changes to JobSeeker from April, but the payment will still be substantially below the poverty line.

JobSeeker, formerly known as Newstart, usually only rises in line with the cost of living. Other than small adjustments– such as at the time the GST was introduced in 2000 — this will be the first time the benefit has been increased in real terms since the early 1990s.

But for people currently on JobSeeker, it will feel like a cut, not a rise. That’s because since COVID-19 arrived in Australia, unemployed people have been receiving the Coronavirus Supplement. The supplement at first was worth $275 a week on top of the basic JobKeeper, then in September 2020 it was cut back to $125, and now it’s $75 per week. People on JobSeeker on 1 April will therefore get a $50 per week cut in their payments, as the $75 Coronavirus Supplement is removed and the new $25 increase is added.

Jobseeker is well below the poverty line

Even with today’s announcement, JobSeeker will remain well below usual measures of the poverty line.

Australia doesn’t have an official poverty line, but we have at least two measures commonly used by researchers — the relative line, which is half of median household income, and the Henderson line, which was set by an inquiry in the 1970s and is updated by the Melbourne Institute. The relative line is used most often, including by international organisations like the OECD.

The relative poverty line is $450 per week — or at least it was back in 2018 when the latest data were released. That means a single adult, living alone, would need at least that amount to be considered out of poverty. After the $25 increase announced today, JobSeeker (including the Energy Supplement) will be $312 per week — $138 below the relative poverty line. The gap between the payment and the Henderson poverty line is even bigger.

The gap wasn’t always so big. As Chart 1 shows, back in the early years of the Howard Government, the unemployment benefit was nearly at the relative poverty line.

By the time John Howard left office in 2007, the Newstart Allowance was  $214.90 per week. The minimum wage for a full-time worker was $522.12 per week, so the unemployment benefit was worth 41 per cent of the minimum wage.

Since then, the minimum wage has grown a little faster than inflation, while Newstart/JobSeeker has only kept pace with inflation. As a result, the gap between the unemployment benefit and the minimum wage has widened.

Today’s announcement of an extra $25 per week in JobSeeker puts the payment right back where it was in 2007 — 41 per cent of the minimum wage.

But the increase isn’t enough to restore the unemployment benefit to where it was earlier in Howard’s term. In 2000, when the Howard Government introduced the GST, the unemployment benefit was 43 per cent of the minimum wage — today’s increase will leave it well below that mark.

And today’s announcement barely puts a dent in the large and growing gap between payments to unemployment people and payments to pensioners. Back in 2000, Newstart was worth 89 per cent of the single pension; after the $25 increase, it will be worth just 66 per cent of the pension.

JobSeeker will still be the second-stingiest unemployment benefit among OECD countries

Even after today’s announcement Australia will have the second-stingiest payment for newly-unemployed people out of all 37 members of the OECD, behind only Greece.

An Australian on an average wage who loses their job will find that JobSeeker and Commonwealth Rent Assistance combined add up to only a bit more than a quarter – 27 per cent – of what they earned when they were working. An unemployed Canadian would get 62 per cent of the average wage. The average across the rich countries is 58 per cent, about double Australia’s new payment.

JobSeeker will still be benchmarked in inflation, not wages

The reason JobSeeker got so low in the first place is because allowance payments such as JobSeeker (but also Youth Allowance) are adjusted only in line with changes in the cost of living, as measured by the Consumer Price Index (CPI). This means that a person on the unemployment benefit falls further and further behind other Australians, including pensioners. Today’s announcement does nothing to fix that problem.

Now is an especially bad time to cut the Coronavirus Supplement

In his announcement today, Prime Minister Scott Morrison said he was concerned that leaving the current JobSeeker rate in place (including the Coronavirus Supplement) would dull job seekers’ incentives to search for work.

Yet there is little evidence that the current level creates a big disincentive to work: even after the JobSeeker rate was doubled last year, there was little change in the proportion of unemployed Australians who found work each month, or in the rate of advertised job vacancies.

After all, searching for jobs takes time and costs money. Set the rate too low and unemployment Australians will struggle to afford to search for work, a concern noted recently by the OECD among many others.

We already require unemployed people to jump through lots of hoops – applying for jobs, doing ‘mutual obligation’ – that make JobSeeker far from a comfortable existence. And today’s announcement includes measures to further tighten those requirements.

Lowering the overall level of unemployment benefits that jobseekers will receive in the middle of a recession is likely to cost jobs, rather than create them. Australia’s economy has made a stronger-than-expected recovery from COVID so far. But, as the Governor of the Reserve Bank recently noted, ‘we still have a fair way to go’. Unemployment remains high at 6.4 per cent. On current forecasts, it won’t return to pre-crisis levels until at least 2023. Even lower unemployment will be needed to get real wages moving again.

JobSeeker is one of the best forms of fiscal stimulus there is: since people are unemployed, they’re likely to spend most of what they receive. Cutting the $75 a week Coronavirus supplement, and replacing it with a lower but permanent $25 a week rise, is a missed opportunity. It is likely to cost jobs, and it means unemployed Australians will continue to languish well below the poverty line.

Co Authors :

Why the JobSeeker ‘rise’ could actually cost 40,000 Australians their jobs

The permanent rate of JobSeeker will rise by $25 a week from April. But the $75 a week Coronavirus Supplement to JobSeeker will be abolished at the same time. So people on JobSeeker on 1 April will actually get a $50 per week cut in their payments.

Cutting unemployment benefits in the middle of a recession is likely to cost jobs, rather than create them.

There’s little evidence that retaining the Coronavirus Supplement would hurt employment

There’s little doubt that a very big increase in the long-term unemployment benefit would discourage some people from trying to get a job. But there is little evidence that Australia is approaching that level – even if we kept the Coronavirus Supplement.

After the 1 April ‘rise’, the new permanent rate of JobSeeker will be equivalent to just 41 per cent of the full-time minimum wage. Even if the $75 a week Coronavirus Supplement stayed, the payment would only be about half the full-time minimum wage – hardly a meaningful disincentive to searching for work.

Cutting JobSeeker is likely to cost jobs rather than create them

JobSeeker is one of the best forms of fiscal stimulus there is: unemployed people are likely to spend all or at least most of what they receive. In January this year 80 per cent of people receiving the Coronavirus Supplement said they were spending it on household bills and supplies, including groceries. That’s money in the pockets of Australian businesses, big and small.

Cutting unemployment benefits by $50 a week will take about $5 billion out of the economy in the coming year. That’s likely to push the unemployment rate 0.1-to-0.15 per cent higher than if the current $75 a week supplement were kept. And that means up to 40,000 fewer jobs.

If the Federal Government really wants to get more Australians working, it should think again.