[Australia] Jobkeeper: An Imperfect Solution For Extraordinary Times

14 APR 2020

At the end of last month, the Prime Minister announced a six-month government subsidy for six million jobs, at a rate of  $1,500 a fortnight. Australia’s economists were left speechless by the unprecedented A$130 billion spend. The Conversation reports the specifics of the Jobkeeper legislation.

Last week the government unveiled the legislation parliament were about to consider. (Link via original reporting)

Ordinarily, a $130 billion wage subsidy would lack support but these are extraordinary times. Whole sectors of the economy have shut down, directly as part of the health response to the pandemic or indirectly from knock-on effects.

The JobKeeper wage subsidies bring direct support to businesses who are worst affected and jobs, helping to minimise economic damage. The package is not perfect but there were, reportedly, fears it would be worse.

Jobkeeper will help buoy Australia’s economy over the next six months, preparing it to rebound when health officials say it is safe to reopen parts of the economy for business.

The legislation has three key features:

  • businesses get $1,500 per fortnight per worker (only for those workers who were employed on March 1. Short-term casual workers with the business and some visa holders are excluded)
  • the employer must keep those workers on the books and pay them at least $1,500 per fortnight
  • it only applies to businesses whose revenue has collapsed by at least 30 per cent (15 per cent for charities and not-for-profits, 50 per cent for the largest businesses, with banks excluded).

To be effective Jobseeker must meet three goals:

  • to support workers’ incomes through the crisis
  • to keep workers attached to firms, preserving as many job-specific skills and as much know-how as possible
  • to prevent wide-scale business failures which could turn a short and sharp recession into a long and painful depression.

If it works well it is worth noting that both workers and employers will benefit from the deal. Workers at companies that would otherwise have shut down will benefit considerably.

Many workers will receive higher pay

The $1,500 payment will give workers much more than the Newstart payment they would have received if laid off. More than even the doubled Newstart (now called JobSeeker) which for six months has been paired with a Coronavirus supplement lifting it from $565.70 to $1,115.60 per fortnight. (Link via original reporting)

For the one-third of workers otherwise earning less than $1,500 per fortnight, the JobKeeper payment represents a pay rise. If the subsidy keeps their firm afloat, they will retain their job and earn more than before, for the next six months.

There is a chance that those earning more than $1,500 per fortnight will earn less than they did previously in pay and benefits, depending on what the government does with the Fair Work Act.

Exactly how it works out for workers who get JobKeeper will depend on the labour market. Workers will be more attractive to employers because their employment comes with a large subsidy that new hires do not bring with them. Yet they might have few alternative employers to turn to. Jobs might be hard to find.

Even if worker’s pay is reduced though their situation will be much better than under the renamed Newstart. To the extent that cutting employee pay helps keep a firm viable, it will secure a job for them on the other side.

Employers will benefit too. If a business stays open, it gets the plus of its workers’ labour for free or at a significant discount.

One of Jobkeeper’s key objectives is to plug the hole in firms’ revenues to prevent them from going under. Most would have been viable without the essential public health measures governments have taken. Allowing them to fail would represent needless destruction of valuable resources.

Inevitably there will be some waste from such a crude solution. Some companies will get more money than they need, as will some workers. With more time, the treasury could have refined the legislation into something less wasteful and more accurately targeted, less wasteful. The sudden collapse allowed no such time.

There are a few improvements the government could make. Short-term casual workers and visa holders could be covered and it should make sure the Fair Work Act is not weakened.

JobKeeper might not prevent a serious contraction in the Australian economy but it should allow it the opportunity to bounce back when more normal service is resumed.