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Unemployment rate would be 12% without JobKeeper, says government

James Mitchell
13 October 2021 3 minute readShare
Unemployment rate

The Commonwealth Treasury has today released a report that argues unemployment would have spiked and remained high without JobKeeper.

Titled Insights from the first six months of JobKeeper, the report claims that “the JobKeeper program was well targeted and highly effective in maintaining employment and supporting the economy during the biggest economic shock since the Great Depression”.

At the time JobKeeper was designed and implemented, consumer and business confidence had fallen to record lows. The Treasury considered it plausible that GDP could be 10% to 12% lower than forecast in the June quarter. The Treasury’s estimate of the unemployment rate was that it could reach 15%. A quarterly fall in GDP of 24% was considered possible.

“JobKeeper was designed to guarantee support for six months to provide certainty to business and support the broader economy. This time frame was linked to the health advice that severe restrictions could be in place for six months or more,” Treasurer Josh Frydenberg said. 

The Treasury’s report found that JobKeeper payments, which supported 4 million Australians and 1 million businesses, were targeted to:

  • Businesses strongly affected by the pandemic: JobKeeper businesses faced a median decline in turnover of 28% over the year to the June quarter and 23% over the year to the September quarter 2020. This compared with no decline in median turnover for other businesses.
  • Businesses at high risk of shedding employees: In March 2020, the job separation rate at JobKeeper businesses had almost doubled due to the COVID‑19 health restrictions, but was broadly unchanged in other businesses.
  • Sectors directly affected by the public health restrictions: JobKeeper payments were made to around half of the individuals employed in the arts and recreation industry and around 35% in the accommodation and food services industry.
  • Small businesses and not-for-profit entities: 99% of entities receiving JobKeeper had a turnover of less than $50 million or were not-for-profits, and over 80% of JobKeeper payments went to these entities. These groups were particularly vulnerable to the impact of health restrictions because of their limited ability to weather economic shocks. Large businesses with a turnover of more than $250 million made up 0.2% of JobKeeper entities and received around 11% of payments.

My Frydenberg said that without the government’s significant fiscal support, including JobKeeper, the Treasury has estimated that the unemployment rate would have peaked at least 5 percentage points higher, and remained above 12% for two years.

“JobKeeper enabled the Australian economy to rebound strongly, saving more than 700,000 jobs,” he said. “By March 2021, Australia had surpassed its pre‑COVID levels of GDP and employment, a better outcome than all major advanced economies.”

According to the Treasury, the report demonstrates that JobKeeper was “more than just a wage subsidy”.

“It was designed to ensure the strongest possible economic recovery and avoid the scarring impacts on the labour market, which were characteristic of previous recessions,” Mr Frydenberg said. 

He noted that a central consideration in designing the macroeconomic support package was ensuring the overall level of fiscal support was sufficient to provide a credible offset to the economic shock being experienced.

“JobKeeper was specifically designed, not as a furlough scheme, but as one that enabled businesses to adapt and stay open. In the words of Treasury, JobKeeper enabled many of these businesses to continue operating and then to pivot and grow,” he said. 

“It was this feature, combined with the six-month guaranteed support and the absence of a clawback mechanism, that allowed JobKeeper to not only save jobs, but to create them.”

Clawback would have ‘muted’ recovery

In the report, the Treasury argues that a clawback mechanism was not included, reflecting a desire to avoid any disincentives for businesses to adapt and recover. The introduction of “such a mechanism would likely have reduced the overall level of activity and muted the recovery”, the report states. 

While the report finds that some businesses did not experience a 30% (or 50%) decline in turnover for larger businesses over the year, many “were still significantly impacted by COVID-19”. 99% of these businesses were small businesses, with an average of four supported employees.

In particular, the number of job losses in these businesses increased by around 60% in late March 2020, compared to almost no increase in non-JobKeeper businesses.

Following the introduction of JobKeeper, job shedding declined sharply in these businesses and employment outcomes substantially recovered, with an estimated 200,000 JobKeeper workers brought back once the policy was introduced.

As the economy recovered and these businesses expanded and pivoted production, hours worked for JobKeeper workers increased, as did employment of non-JobKeeper workers by an estimated 150,000.

“Treasury’s report on the first six months of JobKeeper clearly demonstrates that the program did what it was intended to do,” Mr Frydenberg said. “It kept employers and employees connected. It saved more than 700,000 jobs and it supported Australia’s world-leading economic recovery.”

The full report is available on the Treasury website.

Unemployment rate would be 12% without JobKeeper, says government
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James Mitchell

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