BlogStudyHSC Economics Review Ep #26: The Labour Market and Unemployment

HSC Economics Review Ep #26: The Labour Market and Unemployment

If you’re studying HSC Economics, it’s important that you build up your evaluative and assessment skills — and that’s exactly what we’ll be doing today! 

We’re going to be analysing the effectiveness of the JobKeeper scheme that concluded on March 28th, 2021. We’ll be taking a look at some of the benefits, negatives, controversies, and tensions of the JobKeeper policy. 

Keen to learn more? Read on!

What is JobKeeper?
How much was JobKeeper?
Staggering the JobKeeper Policy
JobKeeper Among the Sectors
Comparing JobKeeper Across Australia
Unemployment/Underemployment
Income Inequality

What is JobKeeper?

To start off, let’s establish what the JobKeeper policy actually is. Essentially, when COVID hit Australia, many businesses had to cease trading, move online, or change their operations significantly.

So JobKeeper was introduced to encourage businesses to continue paying their employees despite not having a lot of cash inflow with minimal sales.

All in all, JobKeeper aimed to help people “keep their jobs” and maintain a low unemployment rate across Australia, by giving this money to employers. This also meant that businesses and companies would not make employees redundant due to a lack of affordability. 

JobKeeper, in a sense, helped stimulate the economy. It ensured that Australians were still earning money so that they could buy groceries and maintain households to ensure cash would continue to flow throughout the economy.

How much was JobKeeper?

JobKeeper started off with a payment of $1,500 a fortnight.

It then dropped, on 28th September 2020, to $1200 a fortnight if you worked more than 20 hours a week, as people started to work remotely, or part time. If you worked less than 20 hours a week, JobKeeper would give you $750 a fortnight. 

On 4th January 2020, JobKeeper was then reduced to $1000 a fortnight if you worked more than 20 hours a week, and $650 a fortnight if you worked less than 20 hours a week.

Staggering the JobKeeper Policy

So why was JobKeeper reduced and staggered in September? Initially, the $1500 fortnightly payment was given, no matter the number of hours worked in a week. So some people would be receiving more money than they would normally earn, while others would receive less.

The motive behind staggering the policy to above or below 20 hours of work a week, was to maintain support, but also encourage an increase in employment. Therefore, companies could transition to being able to afford wages but not drown in expenses.

Josh Frydenberg, Treasurer, said that JobKeeper distorted the labour market and added a lot of noise to wage and employment numbers. Essentially, the introduced stimulus of JobKeeper made it hard to see the true financial and economic state of employment rates and wages.

Further, if the government continued to provide JobKeeper, people would find themselves in jobs that are ineffective; holistically reducing the productivity levels of the economy. 

If we take a look at the number of Australians on JobKeeper in April and September 2020, we can see a massive decrease. In April, when JobKeeper was first introduced at $1500 a fortnight, 3.6 million Australians were receiving this stimulus.

However, this dropped to 1.4 million Australians in September, when JobKeeper was reduced and staggered to either less than or more than 20 hours of work a week. 

This sharp decrease of more than half Australians shows that in the period from April to September, employees and employers were able to recover economically, and continue business as the pandemic improved throughout the country.

JobKeeper Among the Sectors

An important part of the analysis when it comes to JobKeeper is the distribution of the stimulus among the different sectors. 

Tourism, Accommodation and Hospitality

Now, as you can imagine, COVID took a huge toll on the tourism, accommodation and other hospitality industries, because these facilities were quite literally shut down and not in use for a lengthened period of time. As a result, the tourism, accommodation and food services received a significant amount of support from the JobKeeper policy.

Professional, Scientific and Technical Services

However, it’s also worth mentioning professional, scientific and technical services — an industry that would transition fairly smoothly online. Let’s note that almost half the arts and recreation employees were on JobKeeper, and around a third of accommodation and food services also received the stimulus.

When you compare this with professional, scientific and technical services, 40% of employees were receiving JobKeeper.

For an industry that could operate largely online, there’s a lot of controversy and critique surrounding the distribution of JobKeeper among these sectors.

So the main critique that derives from this, is that JobKeeper was also provided to established corporations and large companies that, arguably, did not need the stimulus. Hence, the additional income from the JobKeeper policy allowed these companies to maximise profit. 

The Effectiveness of JobKeeper

What this demonstrates is that JobKeeper will highlight more effective results in some sectors, compared to others, throughout the economy.

Looking at an RBA (Reserve Bank of Australia) report, 1 in 5 employees relied on JobKeeper to remain employed. What this showed is that around 700,000 Australians remained employed throughout COVID because of the JobKeeper policy, ultimately reducing unemployment rates.

Although JobKeeper came with many benefits, especially as the RBA outlined, the criticism stems from the distribution among sectors, and how the stimulus was taken advantage of. This resulted in inequalities that we’ll discuss further!

Comparing JobKeeper across Australia

What did JobKeeper look like in the different states and territories across Australia? 

When comparing the first JobKeeper stimulus of $1500 a fortnight in April (JobKeeper 1.0) to the reduced and staggered approach in September (JobKeeper 2.0), the numbers vary across Australia. 

Victoria saw a 44% decrease from JobKeeper 1.0 to 2.0. But, when we compare this with the 60% drop in New South Wales, 62% drop in the ACT and a 64% drop in Queensland, 44% isn’t as impressive. 

So for one of the more populated states in Australia, why does Victoria have one of the lowest decreases?

Essentially, the smaller drop indicates that more Australians still needed the JobKeeper stimulus because they were not earning enough from work. And when we take into consideration the more substantial second wave that Victoria experienced, with more lockdowns and restrictions, it’s expected that more Victorians needed the continued support of JobKeeper. 

We can also contrast this with Western Australia, which had more strict travel and lockdown restrictions, with lower case numbers across the board. Therefore, each state was impacted differently, and consequently recovered at a different rate.

Let’s talk Unemployment, or rather, Underemployment 

In March, we saw the unemployment rates go down to 5.6%, which is almost back at the levels we had before COVID. This is an excellent and speedy recovery, considering the immense impact of the pandemic on employment across the globe. 

However, it is also important to remember that unemployment doesn’t differ between those who are severely underemployed. Essentially, those who are underemployed are still classified as employed. Therefore, despite low unemployment rates, we could be looking at some pretty significant underemployment due to COVID.

This means that amongst the employed across Australia, we could be talking about people working 25 hours a week, and people working 3 hours a week. So you could argue that, despite unemployment rates looking fantastic, underemployment could be the subsequent issue.

We can link this back to the Treasurer, Josh Frydenberg’s argument to reduce JobKeeper due to the noise that it brings to the labour market — making it difficult to assess the current situation due to the added stimulus.

Basically, data from March includes the JobKeeper stimulus, and so these numbers don’t actually demonstrate the traditional labour market. And with predictions of up to 150,000 Australians losing their jobs once the JobKeeper policy ends, this impact on the economy is yet to be evident in the labour market. 

Analyst Perspectives on JobKeeper

An EY (Ernst and Young) Chief Economist suggested that the recovery through JobKeeper was largely positive and effective for the Australian economy. It was also highlighted that 5 of Australia’s states and territories saw a rise in employment by December.

The Australian Council of Trade Unions President also said that employment is looking healthy, with 2 million Australians looking for employment or more hours of work. 

SEEK notes that in 23 years of operating, there was a new record in the highest number of postings on the site, regardless of COVID. However, the number of applicants per job posting was at the lowest since 2012. This indicates job availabilities that are not being occupied. 

Income Inequality 

When it comes to income inequality, this is one of the major points of critique and controversy of the JobKeeper scheme. 

Across the States

We can take a look, firstly, at some of the inequalities in employment across Australia’s states and territories.

With new job postings on SEEK, there’s been a 17% increase in Western Australia, 9% in NSW, 12% in Victoria, and then numbers as low as 4.8% in Tasmania and 4.6% in the Northern Territory. Although this is purely from the angle of job postings, we can already identify some sense of inequality. 

Cash Rate Drops

Further, the drop in cash rates had a major effect on asset prices. From housing, to shares, and cryptocurrency, assets have increased significantly.

Although this creates great income for investors, there isn’t much of a benefit for those who aren’t able to afford such assets. 

What is JobKeeper doing for income inequality?

Although JobKeeper is helping maintain approximately 700,000 jobs (according to the prior RBA data), when the JobKeeper stimulus is cut, many Australians will be left without jobs. In turn, unemployment rates will increase and inequality levels will worsen. 

So far, the JobKeeper stimulus has been incredibly effective in maintaining employment as we see the current unemployment rates almost equal to that before COVID. Therefore, you could also argue that JobKeeper was vital in preventing a decay in the income inequality of Australia. 

When it comes to wealth inequality, questions are raised in relation to a more equitable distribution of income. To promote this, the government introduced a $50 fortnightly payment from April 2021.

And while this is a measly stimulus, especially for households that are surviving on low income, the Morrison government argues that this payment will incentivise Australian’s to work harder and increase their skill levels. Although this is a result of the Government not being able to maintain large JobKeeper stimulus in the long term, it is also a contrast to the initial $1500 fortnightly payment which gave Australians a short-lived experience of a more equal society.

To wrap it up…

In a nutshell, there is no real answer to the current state of JobKeeper, nor what it means for the Australian economy down the line. What’s more important from this analysis, however, is the ability to evaluate and discuss JobKeeper as an economic policy. 

It’s also an incredibly current topic — meaning that the events will continue to unfold, and it can be an example that you can continue to apply and learn about until your HSC exams towards the end of the year. 

We hope that you’ve achieved a better understanding of the JobKeeper policy, the benefits and criticisms surrounding it, and a number of perspectives on the changing nature of this current topic! 

Need more support for HSC Economics?

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Terry and Rowan lead our HSC Economics classes at our campus in Hornsby and we’ve got an incredible team of 1 on 1 tutors who can also support you!

To find out more and get started with our HSC Economics classes or one of  our inspirational tutors and mentors get in touch today! 

Give us a ring on 1300 267 888, email us at [email protected] or check us out on Facebook!

Nandini Dhir is a Content Writer at Art of Smart and is currently studying a Bachelor of Arts (majoring in Marketing) and a Bachelor of Advanced Studies (Media and Communications), as a Dalyell Scholar, at Sydney University. She enjoys covering local issues in her area and writing about current events in the media. Nandini has had one of her pieces published in an article with the Sydney Morning Herald. In her free time, Nandini loves doing calligraphy, ballet, and sewing, or is otherwise found coddling her cats.   

 

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