A bunch of topics are guaranteed to divide politicians in Australia. One of them is whether JobSeeker — the payment received by unemployed people — should be increased.
For the centre-left (Labor), increasing JobSeeker helps the less fortunate and reduces poverty. For the centre-right (Liberal), increasing JobSeeker can hurt the incentive to work and can fuel welfare dependency.
The political extremes go further. For the far-left (The Greens), welfare shouldn’t just be increased; everyone should get a welfare payment in the form of a universal basic income or living wage. For the far right (One Nation), JobSeeker should be reduced, if not abolished. Its recipients — those lazy undesirables who spend the money on booze, gambling and cigarettes — should be forced to get a job.
Who’s right?
The debate around JobSeeker is riddled with tired old myths that can be easily debunked with modern datasets. But there are also new arguments that raise genuine questions.
Would increasing JobSeeker fuel inflation and worsen our cost-of-living challenges? What do the big climate, technology and demographic transitions mean for how we think about JobSeeker?
Luckily, taken together, all these considerations point in the same direction: JobSeeker is grossly inadequate. It needs to be increased.
Let’s start with the myth busting.
The first myth is that the recipients of JobSeeker waste the money they receive. We’re fortunate that Australia tested this theory through a natural experiment during Covid-19, when the Morrison government temporarily doubled the JobSeeker payment.
Did people spend the money on alcohol, gambling and cigarettes? No. When my colleagues and I used anonymised bank transactions data to see exactly how JobSeeker recipients spent the extra money, we found that it went on groceries, not gambling; on paying rent, not buying alcohol; and on paying down debt, not buying cigarettes.
The second myth is about who receives the JobSeeker payment. The narrative on the far right is that unemployed people are lazy city-dwellers: young men who are too busy playing computer games to get a job. But the data shows that the typical recipient of JobSeeker is a woman, middle-aged, who lives a regional community.
Is she a lazy? Hardly. Pre-Covid analysis from Treasury found that two-thirds of people on JobSeeker find a new job within twelve months. The payment is exactly what it is meant to be: a temporary safety net.
The third myth is about how much the program costs. Politicians whip up fear around the cost of the JobSeeker program. Some have gone as far as suggesting they could balance the budget by cutting it.
This isn’t just bad economics, it’s bad maths. The age pension costs more than three times the amount spent on JobSeeker. If JobSeeker were scrapped altogether, we still wouldn’t come close to closing the deficit. And Australia is already below the OECD average on welfare expenditure as a proportion of GDP.
The fourth and related myth is that the payment is already generous. The reality couldn’t be further from the truth.
By Australia’s own definition of poverty, the JobSeeker payment puts people below the poverty line. Not only that, but it’s getting worse. ANU economists found that the poverty gap for people on JobSeeker — the absolute difference between a household’s income and the poverty line — increased fivefold between 1993 and 2017. JobSeeker is not only not generous, it’s also getting less generous with each day that passes.
The final myth is that JobSeeker kills work incentives. It’s a myth because those incentives aren’t set in stone: they are shaped by how we design the program, how it interacts with other welfare payments and how it interacts with the tax system and the minimum wage.
All these interactions combine to create what economists call an “effective marginal tax rate.” It works like this: if I work more hours, I pay more tax. But I also lose my welfare payment, and sometimes I lose multiple payments that often phase out at different rates.
When you combine these interactions, the effective tax rate for working extra hours can sometimes exceed 130 per cent, meaning you actually lose money by working more.
Pause for a moment and reflect on the fact that, as a country, we often demonise people on JobSeeker for not working more while, at times, financially penalising them for doing so. It’s not the unemployment benefits that are the problem. It’s the people who design them.
Does debunking all these myths make any difference? Probably not. They are driven by ideology, not information. It doesn’t matter how many times we shoot these zombies, they will keep getting up.
But some new arguments and new issues do deserve serious consideration.
The big one on everyone’s mind is the cost of living. Giving more money to households might help ease cost-of-living pressures, but won’t it also fuel inflation, the thing causing those pressures in the first place?
JobSeeker has a trick up its sleeve. JobSeeker is what economists call an “automatic stabiliser”: a mechanism that expands government spending when the economy is weak and contracts government spending when the economy is running hot.
Total JobSeeker spending by the government increases when the economy is weak (since unemployment is high) and decreases when the economy is strong (since unemployment is low). This means that when the economy is strong and inflation high, JobSeeker spending automatically reduces for the simple reason that there are fewer unemployed people. Put simply, the outlays automatically adjust to the inflation environment.
The other issue to think about is what climate adaptation, technology change and demographic change mean for JobSeeker. These three transitions have the same thing in common: they will require more people than usual to change jobs. If people are supported to change jobs quickly and easily, the overall cost is small. If people aren’t supported, the costs will be much higher.
Much like during Covid-19, increased demand for JobSeeker will put a spotlight on its inadequacies. Its current problems — that it’s below the poverty rate, indexed at too low a rate (unlike the pension, it’s linked to wages rather than inflation) and poorly aligned with the tax system and other welfare payments — will become problematic very quickly.
A rethink is required. The first step is to increase the JobSeeker payment. All of the above considerations push in that direction.
The next step is to think about its adequacy in a world of big transitions, and make sure it helps people displaced find new jobs, new careers, even new locations to minimise the social and economic cost of change.
These are serious issues. They require serious thinking from serious people. It’s not the time for myths and ideology. It’s time to increase JobSeeker. •
