boosting JobSeeker wouldn't keep Australians away from paid work
- Written by Jeff Borland, Professor of Economics, University of Melbourne
Incentives, the Freakonomics author Steven Levitt once quipped, are the “cornerstone of modern life”. To this I would add: only if the incentive is big enough.
In Australia at present there is considerable support for increasing the JobSeeker unemployment payment by a significant amount to make up for decades in which it has fallen relative to wages and other payments.
Opponents say an increase might adversely affect incentives to search for and take up paid work.
I have reviewed this claim in recent research and find even a substantial increase in JobSeeker wouldn’t be big enough to make a difference.
If JobSeeker was to climb A$125 per week from $282.85 to $407.85, it would still be only a little more than half the national minimum wage.
The increase would leave JobSeeker recipients at the very bottom of the distribution of earnings of full-time adult workers – the bottom percentile. This means 99 out of every 100 full-time jobs would pay more.
Read more: Top economists want JobSeeker boosted by $100+ per week and tied to wages
A higher JobSeeker payment of $125 per week could also preserve a significant financial incentive for recipients to take on extra days of paid work.
Under the current income test, the marginal gain from working an extra day at the minimum wage would range from $93 (for the first day) to $34 (third day).
Under a better income test the gain could be smoothed across the week.
The real-life experiment
We have just had a real-life experiment that has told us what happens to incentives to shift into paid work when JobSeeker is nearly doubled.
The payment was almost doubled between March and September 2020, being boosted by a coronavirus supplement of $275 per week.
JobSeeker vs age pension
- ^ cornerstone of modern life (www.encyclopedia.com)
- ^ significant amount (theconversation.com)
- ^ adversely affect incentives (www.theguardian.com)
- ^ recent research (cdn.theconversation.com)
- ^ Top economists want JobSeeker boosted by $100+ per week and tied to wages (theconversation.com)
- ^ smoothed (theconversation.com)
- ^ Source: Ben Phillips ANU, Services Australia (www.servicesaustralia.gov.au)
- ^ ABS Labour Force, Borland (cdn.theconversation.com)
- ^ 'If JobSeeker was cut, the unemployed would be picking fruit'? Why that's not true (theconversation.com)
- ^ review of Australia (cdn.theconversation.com)
Authors: Jeff Borland, Professor of Economics, University of Melbourne
Read more https://theconversation.com/new-finding-boosting-jobseeker-wouldnt-keep-australians-away-from-paid-work-150454