Articles – The Centre for Independent Studies

Requiem for JobKeeper: a policy that had to end

Simon Cowan, Robert Carling

27 March 2021 | Canberra Times

JobKeeper was a subsidy to businesses whose turnover shrank by a specified percentage as an incentive to keep employees on the books – whether or not they had any work to do.

The government was adamant the program introduced during the height of the initial lockdown would be strictly temporary and has finally stuck to its word, despite having extended the program for six months beyond the original end date of 28 September. The financial cost looks like being around $90 billion. To put this into perspective, it is two or three times what the federal government will spend this year on defence, or on income support for seniors, or on medical benefits.

But to point out that JobKeeper has been massively expensive is not necessarily to condemn it. At least not in its entirety. There are arguments for and against the policy.

Millions of employer-employee relationships that might otherwise have dissolved were kept intact for a period of enforced hibernation of large swathes of the private sector.

Jobkeeper made it easier for employers and employees to pick up where they left off and has limited the longer-term scarring that happens when employees lose touch with the labour market, find it difficult to re-enter and see their skills decay.

Jobkeeper also tempered some of the opposition to COVID restrictions driven by businesses and individuals who would have borne the full cost of government shutting down the economy for months on end.

This opposition, in the United States for example, has hampered efforts to combat coronavirus.

And had it not been invented, there would have been some alternative additional outlays by government, such as on JobSeeker; though surely not as much as $90 billion.

These benefits have led many to accept – albeit absent detailed cost-benefit analysis – that the core concept of JobKeeper was appropriate to the unique circumstances of the corona-crisis.

However, the design of the scheme also had serious flaws, some of which were (or should have been) apparent from the beginning. Others have emerged as the economic consequences of COVID unfolded.

First, it was so generous – especially in its original form – that it enabled some employees to be paid more from the public purse than they were being paid in their jobs. It is hard to see a justification for a taxpayer-funded payrise in the midst of a severe recession. However, it’s not just that the excessive design added to the cost. It also distorted the incentives for employers, employees and state governments.

Anecdotes abound of businesses delaying full reopening and employees preferring to remain on JobKeeper even when they had work to go back to. Some employees would have been better off looking for a new job long before the expiration of JobKeeper.

State premiers have surely been more inclined to barricade and shut borders in the knowledge the federal coffers would pick more of the tab than their own state budgets.

Nor was JobKeeper well-targeted. Some businesses that received it didn’t need it at all.

The eligibility test for employers enabled them to qualify for the entire first six months simply by demonstrating an actual or expected decline in turnover in one month or quarter. Given that general economic conditions improved far more rapidly than expected, many firms would not have qualified had they been retested.

This has led to some companies that received JobKeeper also reporting substantial profits, dividends and executive bonuses.

While there is a strong moral case for profitable businesses to return the money to the government, no contingency or provision was written into the legislation to require it.

Given the uncertainty around economic conditions when JobKeeper was introduced – the very rationale for such an open-ended subsidy in the first place – the need for some clawback really should have been foreseeable. It would also have been reasonable and relatively simple to require businesses to assess their continued eligibility on a monthly or quarterly basis, and withdraw from the scheme if things improved.

This lack of forethought is perhaps the defining feature of JobKeeper. We have never seen anything like the program before, and the unseemly rush to introduce something – anything – to combat the supposedly looming economic disaster meant there was certainly little or no ex-ante analysis of the merits of the policy.

In retrospect, important questions must be answered. How much did it cost; was it well-designed; was its objective the right one and did it achieve it; did the benefits justify the costs; should it have been terminated earlier; and should it or something like it be a policy option in the future?

Such questions should be answered in a rigorous ex-post review by an agency such as the National Audit Office or the Productivity Commission. However, there is no question it was time for JobKeeper to end. The cost of its flaws and distortions was bound to grow the longer it remained in place.

It was thrown together in an emergency that seems now to have passed, given the remarkable labour market recovery confirmed just last week by the February fall in unemployment to below 6 per cent.

The reality is there are zombie businesses and jobs that have no future but were kept going mainly by JobKeeper. Removing JobKeeper, while perhaps painful in the short-term, will enable them to find more productive alternative uses.

Treasury estimates suggest 100,000 to 150,000 jobs could be lost in coming months once JobKeeper ends, but this must be kept in perspective. First, this represents just 1 per cent of the labour force.

Second, the job market (which added 89,000 jobs in February) appears strong enough to absorb the shock.

As for the future, while a scheme like JobKeeper may have been fit for purpose in the unique circumstances of 2020, there is no place for it in a normal recession, let alone as a permanent feature.

Suggestions JobKeeper should be the foundation stone of a guaranteed minimum income or universal basic income scheme are fanciful. JobKeeper has made clear both the financial costs and economic distortions of such universal schemes.

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