The adult unemployment benefit in Australia should be immediately increased by $A200 per week

At present, the Australian Parliament is debating whether the unemployment benefit (called Newstart) should be increased. The conservative government is refusing to budge claiming it prefers to create jobs and get people of benefits – arguing that it will generate 1.25 million jobs over the next 5 years. The Opposition Labor Party are attacking them for being mean but are just rehearsing the massive hypocrisy that has defined that party since it became a voice for the ‘neoliberal lite’ path. Every time the Labor Party spokespersons criticise the Government for not bringing unemployment benefits above the poverty line, Australians should remember that when they were in office the Labor Ministers ran the same line – they wanted to move people into jobs and would not compromise their obsessive pursuit of a fiscal surplus. Same logic. Disgusting and dishonest then. As it is now. The fact is that the successive governments have forced the unemployed to remain jobless (through austerity policies) and then increasingly plunge into deeper poverty (by refusing to increase the income support level in line with movements in poverty lines). In this blog post, I show that even if the 1.25 million pledge is achieved (and there are reasons why they might struggle to achieve it), there would be thousands of workers remaining in a jobless state by June 2024. This denies the Government’s claim that the pledge will eliminate the need to increase the unemployment benefit. Given that the current policy mix is likely to force thousands to remain in elevated levels of unemployment, the unemployment benefit should be increased, immediately, by more than $A200 per week, in the first instance, for a single adult. And then the government should introduce a Job Guarantee to allow workers to transit from joblessness to work at a decent, socially inclusive minimum wage (well above the revised unemployment benefit level). That would be the responsible thing for government to do in this regard. I am not holding my breath.

Previous relevant blog posts

I have consistently written out the state of poverty that the government deliberately forces onto the unemployed – see these blog posts among others:

1. Why are we so mean to the unemployed? (September 23, 2009).

2. The plight of the unemployed – under growth and decay (November 16, 2010).

3. Our pathological meanness to the unemployed is just bad economics (February 15, 2012).

4. Fat cat bankster wants to make the unemployed even more desperate (August 23, 2012).

5. The indecent inconsistency of the neo-liberals (April 30, 2013).

6. Framing matters – the unemployed and the farmers (August 7, 2018).

7. ‘Progressive’ groups in Australia captured by neoliberal ideology (September 18, 2018).

8. The Australian Labor Party is still stuck in its neoliberal denial stage (December 18, 2018).

Current debate

At present, the Australian Parliament is debating whether the Newstart (unemployment benefit) allowance should be increased. The current conservative government is refusing to provide any discretionary increase above the semi-annual CPI indexation increments.

It does not want to ‘jeopardise’ its pursuit of a fiscal surplus.

Whether a fiscal surplus is recorded is moot – the pursuit involves various austerity measures, including deliberately maintaining elevated levels of unemployment, and, then, deliberately ensuring the unemployed are forced to live in increasing poverty.

Welcome to Australia – supposedly, the land of the fair go (or at least that is the mantra that gets rammed down our throats by the spin machines).

The evidence is clear (see below) – the allowance is at least $A150 per week for a single adult below what it would need to be just to lift the person to the relevant poverty line.

The Opposition Labor Party is currently trying to make a political issue of the Government’s reluctance to budge on this issue and wedge the Government.

In doing that they are demonstrating they are hypocrites of the highest order.

The Labor Party has serious lead in its boots.

When they were in government last, they were faced with the same issue and refused to increase the unemployment benefit to keep pace with poverty line measures or average weekly earnings.

The Treasurer of the day claimed he was about creating jobs as he obsessed with pursuing a fiscal surplus. He ultimately failed and just maintained elevated levels of unemployment.

When they were in government, the Families Minister defended the Labor Government’s refusal to increase the unemployment benefit by claiming that she could live on the then $A35 per day unemployment payment.

And when that outrageous comment brought public censure, her office edited out that part of the interview from the official transcript ((Source).

The question she was asked:

Q: Could you live off the dole?

A: I could.

In the official transcript this was deleted and, instead, the wording read “inaudible”. Her office even went as far as claiming that the answer was fuzzy because of a “revving car” in the background.

Just prior to those comments, the Labor government had indicated as part of their mindless and obsessive pursuit of a fiscal surplus in 2012, at a time when unemployment was persisting at elevated levels, that it was planning to push single mothers of the higher parenting allowance onto the lower unemployment benefit once their children reached the age of eight – “to save hundreds of millions of dollars” (Source).

In 2012, the then Employment and Workplace Relations Minister (who would become the failed leader) Bill Shorten told Australians in relation to calls from a diversity of people that the Labor government had:

… got the balance about right particularly when delivering a surplus and continuing our strong economic management.

And the Labor Party hasn’t changed despite its current opportunistic attacks on the current conservative Government that is also refusing to lift the unemployment benefit.

In the lead-up to the May 2019 Federal election, the Labor party repeatedly dodged the question as to whether they would increase unemployment benefits if they won office.

There was a lot of mumbling about having an inquiry – the usual diversion tactic.

So it is shameful that the Labor Party is now demanding the government act on this travesty.

Summary state of play – Real Cuts in Unemployment Benefits

The summary of the current state is as follows.

The Newstart Allowance (unemployment benefit) is adjusted every March and September and the increments are indexed to the CPI movements.

The last time that a federal government provided a discretionary increase above the CPI (that is, a real increase) was in March 1994.

Yes, you read that correctly.

In 1997, the government sensing a backlash from the ‘grey’ community formally indexed all aged pensions to movements in average earnings rather than the CPI.

Even the CPI indexing of the unemployment benefit fails to maintain real values because the CPI is an imperfect measure of the price pressures the specific cohort that lives on unemployment benefits faces. The CPI is too general.

The Australian Bureau of Statistics (since 2009) publishes its – Selected Living Cost Indexes – which:

… are designed to measure the impact of price change on the disposable incomes of selected household types. The four household types that have been identified as being appropriate for the construction of these living cost indexes are employee households, age pensioner households, other government transfer recipient households, and self-funded retiree households.

The following facts apply:

1. From the June-quarter 1998 to the June-quarter 2019, the real value of the single adult Newstart allowance has risen by 1.48 per cent using the CPI as the price index.

2. Using the Selected Living Cost Indexes data (and specifically the cost index series applying to government income support recipients, the real value of the single adult Newstart allowance has fallen by 3.4 per cent.

As well as enduring this real cut in the payment, the Newstart allowance has increasingly fallen below the poverty line.

Summary state of play – Divergence with other workers

By only increasing the Newstart allowance by cost-of-living indexes, the unemployment are unable to share in the general increase in material prosperity for the Nation afforded by productivity growth.

This means that the growth in payments the unemployed receive from the Federal government have increasingly diverged from those received by the average worker.

The following graph shows the comparison since the December-quarter 2007 (the highpoint of the last cycle) between average weekly earnings (AWE) and single adult Newstart allowance.

These indexes are expressed in real terms – with the two income streams being deflated by the relevant selective cost of living index provided by the ABS.

Over the period shown, real AWE has increased by 8.4 per cent whereas real Newstart payments have declined (as noted above) by around 3.4 per cent.

And real AWE have lagged well behind general labour productivity growth over this period and have been essentially static since 2012.

Summary state of play – Divergence with poverty line

You can find rather detailed analysis of the Australian poverty line from the Melbourne Institute.

Their work on this issue dates back to the early 1970s when the Institute was known as the Institute of Applied Economic and Social Research (University of Melbourne) under the direction of the great economist Ronald Henderson who pioneered the development of poverty line estimate and conducted the famous Poverty Inquiry which released the first estimate for the December quarter 1973.

The following graph shows the evolution of the Single Unemployment Benefit and the Single Unemployed Poverty Line since 1973 until March-quarter 2019 (the latest observation).

The facts are:

1. The single unemployment benefit stands at $39.69 per day which is well below any reasonable estimate of the poverty line in Australia (for singles at $A61.34 per day).

2. For married couples the unemployment benefit is currently at $71.96 per day, while the corresponding poverty line is set at $86.89 per day.

3. The single unemployment benefit is now $A151.55 per week below the poverty line.

4. Whether one is single or in a couple, once accommodation is paid for, there is not very much left of the unemployment benefit income.

Note the divergence between the unemployment benefit and the poverty line began in the early 1980s, when the neoliberal mantra about fiscal surpluses really took hold in Australia.

The deviation started around 1981-82 when the Australian economy experienced a major recession (at that time, the worst since the Great Depression).

The then conservative government was under massive political pressure as the fiscal deficit rose via the automatic stabilisers and instead of meeting the challenge of recession by actively attempting to stimulate aggregate demand, they tried to claim that fiscal austerity was the way forward.

Undermining the generosity of the unemployment benefits was one manifestation of this mania. They lost office in 1983 and the newly installed Labor government set about providing some relief for unemployment benefit recipients. It still remained a fact that the single unemployment benefit was close to (just below) the poverty line.

The next major recession, worse than the 1982 downturn, occurred in 1991-92 under that same Labour government and their response to the cyclical downturn was poor. By then they were completely obsessed with achieving fiscal surpluses and failed to stimulate the economy quickly and sufficiently enough to prevent a major deterioration in the labour market.

But their response to the recession from the perspective of the unemployment benefit recipient was appalling. You can see from the graph and a major divergence between the single adult unemployment benefit and the estimated poverty line began during this recession and there’s been no resolution to that since.

Both sides of politics share the narrative that increasing the benefit payment would ‘cost billions’ and jeopardise fiscal surplus targets.

They also increasingly ran the line that they were ‘creating’ jobs and that they were thus about moving the unemployed out of the dole queue into paid unemployment – with the implication that we no longer had to worry about the levels of the unemployment benefits.

The so-called jobs bonanza

To divert attention away from the socio-pathological policy position on unemployment benefits, the Government (and the previous Labor government) claim they are focused on expanding jobs as the solution to the enforced poverty faced by the unemployed.

In its election platform (for the May 18, 2019 vote), the current government pledged (Source):

Create another 1.25 million jobs over the next five years, including 250,000 new jobs for young Australians … We know that work offers opportunity. We are committed to job creation. That is why a re-elected Morrison Government will create another 1.25 million jobs over the next five years. We will do this by building a stronger economy and supporting businesses to start and to grow.

I am always amused when I read these sorts of pledges.

When the conservatives are asked to take a more stimulative role in the economy they claim that only the private sector creates jobs.

But when they are trying to win election, the same characters claim they will create X thousand jobs.

And the voters don’t see through the scam.

The second point to note is that the Government’s current projections of how many jobs “it will create” are overly optimistic.

There is now evidence that a severe downturn is about to hit the construction sector, which is like a canary for the rest of the economy.

With the downturn in residential building approvals ongoing, builders are facing major losses and there are estimates that at least 100,000 jobs will be lost in that sector alone (Source).

The last national accounts data showed that in the March-quarter the economy was grinding to a halt.

So the pledge is probably on the optimistic side.

The question though is this: Will 1.25 million jobs significantly reduce the unemployment pool such that the remaining unemployed will be of a short-term, transitory nature?

The intent of the question is that then the heat on the Newstart allowance issue would be reduced.

To answer that question, I did some simulations, using various demographic parameters (fertility rates, net migration rates, participation rates, etc) to estimate how many unemployed there might be in June 2024 if the economy actually did add an addition 1.25 million jobs.

The exercise clearly depends on assumptions but what follows deploys very conservative and modest assumptions – in other words, the conclusions I reach are unlikely to be controversially dependent on outlying or stretched assumptions about labour market behaviour.

We have to project the Working Age Population out to June 2024, make assumptions about the participation rate and then some.

The ABS produce – Population Projections, Australia, 2017 (base) – 2066 – using three different scenarios:

1. Series A – high fertility rate, high net overseas migration – which generates an average annual population growth rate of 1.4 per cent.

2. Series B – medium assumptions – 1.1 per cent average annual growth rate.

3. Series C – low assumptions – 0.9 per cent average annual growth rate.

We know that:

In the 10 years to 30 June 2017, Australia’s population increased by 1.7% per year on average.

The high growth assumption of 1.4 per cent is predicated on the ageing of the population and the declining fertility rates.

However, this impact is unlikely to affect the rate of increase over the next five years in any significant way.

Up to 2027, the ABS thinks the population growth rate will be 1.4 per cent (series C), 1.6 per cent (series B) and 1.8 per cent (series A).

The latest estimate of the fertility rate (2017) was 1.74 babies per woman (Source) which is between series B and C.

In 2018, net migration amounted to 237,200 extra persons, which is between the assumptions of series A and B (Source).

Most researchers consider Series B to be the most realistic, although there is evidence that it systematically understates the underlying population growth rates.
Of course, growth in the overall population is not the same thing as growth in the Working Age Population (over 15 years) because there can be shifts in the demographic shares of different age groups.

I computed the growth rates of the WAP for Series A, B and C based on the ABS projections.

I found the average annual rate of growth between June 2019 and June 2024 to be:

1. Series A – 1.78 per cent.

2. Series B – 1.70 per cent.

3. Series C – 1.59 per cent.

Based on actual Labour Force data, the growth rate in the WAP between January 2000 and June 2019 was 1.65 per cent.

I thus modelled all four growth rates to test the sensitivity (range) of the estimated labour force aggregates that would arise if employment rose by 1.25 million between June 2019 and June 2024

My assumptions:

1. As above, I used four different scenarios for WAP growth between June 2019 and June 2024.

2. The participation rate equals 66 per cent, which was the June 2019 value. It might rise a bit should the 1.25 million jobs emerge over the five-year period but that just means my results will understate the persistence of the unemployment.

3. Employment rises by 1.25 million between June 2019 and June 2024. This, of course, is net employment change. In practice , to generate a net outcome of 1.25 million many more jobs would have to be created given the millions that would also be destroyed over the period.

The following table shows the results of the simulations:

1. In February 2008, the unemployment rate was just under 4 per cent and there were 441.6 thousand people unemployed (and underemployment was 5.9 per cent comprising 655.5 thousand persons).

2. In June 2019, the unemployment rate was just under 5.2 per cent and there were 711.5 thousand people unemployed (and underemployment was 8.2 per cent comprising 1112.3 thousand persons).

3. The Simulation Table shows that even if there are 1.25 million net jobs added to total employment between June 2019 and June 2024, unemployment would remain high under all scenarios.

• Scenario A – 729 thousand
• Scenario A – 670 thousand
• Scenario A – 589 thousand
• Scenario A – 633 thousand

4. So the 1.25 million jobs pledge does not get the economy back to where it was at the peak of the previous cycle (February 2008) when the unemployment rate was at 4 per cent (but still well above the full employment rate).

5. Underemployment would remain high in 2024 because the employment growth implied by the 1.25 million jobs would not be sufficient to ensure there was high pressure in the labour market which would force employers to offer more hours to their existing workforce.

The only conclusion we can draw is that the 1.25 million pledge does not reduce the unemployment pool to those moving between jobs when the ABS Labour Force survey is being conducted – the so-called frictional unemployed.

There would still be a significant – thousands – of workers in a state of unemployment because the rate of spending growth in the economy was too low.

Therefore the 1.25 million jobs pledge is not a justifiable reason (even if achieved) to claim that there is no need to elevate the unemployment benefit.

Even if the pledge is achieved, thousands of workers will endure a life in increasing poverty and hopelessness.

Conclusion

The unemployment benefit should be increased immediately by more than $A200 per week, in the first instance, for a single adult.

And then the government should introduce a Job Guarantee to allow workers to transit from joblessness to work at a decent, socially inclusive minimum wage (well above the revised unemployment benefit level).

That would be the responsible thing for government to do in this regard.

I won’t be holding my breath.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.