Unemployed in Australia forced to live in abject poverty and the business sector thinks that is fine

Last week (February 1, 2021), the Australian Chamber of Commerce and Industry, which represents the business lobby, demanded the Australian government cut the unemployment benefit back to less than $A40 per day but at the same time it also demanded the Government extend wage subsidies to businesses. It is repugnant that the business culture in Australia is so impoverished, that the key business lobby group wants unemployed workers who cannot get a job because there are not enough jobs on offer to be forced to live at income support levels that are well below conventional poverty lines. But, at the same time, it supports businesses putting their own hands out to government for more. It is also stupid. They don’t seem to realise that providing an environment for strong wages growth produces the best conditions for profits. Yet these characters just want to accelerate the ‘race to the bottom’ which is a self-defeating strategy.

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).

9. The adult unemployment benefit in Australia should be immediately increased by $A200 per week (August 1, 2019).

You can see it is an issue that has been solved and the failure to do justice by the unemployed has been a cancer on Australian society for years.

I should also say that I would rather us never have to discuss this topic because the government had seen the light and introduced a Job Guarantee that would eliminate involuntary unemployment.

But for now that is not the case.

Current Debate

The Government has claimed it will return the JobSeeker payment to the base rate as it abandons the special COVID-19 Supplement.

As I show below this would plunge the recipients further below the poverty line that they are currently at.

And in an environment where the Government is refusing to undertake any job creation programs and predicts the unemployment rate will be at elevated levels for some years to come, it doesn’t make any economic or moral sense for the Supplement not to be made permanent and returned to its March 2020 level, which for the first time in years, saw the unemployed benefit recipient move above the poverty line.

The Reserve Bank governor Philip Lowe made an important speech yesterday (February 3, 2021)- The Year Ahead – at the National Press Club.

He made some disparaging remarks about Modern Monetary Theory (MMT) but I will leave them for now.

His position on the JobSeeker payment is the relevant matter in today’s blog post.

He said:

There is still very substantial spare capacity in the Australian economy. The unemployment rate is higher today than it has been for almost 2 decades and many people can’t get the hours of work they want. And in terms of output, we remain well behind where we thought we would be when I spoke here in February last year … When the National Accounts are published for the December quarter, they are likely to show that the level of GDP is 4 per cent lower than where we thought it would be a year ago. This is a big gap …

Given the spare capacity that currently exists, these low rates of inflation and wage increases are likely to be with us for some time …

Given the RBA is buying billions of government debt by creating currency ‘out of thin air’, which is what he told the Press Club yesterday, this outlook indicates that the central bank doesn’t think there are any connections with inflation.

That separates them from the mainstream economists who haven’t caught up yet.

But he also said that he wanted the JobSeeker payment increased:

It’s not a macroeconomic management issue, it is a fairness issue … As a society, what level of support do we want to provide to people who don’t have a job? And different people legitimately have different views on the level of support stopping … my own view is that some increase is justifiable.

That sets him apart from the Government’s position, which is intent on pushing the payment back to the base level of $A565.70 a fortnight or $A40 odd a day.

Interestingly, the RBA Governor also said the wage subsidy program, JobSeeker should be “wound back” as many businesses are now recovering given the lockdowns have mostly ended.

But, on another planet, the business lobby, represented by its peak body, the Australian Chamber of Commerce and Industry does not think either proposal – increasing the unemployment benefit or ditching the wage subsidy is correct.

In fact, they want the reverse.

In its – Pre-Budget Submission 2021-22 – which is their lobbying document for what they want out of the Federal government in the upcoming fiscal statement, the Chamber outlined a swathe of corporate welfare measures that they want their membership to enjoy.

They want more wage subsidy support from Government, reduced protections for workers (which they call “IR flexibilities retained”), reductions in taxes for business, more government handouts for business to do R&D (clearly this cannot come out of retained earnings – that would be a stretch!), more deregulation so that development processes are pitched in favour of businesses (meaning against community) and more.

The most indecent part of their lobbying is that they want the JobSeeker payment to return to the base level for the majority of the unemployed.

Their reasoning for keeping unemployed workers to survive in abject poverty:

It is critical to get the balance right between the needs of the unemployed, the fiscal impact on the economy and the appropriate rate that incentivises those who are able, to get a job …

The same old arguments.

Apparently, in an environment where there is a massive shortfall in jobs, keeping the victims of that shortfall in abject poverty is the way to give them hope and “incentivise” them.

The RBA governor is correct on this front.

It is a moral assault to advocate maintaining the unemployment benefit at these levels.

They should be at least $A200 per week higher and that would only just push the recipient over the poverty line.

It is also stupid from an economic perspective.

This cohort has a marginal propensity to consume of 100 per cent (that is, ever extra dollar they receive is spent).

That spending boost goes into small and other businesses, exactly the cohort the Chamber alleges to represent.

I am sure they have never done proper modelling to show that keeping the unemployment benefit at below-poverty line levels is good overall spending.

Once again they fall into the fallacy of composition that only sees one side of the picture.

Current situation with respect to the Poverty Line

In Australia, the Federal government pays a flat rate (with sliding payments for family structure) unemployment benefit to anyone who satisfies the criteria.

It is not a contributory insurance scheme as in other nations and the income support is not tied to one’s wage or salary.

The current program is called JobSeeker and the following details apply:

1. The single adult rate at present is $A565.70 per fortnight, while the married rate (each person) is $A510.80 per fortnight.

2. At present, there is a $A150 per fortnight supplement for COVID-19 being paid, which will expire on March 31, 2021.

3. On March 23, 2020, the Government announced a $A550 per fortnight supplement, which they cut to $A250 per fortnight on September 25, 2020. That was further cut under point 2 on January 1, 2021.

As I have documented in the blog posts above there has been a growing controversy in Australia as to the viability of the income support system from the perspective of the worker receiving the payment.

It is clear that the payments have been increasingly below the 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 $40.48 per day which is well below any reasonable estimate of the poverty line in Australia (for singles at $A66.60 per day).

2. For married couples the unemployment benefit is currently at $72.97 per day, while the corresponding poverty line is set at $94.349 per day.

3. The single unemployment benefit is now $A182.86 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 and engaging in job creation programs, 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 Labor 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.

What about the temporary COVID-19 Supplement

The following graph take into account the temporary COVID-19 supplement mentioned above as it impacted on single adult unemployed persons. It shows the data from the March-quarter 2019 in order to see the impact of the supplement more clearly.

You will note that for the first period of the Supplement the income support payment (green) moved above the poverty line (red).

But when that was cut in September to $A250 per fortnight the income support payment plus COVID-19 supplement once again pushed workers below the poverty line.

As of January 1, 2021, that situation has worsened even further and by the end of March 2021, workers will be back on the blue line.

Summary state of play – Real Cuts in Unemployment Benefits

The summary of the current state is as follows.

The JobSeeker 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 December-quarter 2020, the real value of the single adult JobSeeker allowance has risen by 1.37 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 JobSeeker allowance has fallen by 3.79 per cent.

Summary state of play – Divergence with other workers

By only increasing the JobSeeker allowance by CPI 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 JobSeeker 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 17.6 per cent whereas real JobSeeker payments have declined (as noted above) by around 3.2 per cent.

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

Conclusion

The comments by the RBA governor on JobSeeker payments have really wedged the Government.

They will abandon the supplement and return the payment to base levels in April at their peril.

And, where is the Labor Party on all this – largely silent as usual. Unelectable.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved