{"id":44812,"date":"2020-04-29T11:59:04","date_gmt":"2020-04-29T01:59:04","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=44812"},"modified":"2020-04-29T11:59:04","modified_gmt":"2020-04-29T01:59:04","slug":"jobkeeper-wage-subsidy-some-strange-arithmetic-is-afoot","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=44812","title":{"rendered":"JobKeeper wage subsidy – some strange arithmetic is afoot"},"content":{"rendered":"

\t\t\t\tIt is Wednesday so music and some snippets. I have updated the US unemployment claims data with a new map and state table. Shocking. We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts. But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government. The current estimates suggest that to create around 685 thousand jobs might require an outlay of $34 billion over the course of a year. That got me thinking. The main response of the Australian government is the $A133 billion over 6 months JobKeeper wage subsidy scheme. The Treasury claims it will be the difference between an unemployment rate of 10 per cent and 15 per cent. That difference is 685 thousand jobs. Then start doing some division and multiplication and you start to see that this doesn’t make sense as I explain below.
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Strange arithmetic – Australia’s JobKeeper wage subsidy<\/h2>\n

We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts.<\/p>\n

After all, as I have said often, the ‘cost’ of a public policy program is not the numbers that come out in government financial statements under ‘outlays’. The cost is the extra real resources that are consumed as a result of the program.<\/p>\n

But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government.<\/p>\n

Well when I started digging things started to look pretty strange.<\/p>\n

Here are some facts:<\/p>\n

1. When the Treasurer announced the JobKeeper initiative on April 14, 2020 – Jobkeeper payment supporting millions of jobs<\/a> – he said:<\/p>\n

\nGiven these actions and the position of economic strength from which we approached the coronavirus crisis Treasury expects the unemployment rate to rise to 10 per cent in the June quarter from 5.1 per cent in the most recent data.<\/p>\n

In the absence of the $130 billion JobKeeper payment, Treasury estimates the unemployment rate would be 5 percentage points higher and would peak at around 15 per cent.<\/p>\n

More than 800,000 businesses have already registered for the JobKeeper payment which will allow the economy to recover more quickly once we are through to the other side of the crisis.\n<\/p><\/blockquote>\n

I was immediately suspicious.<\/p>\n

Why?<\/p>\n

By their own statements, the JobKeeper is the difference between a 10 per cent unemployment rate and a 15 per cent rate.<\/p>\n

5 per cent of the current labour force is equal to 686.8 thousand jobs – not millions.<\/p>\n

But then I thought about it.<\/p>\n

2. The announced injection is $A133 billion.<\/p>\n

The wage subsidy is a $A1,500 fortnightly payment “per eligible employee until 27 September 2020”. Firms have to pass the full amount on per worker and meet all other employment costs outside of the scheme.<\/p>\n

Okay, so each worker gets $A1,500 per fortnight.<\/p>\n

The specifics of who is eligible etc is one thing. I discussed my antagonism to the scheme in this blog post – The government should pay the workers 100 per cent, not rely on wage subsidies<\/a> (March 31 , 2020).<\/p>\n

Those criticisms remain but are not the point I am making here.<\/p>\n

So if the outlay of $A133 billion is to protect 685 thousand jobs, that means $A193,651 per job protected, yet the workers are only getting $750 a week for 6 months.<\/p>\n

A worker receiving the subsidy will get $A18,000 over the course of the scheme as long as the employer keeps them on.<\/p>\n

Okay, that would imply 7,388,889 workers are being funded if the full $A133 billion was taken up. The March 2020 labour force was 13,736.2 thousand.<\/p>\n

Which would mean that the JobKeeper was protecting something around 54 per cent of the labour force.<\/p>\n

Which would mean the Treasury estimates that the JobKeeper would be the difference between a 10 per cent unemployment rate and a 15 per cent rate doesn’t make sense.<\/p>\n

3. Then there are those 800,000 businesses the Treasurer claims have registered. Even if they employed just one person that would be more than 686.8 thousand.<\/p>\n

And if the 7.3 million figure was correct, then they would on average be claiming for 9 workers. That sounds too many.<\/p>\n

4. Then we hear – in Senate Estimates yesterday – that only 540,000 firms have enrolled in the scheme covering 3.3 million workers. See JobKeeper payments start next week, but hundreds of thousands of businesses hit by coronavirus aren’t signed up<\/a>.<\/p>\n

More confounding statistics.<\/p>\n

Conclusion: I have written to Treasury to request their analysis. They have not released it publicly. I am waiting – probably in vain. Next step will be an FOI request. I would expect lots of blacked out sheets from that.<\/p>\n

The points are:<\/p>\n

1. Our Job Guarantee estimates so far, which I will release when we have double-triple and more checked them, suggest that the government needs to invest about $A34 billion to create 685 thousand jobs at minimum wage – which is close to the JobKeeper subsidy.<\/p>\n

$A34 billion is a lot less than $A133 billion.<\/p>\n

If we are right, then something is awfully wrong with the JobKeeper arithmetic and the statements the Treasurer has been making about it.<\/p>\n

2. If businesses are not taking up the JobKeeper program – as today’s reports suggest – then the government will not go close to spending the $A133 billion.<\/p>\n

Which means the stimulus will be much lower than suggested and the consequences will be very bad for Australia.<\/p>\n

As my previous writing on the subject suggest, the stimulus is only about a half of what I think is required.<\/p>\n

The latest data suggests it is even worse than that.<\/p>\n

So I am waiting for the Treasury to enlighten me. As it stands, the $A133 billion figure does not make sense given other statements the Treasury have been making about the scheme.<\/p>\n

US update to April 18, 2020<\/h2>\n

Here is the latest update (as for the week ending April 18, 2020) from the US Department of Labor’s weekly data releases for the unemployment insurance claimants.<\/p>\n

I first started tracking this data for this downturn in my last commentary on the monthly US labour market data release – Tip of the iceberg – the US labour market catastrophe now playing out<\/a> (April 6, 2020).<\/p>\n

The Department of Labor provides an archive of the weekly unemployment insurance claims data back to July 1, 1967 – HERE<\/a>.<\/p>\n

The weekly data can be found in the – UI Weekly Claims Report<\/a>.<\/p>\n

Bringing together the archived data and the most recent release (April 18, 2020), the following table tells the shocking story.<\/p>\n\n\n\n\n\n\n\n\n\n\n
Week ending<\/td>\nInitial Claims (SA)<\/td>\nWeekly Change<\/td>\nCumulative sum since March 7, 2020<\/td>\n<\/tr>\n
March 7, 2020<\/td>\n211,000<\/td>\n-6,000<\/td>\nn\/a<\/td>\n<\/tr>\n
March 14, 2020<\/td>\n282,000<\/td>\n+71,000<\/td>\n282,000<\/td>\n<\/tr>\n
March 21, 2020<\/td>\n3,307,000<\/td>\n+3,025,000<\/td>\n3,589,000<\/td>\n<\/tr>\n
March 28, 2020<\/td>\n6,687,000<\/td>\n+3,560,000<\/td>\n10,456,000<\/td>\n<\/tr>\n
April 4, 2020<\/td>\n6,615,000<\/td>\n-252,000<\/td>\n17,071,000<\/td>\n<\/tr>\n
April 11, 2020<\/td>\n5,237,000<\/td>\n-1,378,000<\/td>\n22,308,000<\/td>\n<\/tr>\n
April 18, 2020<\/td>\n4,427,000<\/td>\n-810,000<\/td>\n26,453,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

If we assume all those new claimants were unemployed then the unemployment level by mid-April would have been around 32,522 thousand which would mean that the unemployment rate would have been 19.9 per cent compared to the BLS March figure (taken up to March 10) of 4.4 per cent.<\/p>\n

So within a month and a bit, the unemployment rate has probably jumped from 4.4 per cent to 20 per cent (give or take).<\/p>\n

That is a shocking deterioration.<\/p>\n

The peak unemployment rate during the Great Depression was 24.9 per cent in 1933, before the New Deal brought it down somewhat.<\/p>\n

The next graph show the full sample to (week-ending April 18, 2020).<\/p>\n

The spike at the end of the graph shows how drastic the situation is in the US.<\/p>\n

This is a quite extraordinary graph.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

Last week, I also provided some spatial analysis – US downturn very harmful to low wage workers and their communities<\/a> (April 14, 2020).<\/p>\n

In the Department of Labor report cited above, we saw there were sharp differences in initial claimants across the US states.<\/p>\n

The next map shows the cumulative sum of unemployment insurance claimants since the end of February 2020, expressed as a percentage of the Working Age Population in each state (Alaska was 11.8 per cent and Hawaii was 16.1 per cent).<\/p>\n

This graph more starkly demonstrates where the loss of jobs is impacting most significantly. You can compare this map with the map I produced last week to see where the virus job losses are having shifting impacts.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

The following Table presents the same data for those who prefer numbers.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

Call for MMTed Support<\/h2>\n

I imagine the current crisis will put a halt on people donating to causes.<\/p>\n

But we are making progress in developing the program that will become – MMTed<\/a>.<\/p>\n

I ran my first Masterclass in London recently and it was well attended. I received good (useful) feedback from several people which will help tune the way we run these face to face classes.<\/p>\n

The planned further Masterclasses (May in Australia, June in Europe, September in the US) are on hold while we assess the state of the world. But I hope we will be able to offer them sometime this year.<\/p>\n

And on-line curricula is being developed.<\/p>\n

But we still need significant sponsors for this venture to ensure that we can run the educational program with negligible fees.<\/p>\n

If you are able to help on an ongoing basis that would be great. But we will also be appreciate of once-off and small donations as your<\/p>\n

You can contribute in one of three two ways:<\/p>\n

1. Via PayPal – which is our preferred vehicle for receiving donations.<\/p>\n

The PayPal donation button is available via the MMTed Home Page<\/a> or via the – Donation button<\/em> – on the right-hand menu of this page (below the calendar).<\/p>\n

2. Direct to MMTed’s Bank Account.<\/p>\n

Please write to me to request account details.<\/p>\n

Please help if you can.<\/p>\n

We cannot make the MMTed project viable on a sustainable basis without funding support.<\/p>\n

We will always maintain strict anonymity with respect to donations received, except if the donor desires to be publicly associated with the venture and gives their permission in writing to appear on the Donors Page.<\/p>\n

Thanks to all who have kindly donated to date.<\/p>\n

An announcement is forthcoming.<\/p>\n

Shuggie Otis – one of my favourites<\/h2>\n

Johnny Otis<\/a> – was one of the great blues, R&B musicians, vibrophone player, keyboard player, drummer, bandleader, composer – he did it all.<\/p>\n

He was referred to as the “Godfather of Rhythm and Blues.” He is credited with ‘discovering’ the marvellous Etta James as a 13-year phenomenon.<\/p>\n

Shuggie Otis<\/a> – was one of his sons and also does it all. In the early 1970s he put out three wonderful albums, which most people will never have heard but are among my real favourites and are on my iPhone wherever I go.<\/p>\n

As it goes, the music press called him the ‘heir’ to Jimi Hendrix. His guitar playing was phenomenal, which is where I became interested in his work in the early 1970s.<\/p>\n

He was to be the gap between Stevie Wonder and Prince. The Rolling Stones invited him to join to replace Brian Jones.<\/p>\n

In addition to putting out his own albums, upon which he played most of the instruments, he also played (as a teenager) on Kooper Session<\/a> – with Al Kooper and – Hot Rats<\/a> – with Frank Zappa.<\/p>\n

His most famous song – Strawberry Letter 23<\/a> – was on his second album – Freedom Flight<\/a> (1971) – was a bit hit for – The Brothers Johnson<\/a> and produced by Quincy Jones. Here is a link<\/a> to remind you what was happening in 1977 as disco started taking over. Obviously, I preferred the original.<\/p>\n

Shuggie Otis’s third album is the best in my view – Inspiration Information<\/a> – and it was released in 1974. A short album (31:38) but full of classics.<\/p>\n

This is a great song from that album – Aht Uh Mi Hed<\/em>.<\/p>\n