What happens after JobKeeper ends?

Economy

Mar 10, 2021

Image: Courtesy ABC

While the labour market has almost completely rebounded, the employments prospects for some groups of workers are much bleaker than before the pandemic hit, while several industries are also lagging in regaining the lost jobs. These situations require a specific policy solution, not just on the basis of equity but also efficiency.

Just eight months after the largest fall in employment since the Great Depression, the Australian labour market had almost completely rebounded in January 2021. The share of the population in employment, which had fallen from 62.4 per cent to 58.2 per cent, was back to just half a percentage point below its level prior to Covid-19.

The main visible storm cloud on the horizon to disrupt recovery is when JobKeeper terminates at the end of this month. When that happens, employment seems likely to go backwards. Businesses still affected by Covid-19 will have to lay off workers. As well, the retrenchments that JobKeeper may have suppressed during 2020 will now happen once the scheme finishes.

The lack of data makes forecasting the fall in employment that will come with the end of JobKeeper difficult. But in recent work, I attempted this, suggesting that a plausible range might be 125,000 to 250,000 persons. A subsequent update – that the number of workers covered by JobKeeper is likely to fall to 1.1 million in the March quarter (from 1.55 million at the start of December) – gives hope that the extent of employment loss will be at the bottom of my range. So long as it falls within the range, ongoing employment growth will relatively quickly reverse the loss – the setback should last just a few months rather than be a major reversal.

Recovery, however, is not happening at the same pace everywhere in the labour market. Employment prospects for some groups of workers are still much worse than prior to Covid-19. And several industries are lagging in regaining the jobs lost in the initial months of the pandemic.

So far, Covid-19 has had the longest-lasting effect on the young. The share of young people in employment has stalled at about 2 percentage points below March 2020, whereas the proportion of persons aged 65 and above in employment has increased. Increasingly apparent is that the impact on the young is entirely concentrated on those who have left full-time study, especially with lower levels of qualifications in full-time jobs.

This year may also mark the start of a rise in long-term unemployment due to the Covid-19 recession. In the month to January, the proportion of unemployed who had been out of work for 12 months or more grew from 21.7 to 24.7 per cent. As usually happens, workers with lower levels of education are likely to constitute a disproportionate share of any increase in long-term unemployment. Data from the ABS Characteristics of Employment Survey show that employment of workers with a Bachelors’ degree or above grew by 5 per cent from 2019 to 2020; yet for those who left high school in year 10 or below employment fell by 9.4 per cent.

The labour market recovery has extended to all industries, but not all have fully recovered. Primarily, the number of jobs in accommodation and food services remains about 10 per cent below what it was before the onset of Covid. In other industries – arts and recreation services, information media and telecommunications and transport, postal and warehousing – the number of jobs has also stayed persistently below a year ago.

The labour market situation – overall recovery but with various groups lagging – indicates the way policy now needs to proceed.

First, while it is the right time to move away from ‘job saver’ mode, ongoing stimulus to promote job creation is needed. The best way to improve employment outcomes for the young and to tackle long-term unemployment is to have a high overall rate of employment growth.

Second, and in addition, we need a policy to target groups of workers still adversely affected by the downturn and the industries lagging in their recovery. The case for such a policy is about efficiency and equity.

Research on the young and long-term unemployed has established potential long-term scarring effects from being out of work during downturns. And provided that the continuing negative impact of Covid-19 on industries such as accommodation and food services remains temporary (for example, demand for international travel will return to previous levels as the pandemic abates), further support allows preservation of existing skills and networks.

When it comes to assisting disadvantaged groups of jobseekers back into employment, we already have well-accepted models for policy. The JobMaker Hiring Credit was a good start at biasing job creation to young people. But it is likely to be necessary to go further:

Jobseekers with high levels of disadvantage tend to have a diverse range of barriers to employment. Hence, tailoring the assistance is important. Governments are not so good at tailoring, but local welfare and not-for-profit service providers are, and many exciting employment-related initiatives are happening. I see major potential gains from getting more government funding to these programs – with, of course, appropriate quality assurance.
Providing a pathway into work that combines vocational training and a work opportunity (or experience) is a critical element of assistance for jobseekers with high barriers to employment. Job placements offer huge benefits to disadvantaged jobseekers. They motivate the building of job readiness and training. The provide a structure to the type of training delivered to the jobseeker; that is, the training is targeted at what is required to prepare for the job placement rather than being generic. Furthermore, through placements, the individual acquires work experience and credibly signal their job readiness. Cadetship type schemes are one pathway.
Assistance for displaced workers to regain employment has not usually been done well in Australia. We get what we pay for. Getting serious about providing this type of support – such as happens with the Trade Adjustment Assistance program in the US – offers the prospect of improved outcomes for displaced workers.

Industry-specific assistance should be tightly targeted at sectors that are clearly still affected by Covid-19 (such as international aviation) but should be time-limited. This is because job losses at the industry-level compared to the start of 2020 may reflect Covid-19, but may also be due to longer-run structural factors – and it is important for Covid-19 not to become a rationale for supporting declining industries. Given the strength of overall recovery, I’d expect the range of industries supported and the size of spending to be quite limited, especially compared to policies such as JobKeeper.

An important question is whether industry assistance should be provided via the demand or supply side (for example, vouchers for travel versus direct support to business). An advantage of demand-side support is that it is more market-based; that is, support is spent in a way that reflects consumer preferences.

But a major problem is that those preferences may be constrained by Covid (for example, international travel). As well, the impact of supply-side support on employment is more certain. Hence, I think the preferred type of industry support is via direct measures to maintain business viability and jobs.