Treasurer Josh Frydenberg has pulled a swifty – his release of Treasury forecasts shows that the $130 billion JobKeeper stimulus measure was as much to do with quirks on how the Australian Bureau of Statistics measures unemployment than genuinely protecting the labour market and the number of hours people actually worked.
To be sure, the policy response is a useful and important step in the path to limit some of the problems in the economy as the coronavirus is contained, but it is what Mr Frydenberg does not reveal in the Treasury forecasts that is enlightening.
According to Mr Frydenberg, Treasury research shows that without the JobKeeper payment, the unemployment rate was heading to around 15 per cent, a shockingly bad result as the economy spirals into recession.
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With the JobKeeper payment, which pays employers a subsidy to pay some of their workers $750 a week even if they work zero hours, the Treasury is forecasting the unemployment rate to peak at just 10 per cent, a whopping 5 percentage points lower than the ‘no policy change’ forecast.
At face value, this is great news.
But it is a remarkably misleading portrayal of the state of the economy and labour market. This is because many of those 5 per cent who are not measured as ‘unemployed’ will be working zero hours as their employers shut up shop and ride out the impact of the virus.
Mr Frydenberg has not released labour market forecasts on the peak number of people underemployed nor the slump in hours worked in the economy, both of which are the bedrock of understanding the health of the labour market.
Underemployment is a measure the ABS calculates based on people who are counted as employed but would prefer to work more hours.
The JobKeeper payment moves a large number of people from ‘unemployed’ to ‘underemployed’, a definitional issue, not a health of the labour market issue.
Even before the onset of the coronavirus crisis, underemployment was hovering around 8.5 per cent of the workforce. This was more than 1.1 million people. It was a terrible reflection on the performance of the economy over recent years and reflected the dislocation of the labour market with the rise of the gig economy, casual work and heightened job insecurity.
While Mr Frydenberg may be delighted by the 5 percentage point cut in the forecast peak in the unemployment rate, it is clear to Blind Freddie that underemployment is set to skyrocket, certainly to 12 per cent and perhaps as high as 15 per cent.
There will be a lot of people who will be receiving the JobKeeper payment but be underemployed.
In the end, the best measure of the health of the labour market is labour underutilisation, which is the sum of unemployment and underemployment. On that measure, the JobKeeper payment will have a marginal effect.
Indeed, as has been clear in the past month or so, labour underutilisation is on track to hit a peak of between 20 and 25 per cent.
Whether this is made up of 15 per cent unemployment and 10 per cent underemployment or vice versa is largely immaterial.
The labour market is in dire straits.
It does, however, beg a different question about whether the sum of the stimulus packages of the government and the Reserve Bank of Australia have been enough to lessen the depth and duration of the recession.
While every dollar that goes into the economy at the moment is a benefit for businesses and householders alike, it is clear not enough has been done.
A focus on the unemployment rate in isolation may be leading to policy complacency which will mean the recession will be deeper and last longer than if more aggressive policy action was taken to support growth and jobs.
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