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Job losses on the horizon as JobKeeper ends

Treasury has supported ending the JobKeeper program while estimating that up to 150,000 recipients may lose employment at the end of the program.

In his opening statement to the economics legislation committee, secretary to the Treasury, Dr Steven Kennedy, said the Treasury believes that between 100,000 and 150,000 JobKeeper recipients could lose employment at the conclusion of the program.

However, he also said that there is a “wide band of uncertainty” around this estimate, and underscored that this did not mean that there would be a commensurate rise in unemployment.

He said that in any given month, during the years leading up to the pandemic, around 400,000 people moved into and out of employment, with most of those who move out leaving the labour force altogether rather than becoming unemployed.

Furthermore, Dr Kennedy stated that it is “appropriate” for the JobKeeper program to end “as other support measures take effect and to allow the economy to continue adjusting”.

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Elaborating on the stance, he said: “As noted in Treasury’s JobKeeper Review, the program has a number of features that create adverse incentives which are likely to become more pronounced as the economy recovers.

“In particular, it distorts wage relativities, it dampens incentives to work, it hampers labour mobility and the reallocation of workers to more productive roles and it keeps businesses afloat that would not be viable without ongoing support.

“Our view is that the adjustment away from JobKeeper will be manageable, and that employment will continue to increase over the course of this year, although the unemployment rate could rise a little over coming months before resuming its downward trajectory. In the years ahead, we will further evaluate the program to ensure governments can benefit from these learnings.”

The JobKeeper program, announced in March 2020 and due to end on 28 March 2021, was first announced at a cost of $130 billion but is now likely to cost around $90 billion, according to Dr Kennedy.

He added that more than 3.8 million individuals were supported in the first phase of JobKeeper from March to September 2020, but that this had reduced to 1.6 million individuals at the start of the second phase in September 2020.

“Based on data from the month of January, we now estimate that around 1.1 million individuals will be supported by JobKeeper in the March quarter,” Dr Kennedy said.

“This is lower than our MYEFO (mid-year economic and fiscal outlook) estimate of 1.3 million individuals. It is also reasonable to assume that as the labour market continues to improve over the March quarter, recipients’ dependence on the program will continue to decline.”

Mr Kennedy also provided an economic update since MYEFO in his address, stating that the unemployment rate had fallen to 5.8 per cent in February, well below Treasury’s forecast of unemployment rate to peak in the March 2021 quarter at 7.5 per cent. He added that the participation rate has remained at its record high of 66.1 per cent.

Furthermore, he noted that the unemployment rate would continue to decline in the coming months, and said that it would need to reach within a range of 4.5 per cent to 5 per cent for wage rises to occur, which is lower than the previous estimate of 5 per cent.

He said he has previously observed that following a recession, the non-accelerating inflation rate of unemployment (NAIRU, or the level of unemployment below which inflation would be expected to rise) usually rises due to the potential for labour market “scarring”.

However, he said that while there is still a risk that certain groups may find it difficult to find employment, the Treasury is optimistic that the “aggregate scarring” would be “far less pronounced following the COVID-19 shock”.

“The extent to which the unemployment rate can be lower before inflation pressures arise will be an ongoing consideration for government,” Dr Kennedy said.

“The government’s two-stage fiscal strategy accommodates flexible targeting of the unemployment rate and a considered and prudent approach to medium-term consolidation in the light of near-term uncertainties.”

[Related: RBA rate forecasts defy global view]

Job losses on the horizon as JobKeeper ends
Job losses on the horizon as JobKeeper ends
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