How much did it cost the Federal Government to keep people employed?
Without the JobKeeper wage subsidy, Australia would have seen a much higher number of employment relationships lost during the pandemic than where it is today.
New data from the Reserve Bank of Australia showed the wage subsidy programme “reduced total employment losses by at least 700,000” from April to July – considerably the height of the COVID-19 crisis in 2020 – during which an estimated 3.5 million workers received wage support.
“One in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it not been for the JobKeeper Payment,” RBA economists James Bishop and Iris Day wrote in a paper published this week.
“Overall employment losses would have been twice as large over the first half of 2020 without JobKeeper,” they said.
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But just how much did it cost the Federal Government to keep people employed?
With the first phase of the programme costing taxpayers $70bn between March and September, the economists estimate that each employee-employer relationship “saved by JobKeeper” cost $100,000 during the six-month period.
The focus of the analysis, however, is on employment – not the number of jobs that were kept.
“A person who had multiple jobs prior to JobKeeper will remain employed if they held on to at least one of those jobs during the crisis (and met the criteria for employment in that job),” they said.
“The jobs-versus-employment distinction is important because some workers held more than one job, but each person could only receive JobKeeper from their primary employer.”
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Given these nuances, Bishop and Day’s baseline estimate suggests the JobKeeper payments “increased an employee’s probability of remaining employed by about 20 percentage points”.
The economists took this estimate and multiplied it by the overall number of JobKeeper recipients at the time to quantify the aggregate effect of the wage subsidy scheme on employment.
“This back-of-the-envelope calculation suggests that JobKeeper reduced the aggregate fall in employment over the first half of 2020 by at least 700,000,” Bishop and Day said.
“To put this estimate into perspective, the actual fall in employment over the first half of 2020 was 650,000. As such, our estimates imply that overall employment losses would have been twice as large over this period without JobKeeper.”
The results echo the Treasury’s initial estimate that the unemployment rate would have been about five percentage points higher had it not been for Federal Government support.
The difference in their findings, however, is that the Treasury factors in other forms of government support: cash payments to households, income support and investment incentives for businesses, loan guarantees and regulatory measures. The RBA study, meanwhile, zeroes in on JobKeeper.
