Unemployment: Another photo op, no follow up disaster

The Morrison Government has mastered the "photo op, no follow up" approach — this time the JobKeeper package threatens to leave a giant jobless hole in its wake, writes Tarric Brooker.

IN RECENT MONTHS, the Morrison Government has further mastered the "announcement effect", whereby it announces some big new policy commitment, worth hundreds of millions of dollars amidst great media fanfare. But, ultimately, it often ends up not delivering the funding to the degree that was promised — if at all.

So far this strategy has largely been successful, with Prime Minister Scott Morrison enjoying a high approval rating across multiple pollsters. This comes, despite efforts by Labor and in particular Opposition Leader Anthony Albanese, to ram home that the PM was all about the "photo op" but not the "follow up".

As well over $100 billion worth of stimulus has flowed through the economy, the Morrison Government has seemingly become increasingly confident about the future of the economy and the labour market.

But despite the power of the "announcement effect" and increasingly optimistic forecasts from Treasury, others are less confident about the future of the labour market and the economy.

Australia’s 'Titanic' economy is sinking

In many ways after almost 30 years without a recession, the hubris surrounding the Australian economy is similar to that which surrounded the Titanic.

In a recent speech to the McKell Institute, Labor MP Claire O’Neil shared some rather concerning figures from McKinsey on the impact of the conclusion of JobKeeper:

“McKinsey estimates that when JobKeeper and JobSeeker are withdrawn up to March next year, just under half a million jobs will be lost. Our analysis suggests that more than 60% of those jobs will be lost by men.”

According to an analysis by the New Daily, in the fortnight to October 3, roughly 113,000 jobs were lost. These seemingly mass job losses coincide with the tapering of eligibility for JobKeeper and approximately 1.3 million recipients losing access to this form of government support, according to estimates from Treasury.

In the latest ABS payrolls report to 17 October, the news was arguably even more dire.

As you can see from the graph above, small business employment plummeted and medium businesses also shed a large number of jobs just as JobKeeper eligibility was tightened.

This has given rise to claims that these drops were driven by the deterioration of the labour market in Victoria, but that is not the case. The job losses were unfortunately broad-based in small businesses across the country.

While the ABS payroll report is a relatively new form of measuring trends within the labour market and is subject to sizable revisions at times, the sheer scale of the job losses in recent weeks paints an extremely concerning picture of the health of the jobs market.

Projections for job losses on an industry by industry basis are also quite concerning. According to a report from the Australian Construction Industry Forum, around 42,000 jobs are expected to be lost during the 2020-21 financial year, with job losses expected to hit Victoria, New South Wales and Queensland particularly hard.

This is in stark contrast to the increasingly optimistic rhetoric coming from Treasurer Josh Frydenberg and elements of Morrison Government.

Under forecasts from Treasury and the RBA, unemployment is forecast to peak at around 8%. However, if the estimate of almost half a million jobs lost due to the conclusion of JobKeeper and JobSeeker supplements, cited by Labor MP Claire O’Neil is correct, that figure will be significantly surpassed.

After JobSeeker ends, we need a new unemployment system

We should take lessons learnt from the economic stimuli offered during the pandemic to restructure our unemployment welfare system.

If 475,000 formerly employed workers were added to the unemployment statistics, the headline ABS unemployment rate would be around 10.4% — a far higher estimate than the one currently put forward by the Morrison Government.

There is also still the conclusion of the insolvency moratorium, yet to come at the start of January, which the ABS has estimated may cause as many as 240,000 businesses to close their doors for the final time. Even if this estimate is exaggerating the true scale of business closures by a factor of ten, even 24,000 businesses going bust could be enough to potentially add over 90,000 former workers to the unemployment line.

Between all these various factors there is a strong argument to be made that Treasury’s forecasts of peak unemployment will be exceeded.

But looking at the Morrison Government’s recent largely unimaginative budget, you wouldn’t think that the labour market and the broader economy are likely in need of years of further support.

As coronavirus case numbers continue to explode in the Northern Hemisphere and risks of a double-dip global recession continue to rise, it’s clear that risks of further challenges for the economy and the Australian people may be looming on the horizon.

Ultimately, despite appearances of relative strength driven by over $100 billion in stimulus measures, the labour market remains fragile and if the risks are not properly managed by the Government, the consequence could be double-digit unemployment.