Research: Higher Benefits Extend Job-seekers' Unemployment

Increasing unemployment benefits will change the way people look for jobs and increase the average time spent out of work, according to new research by the e61 Institute. The study measured the impact of the JobSeeker Coronavirus Supplement, finding the higher benefit made people who were out of work spend more time unemployed. The research found that the $550-a-fortnight supplement, which effectively doubled the unemployment benefit in March 2020, reduced job-finding by 19%. Based on this data, the researchers calculated that a 10% increase in benefits would lead to a 2.1% decline in job-finding rates, increasing the average time spent out of work by an unemployed person by approximately one week. The researchers isolated the impact of the supplement from other economic changes by comparing Australians to New Zealanders living in Australia. Both groups faced the same job market and health challenges, but only Australians could receive unemployment payments. Weekly job finding rates for unemployed New Zealanders dropped from 10% before the supplement to 8.6% afterwards, while the rates for similar unemployed Australians dropped from 8.7% before to 5.3% afterwards. The decline among Australians was greater by 1.7 percentage points or 19%. Using the same approach the researchers found that there was a 64% increase in the number of eligible people who quit their jobs following the Supplements announcement. However, the increase in job separation is likely to be unique to the pandemic period. Both the large size of the payment and the unique health concerns during 2020 will have led to more jobs ending - either due to quits or layoffs. "People eligible for the JobSeeker Coronavirus Supplement were less likely to find jobs than those who were not. This tells us that higher benefits reduce the incentive to work," said e61 Research Manager Dr Matt Nolan. "This does not mean the supplement was bad policy as it was designed to help households and limit the spread of disease during the pandemic. But it tells us that raising benefits will lead to people spending more time out of work. "While potential labour supply responses should be considered when evaluating changes to benefit rates due to the increase in fiscal costs, a reduction in labour supply does not undermine the justification for increasing payments. Beyond serving as insurance against job loss, unemployment benefits play a vital role in preventing poverty and maintaining a social safety net."