10 jobs a week: JobMaker needs fixing - Grattan Institute

Published in The New Daily, 24 March 2021

The federal government’s JobMaker hiring credit is off to an underwhelming start.

Only 609 jobs have been subsidised in the first six weeks, far short of Treasury predictions for 450,000 jobs by year’s end.

Based on Treasury estimates that only one in 10 jobs subsidised through the scheme wouldn’t otherwise exist, JobMaker is so far creating just 10 jobs a week.

That is a drop in the ocean compared to the number of jobs needed to complete Australia’s economic recovery.

Unemployment has fallen faster than expected, but Reserve Bank governor Phil Lowe has suggested that unemployment will need to fall from the current rate of 5.8 per cent to closer to 4 per cent, and possibly lower, before Australian workers can expect sustained pay rises.

A 4 per cent unemployment rate likely means creating more than half a million extra jobs.

The low take-up of the JobMaker subsidy should not be a surprise – the policy has several design flaws which heavily restrict the number of eligible job seekers and businesses.

Revising the eligibility criteria – as the government has indicated it will consider – would make the subsidy better placed to support the recovery.

Eligibility must be expanded

The first problem is that too few unemployed people are eligible for the subsidy. The scheme is deliberately targeted at young people.

There is some justification for this: Employment among younger Australians has been slower to recover than among the rest of the population, and the potential scarring effects of sustained unemployment are larger for younger workers.

But given the size of the recovery challenge, the subsidy should be extended to the more than half of Australians on unemployment benefits who are older than 35 years. And JobMaker should also be extended beyond people currently receiving unemployment benefits, especially to those currently receiving JobKeeper.

The second problem is that too few businesses are eligible.

To qualify, a business needs to demonstrate that the subsidised jobs would increase both their employee headcount and their payroll relative to what it was in September 2020.

This was designed as an integrity measure to stop businesses getting a subsidy by firing and re-hiring the same employees.

But, in practice, it effectively excludes many of the almost one million businesses receiving the JobKeeper payment, since many of these businesses would have had an inflated headcount and payroll in September that they will not be able to sustain when JobKeeper ends in a fortnight. This could be fixed by excluding JobKeeper receipts from the payroll baseline test.

Larger subsidies would help

A third problem is that the rate of subsidy is too low.

At present, businesses can receive only $200 per week for a worker under 30, and $100 per week for 30-to-35 year-olds.

A low, flat-rate subsidy biases the scheme towards part-time and low-wage jobs rather than full-time ones.

The credit covers just 15 per cent of the annual wage of the typical full-time worker, but 75 per cent of the wage of a 16-year-old working 20 hours a week in fast food.

Offering a more generous credit for full-time workers would reduce this distortion.

Fixing these flaws would go some way to improving the hiring subsidy and maximising the number of jobs it could create. But a better approach would be to do away with the subsidy altogether and replace it with an incremental payroll tax rebate, as proposed by economist Peter Downes.

That way, businesses would be rewarded not only for hiring new workers but also for hiring full-time workers instead of part-time workers and for expanding the hours of existing staff. This would cost more, but it would be simpler to administer and, most importantly, it would create more jobs.

The task of returning the economy to full employment is an enormous one, and it will require continued support from governments on top of what has already been provided.

But stimulus needs to be well designed in order to be effective. The government should rethink the design of the JobMaker hiring credit so it can live up to its name.