Shutdown: estimating the COVID-19 employment shock

by Brendan Coates, Matt Cowgill, Will Mackey, Tony Chen

19.04.2020 report

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Between 14 and 26 per cent of Australian workers could be out of work as a direct result of the coronavirus shutdown, and the crisis will have an enduring impact on jobs and the economy for years to come.

More than half of all workers in the hospitality industry could lose their livelihoods, as will many workers in retail, education, and the arts.

Lower-income workers are twice as likely to be out of work as high-income earners. Younger Australians and women are also likely to be hit harder, because they are more likely to work in occupations and industries most affected by the shutdowns and spatial distancing measures imposed to slow the spread of the virus.

If our estimates are even close to accurate, Australia is facing either the worst or one of the worst economic downturns in its history. And there could be a ‘second wave’ hit to the economy even after the immediate health threat eases.

History tells us that recovery from periods of high unemployment is rarely fast.

The longer this downturn goes, and the worse it gets, the less likely the labour market and the broader economy can spring back afterwards.

Grattan researchers used a range of methods to estimate the size of the COVID-19 employment shock, including data on which jobs require people to work in close proximity to other workers or the public.

They conclude that Australia’s unemployment rate will rise to between 10 and 15 per cent. The latter figure would be the highest since the Great Depression in the 1930s.

The Federal Government’s $130 billion JobKeeper wage subsidy will disguise much of the impact of the crisis on employment. Some Australians off work will continue to be regarded as ‘employed’ because they will receive pay from their employer via the JobKeeper scheme. And others, especially older workers, will give up looking for work and will therefore not be counted in the unemployment rate.

Australia’s governments are rightly spending record amounts trying to cushion Australian workers and businesses from the worst impacts of this unprecedented crisis. But this working paper shows that the economic shock from COVID-19 is going to be so big that more support will be needed.

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