How adequate are unemployment benefits? A new perspective

Over night the e61 Institute released some work that I’ve been involved in (with a bunch of amazing economists) chatting about the JobSeeker payment in Australia. Let’s have a bit of a yarn about it below.

[Sidenote: If you’re interested in how the payment works, you can play around with this a bit – noting the numbers are out of date, and there are still extra benefit rules to implement]

This JobSeeker payment is something you can get when you lose your job, and it is flat rate and non-contributory – just like in the mighty country of New Zealand, and similar to the general Anglo model. For Europeans this is like imagining a benefit system that only has the “unemployment allowance” without unemployment insurance.

It is typical to analyse allowance systems as poverty allieviation tools and the insurance system as, well, an insurance system. This means that for the allowance system you look at what people can buy with the funds (i.e. here) and for the insurance you ask the dual questions of i) how effective is it at pooling risk ii) do people have sufficient liquidity to see themselves through job loss.

Now in the beautiful nations of Australia and New Zealand there is only one tool – so it has to do both! This was the rationale for New Zealand’s income insurance scheme proposal.

I can understand the logic – even if the details of the NZ scheme didn’t seem quite right. But for both countries there is a first step towards understanding whether another scheme, or policy, is necessary – asking how well the current system actual fits the “insurance” role.

People often say “its not good mate – look at replacement rates” – but this ignores that people can self-insure and any public-insurance may well crowd that out!

This is the logic for the e61 reports – we investigate who misses out on the JobSeeker payment, and who gets it, and do a bit of analysis to understand what people’s consumption choices tell us about how self-insured they are against job loss.

We find that there is a bit of an issue for single Australians. In that way, if the goal is to make up for an inability to self-insure that is where the gap likely is – and if there are going to be reforms, these are the people that require either:

  • A higher payment,
  • Access to funds (superannuation access or access to the student loan scheme),
  • Eligibility to the scheme in the first place.

There are three broader questions to take any of this to the bank and determine what we should do with income support:

  • How do these policies change behaviour (i.e. does it distort decisions to work?)
  • Are there spillovers from these policies OR sacrifices we don’t capture in consumption (i.e. the urgent selling of assets, rushing to a new job)
  • What are our values relating to redistribution, social support, and how responsible individuals are for their own insurance.

In the next few months I can promise you a few insights on the first two – but the last one is up to you. A good economist gives you information but can’t tell you what is right, and I’m not a very good economist but I have an aspiration to be 😉

For the next couple of days I will have a couple more posts – explaining how to use each of the two notes that are released.

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  1. […] week we’d been chatting about the unemployment benefit in Australia and the reasons why some unemployed people don’t get it, while some people who aren’t […]

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