Why the national cabinet must brace for the jobless wave

It has taken the greatest threat to our health and economic wellbeing to make it happen, but Friday’s decision to make the national cabinet a permanent feature of the way Australia is governed is potentially one of the most significant outcomes of the crisis.

Of course, that national leaders talking sensibly to each other about issues in which they have a mutual interest was ever a problem seems quite bizarre in these times.

But it has been, and was increasingly becoming the biggest roadblock to anything sensible happening by way of innovation in the way government works in Australia.

The non-functional nature of federal-state relations was often mentioned by business groups as standing in the path of "reform".

But it has been more than that. It’s not just things like tax reform that have been hampered by federal-state frictions: almost anything you care to think about – schools and health funding, and infrastructure are just a few of the more obvious matters.

Of course, who knows whether the good feeling will continue – but we just have to hope that a group of politicians, all of whom have had a positive reinforcement loop telling them that doing good policy and behaving like grown-ups is a political winner, will get quite a lot done before things inevitably turn a little more sour.

The Prime Minister said on Friday that the national cabinet “will be driven by a singular agenda, and that is to create jobs”.

“It will have a job-making agenda. And the national cabinet will drive the reform process between state and federal co-operation to drive jobs.”

Things are going to get worse

And that will no small task. Somewhere between getting over the shock of those early pictures of long Centrelink queues and last week’s revelation that there aren’t nearly as many people on the JobKeeper scheme as first thought, the extent of the collapse in the job market seems to have faded from view a little in recent weeks.

This is a problem because, if anything, things are going to get worse.

When it was revealed last week that "only" 3.5 million people were receiving the JobKeeper wage subsidy, rather than the 6 million forecast – and that its cost as a result had dropped from $130 billion to "just" $70 billion – a few things happened.

There were the obvious howls about how Treasury could have gotten a number so wrong. The opposition had a field day, as any pragmatic group of politicians presented with such an opportunity would, with observations such as that this was an error you could see from space, and questioning the government’s competence to run things.

It also immediately began a bun fight over the "spoils": how to spend the $60 billion that won't be required for JobKeeper.

JobKeeper is not a direct proxy for the number of people who would otherwise be unemployed.

But there seemed to also be a tendency to see the lower JobKeeper numbers as a signal that things weren’t as bad as feared in the labour market.

Like most things at the moment, however, it is more complicated than that.

It is certainly the case that the worst-case scenario on which the original JobKeeper numbers were based presumed, rather shockingly, that more than half of the private workforce could lose their jobs in that black week when the economy started to shut down in earnest.

It is true that things haven’t been that bad: mining, manufacturing and construction are three sectors that had been included in the worst-case scenarios but have kept operating so far.

It is worth understanding what the "new improved data" we have on JobKeeper tells us about the labour market, particularly in conjunction with the much expanded data now being collected and rapidly released by the Australian Bureau of Statistics, because it tells us how complicated a return to higher levels of work will be.

There's more to the story

The first thing to keep in mind is that JobKeeper is not a direct proxy for the number of people who would otherwise be unemployed. Under the "one in, all in" nature of the scheme, a business has to give JobKeeper to all its employees, which means it will be paying for people who it might otherwise have had to sack, but also people it would not have let go.

A simple example: if your business has suffered a 30 per cent fall in revenue – making it eligible for the scheme – you might in normal circumstances sack 30 per cent of your staff. JobKeeper helps you keep them on, but also all your other staff too.

So not all the 3.5 million now believed to be getting JobKeeper would otherwise have lost their jobs.

This is a reflection of several different things happening in the labour market which make it a story not just of the sudden mass unemployment we sometimes imagine.

Jeff Borland of the University of Melbourne says the measured fall in demand for labour – which is at levels sharper than during the recessions of the 1980s and 1990s and the greatest since the Great Depression – has been driven in four different ways.

Some people have actually lost their jobs. There has been a big increase in the number of employed people who worked zero hours (the JobKeeper effect). There has also been an increase in underemployment, and then there has been a significant number of people just pulling out of the labour force altogether.

Borland says about 43 per cent is due to people now working zero hours; 32 per cent have withdrawn from the labour market; and 18 per cent are working fewer hours, with just 6.8 per cent being a straight case of job losses.

A lot of that withdrawal from the labour force, or the people now working zero hours, represents women.

And the data also shows the complexity of arrangements people are making in individual workplaces, also reflected in further ABS data on the number of businesses where people are taking paid or unpaid leave.

Just holding on

There are some interesting questions remaining around why some businesses couldn’t or didn’t apply for the scheme, as well as the well-aired and serious questions about all those workers who were not eligible for it, in sectors like the arts and hospitality.

Some businesses have just chosen not to get involved in the JobKeeper scheme for reasons of their own, but the fact that one in 10 businesses has reported seeking additional funds from banks, other businesses or their personal reserves reinforces the fact that the whole country isn’t just relying on assistance from the government to get by.

In fact, the ABS says just 55 per cent of businesses are accessing wage subsidies, while 20 per cent have renegotiated rents, and 16 per cent have deferred loan repayments.

Within all these arrangements are, inevitably, a lot of businesses that have just been holding on, hoping they could survive the lockdown but fearing what comes next.

Which makes the significance of the trajectory of withdrawal of JobSeeker, and other forms of government assistance, that much greater, and a subject on which all the minds in national cabinet will undoubtedly be focused.