Would JobKeeper payments be suitable for pulling people through a recession?

JobKeeper payments were a lifesaver for many through the pandemic, as businesses were forced to close their doors, leaving many out of work.

Some may be thinking this initiative could be applied to the current worries of recession, assisting those who are struggling to cope with the rising cost of living. However, according to research from the e61 Institute, this approach would not be a suitable option.

“The fundamental advantage of wage subsidies over other economic policies is their ability to keep hard-to-replace, important job matches,” said Dan Andrews, research director and head of policy engagement at the e61 Institute.

“Looking at outcomes for JobKeeper recipients, we discovered that the match value of jobs saved was comparable to other jobs in the economy, and that income growth has been slow for individuals attached to firms in the scheme’s later stages.”

According to the research, the JobKeeper subsidy was a detriment to employee-employer relations, as 45 per cent of work matches ended by March 2023, with job retention rates comparable to those not covered by the subsidy.

Furthermore, it was revealed that those who relied on extension periods experienced lower wage growth than those who didn’t. This resulted in people remaining in unproductive jobs, which the e61 Institute believes could lead to economic slowdown.

Matt Nolan, research manager, commented on the findings: “The analysis is consistent with the idea that employers would have kept the best quality matches throughout the crisis, and the JobKeeper program kept people tied to more mediocre jobs.”

“It is also apparent that the distinctive benefit of JobKeeper was the safeguarding of valuable job matches during a time of significant uncertainty, mainly in the first few months. When the economy reopened and the climate resembled that of a more traditional recession, the wage subsidy began to bind individuals to less productive firms, resulting in lower income growth and poorer skill utilisation.”

The e61 Institute highlighted how, if implemented in a recession setting, these JobKeeper payments could negatively affect the economy, more so than the COVID-19 subsidy did.

Considering some believe we’re already in a recession, and many employers are looking to downsize due to this, the pressure may only worsen for people.

“We know that more than three-quarters of SMEs expect their cash flow to be affected by the current economic climate,” said founder and managing director of Small Business Loans Australia, Alon Rajic.

“When it comes to a recession, smaller businesses face similar risks as their larger counterparts, but their limited scale leaves them more vulnerable and increases the risk of failure in a downturn. It’s important for business owners to start considering the potential risks now and think about what actions they might take, considering the impact on their business as well as for their employees.”