Posted: 22 May 2020 5 min. read

Reforms needed to heal unemployment wound

It is a common mistake that we all sometimes make — to think that the past is how the future will be, and that the present is merely an aberration that will right itself.

In thinking about economic recovery, it is easy to fall into this same trap, especially when so much of our economic analysis has us reverting back to trend, built on theory and assumptions of symmetry.

In the face of a geometric progression of infection rates, risks of overrun in our health system, little evidence of herd immunity to coronavirus, and the possibility and efficacy of a vaccine in question, a proportionate policy response  could only be that of lockdown.

It was a necessary response to the pandemic.

With the stroke of a pen, edicts and regulations consigned us all to our homes, businesses shut, gatherings were banned, and an eerie hush descended on our once bustling cities.

Almost at once, together, we entered into lockdown — hibernation.

And the economic and social cost is significant.

Not surprisingly, in talking recovery, people have imagined the reverse of lockdown — a snapback, with the speed determined by a myriad of alphabets; from V-shaped to U to W. But in reality it’s a question mark.

The uniform route to lockdown will not be the same as the exit.

The pandemic is not eliminated and it can rear its ugly head again, we just need to look at poster children Singapore and South Korea for confirmation of that. And that is because recovery will not be a linear move from health to economic. 

It will be a policy dance of sorts, carefully balancing economic cost with health risks. 

Last week’s release of unemployment figures highlights the need for different  thinking. 

One, we know that unemployment is elastic in only one direction — and it’s not the one we want. In crisis, it takes far longer for unemployment to fall than it does to go up.

Look at it through the lens of employment. That fell by 594,300 between March and April this year. 

In doing the sensible thing to remove the obligation for JobSeeker recipients to actively look for work through this crisis, many of those who lost their jobs may simply not be looking for work — which means in the statistics they have dropped out of the labour force.

There were 489,800 such Australians.

But even as soon as next month, they will start looking for work. And when they do, they will most likely swell the official ranks of the unemployed.

And the jobless rate, based on the maths, will shoot up.

No snapback in the unemployment rate here.

Second, we know that as we balance the economic cost and the health risks, we will need to open up in stages, calibrating by sector (including occupation), by  region (noting health hot spots), and by necessity (essential organisations for recovery).

Again, if we look at the jobs numbers we can see risks here.  We now know that 6 million people — nearly half of working Australians — are receiving  JobKeeper. In the data they’re still considered employed, regardless of the hours they’re working.

All of their employers have faced a drop of at least 30 per cent in their turnover — the criteria to be eligible.

A hard cut-off date to JobKeeper in September could see many of these currently employed Australians let go if the businesses they work for haven’t recovered enough to keep them on without any wage subsidy.

And so, many of these currently recorded as employed might swell the ranks of the unemployed.

Again, the unemployment rate, based on the maths, will shoot up.

No snapback in the employment numbers unless the economy really takes off.

We are not out of the woods yet. The exit from lockdown will be more complex and nuanced than the route into lockdown.

And we must beware a second wave of infections and unemployment.

As a country, that means we must approach this with eyes wide open, to approach the task of recovery with realistic and pragmatic expectations, and to  void our linear and symmetrical thinking. 

But most of all, we must approach recovery with a zeal to reform, not just to return to normal, but be better than normal. 

And to this, we can all put our shoulder to the wheel and believe.

More about the authors

Dr Pradeep Philip

Dr Pradeep Philip

Lead Partner, Deloitte Access Economics

Pradeep is the Lead Partner for Deloitte Access Economics. He has had a long and successful career in public policy, with deep expertise in economics and proven leadership experience. Pradeep has been a senior bureaucrat, working at the highest levels of public policy, across three jurisdictions in Australia. Pradeep’s experience includes: Director of Policy in the Prime Minister’s office, Secretary of the Department of Health and Human Services in Victoria, CEO of LaunchVic – a company established by the Victorian Government to promote start-ups and entrepreneurship – and Associate Director General of the Department of Premier and Cabinet in Queensland. He holds a PhD in Economics and Bachelor of Economics (Hons) from the University of Queensland.

Harry Murphy Cruise

Harry Murphy Cruise

Senior Economist

Harry joined Deloitte Access Economics in January 2017 after completing a Bachelors of Arts and Commerce, with honours in Econometrics and Business Statistics from Monash University. Harry’s area of focus is data analytics and econometric modelling, having conducted a range of research surrounding mental health, prescription drug use, labour markets and ageing populations.