Are unemployment benefits adequate in Australia?

23 Apr 2012

The unemployment rate in Australia was 5.2 per cent in March 2012 which is low by historic and international standards. However, a substantial number of people who are looking for work cannot find it with the Australian Bureau of Statistics (ABS) reporting that the number of people unemployed in March 2012 was 626,800.

That is, for every 20 employed people in Australia there is around one unemployed person. Put another way, there are three times as many unemployed people in Australia as there are people employed in the mining industry. The historically low levels of unemployment in Australia should not, however, be seen as an indicator of the stability of the modern labour market. Indeed, the official monthly statistics on changes in employment and unemployment tend to conceal the reality of the labour market. That is, while media and political attention is typically focussed on the 'net change' in total employment and unemployment the 'gross flows' of people into and out of employment are far larger. The high degree of volatility in employment means the risk for an individual of experiencing a period of unemployment at some point in the next twelve months is significantly higher than the 5.2 per cent chance that an individual is unemployed today. It is also important to note that the risk of unemployment is significantly greater for some demographic groups, especially for younger workers, those who live in regional areas and those with lower levels of education. For example, in March 2012 the unemployment rate in Tasmania was 7.0 per cent, nearly twice the 3.7 per cent rate in the Northern Territory. Similarly, in March 2012 the unemployment rate for those aged 15-19 is 18 per cent, more than three times the national average. Figure 1 shows that during 2009 an average of around 367,000 ceased employment each month and either became unemployed or left the labour market altogether. Fortunately, over the same period an average of around 372,000 people also moved into work each month. The role of unemployment benefits is to insulate people from the severe financial hardship of going to work one day and discovering that they no longer have a job. Few people earning $60,000 per year, raising children and attempting to repay their home loan can afford to remain unemployed for more than a few months before facing the likelihood of losing their home. Indeed, as discussed below few people in Australia believe that the current unemployment benefit of $245 per week is sufficient to cover even the most basic costs of living. This paper considers the adequacy of existing unemployment benefits in Australia. It provides data on the relative decline in the value of unemployment benefits and presents new survey evidence on community perceptions about the adequacy of unemployment benefits.

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