The introduction of the JobSeeker Coronavirus Supplement (the Supplement) was designed to support households that experienced job loss during the COVID-19 pandemic. This paper found that higher benefit payments during 2020 lead to a change in labour market behaviour for those eligible for this support, reducing the incentive for people to work. 

As the Supplement was intended to support households and prevent the spread of a communicable disease during a
pandemic, the reduction in labour supply is not a negative outcome of the policy in 2020. However, it also suggests
that, under normal economic circumstances, higher benefit rates will reduce job search by recipients in Australia.

Findings

• The chance of a recipient finding a job declined by 19%, while job separations rose by 64% following the introduction of the Supplement.
• There is no evidence of higher labour earnings for recipients of the Supplement in future years.
• A 10% increase in unemployment benefits would lead to a 2.1% decline in job-finding rates, increasing the average time spent out of work by a recipient by approximately one week.

Lessons

1. A higher benefit payment will reduce labour supply modestly: a 10% increase in the benefit payment (around $80 a fortnight) would lead the average job seeker to spend an additional week out of work – on the lower end of international estimates.
2. A very large increase in payments may increase quits: a 10% or 25% (approximately $200 a fortnight) increase is unlikely to lead to individuals quitting their jobs. However, if payments get close to the wage you receive in a job individuals will leave.
3. During a pandemic higher benefit payments can be used to meet social and economic goals: individuals working in close proximity risked worsening the health crisis during COVID – as a result, a policy that encouraged people to stay away from such activities was socially beneficial.