RDP 2020-07: How Many Jobs Did JobKeeper Keep? 1. Introduction

The COVID-19 outbreak in Australia in early 2020 led to a sharp fall in economic activity. In response, the Australian Government announced a series of measures to support incomes and employment. The largest single measure was the $101.3 billion wage subsidy scheme called the ‘JobKeeper Payment’. As its name implies, a key objective of the JobKeeper Payment was to preserve the connections between employers and their employees during the crisis, and to support business and job survival. It did this by giving employers a wage subsidy for eligible employees in order to help them retain those employees and reduce the associated wage costs. Another objective of JobKeeper was to provide income support. In the initial six-month stage of the program (30 March 2020 to 27 September 2020), which is the focus of our paper, the subsidy was paid as a flat $1,500 per fortnight for each eligible employee.

The JobKeeper Payment is one of the largest labour market interventions in Australia's history (Australian Government 2020b). In its first six months, it supported around 3.5 million workers in more than 900,000 businesses, and undoubtedly played a crucial role in cushioning the decline in employment and incomes over the first half of 2020.^[1] The Treasury's (2020b) three-month review of the program used descriptive evidence to make the assessment that JobKeeper has had a material effect. To date, however, no study has estimated the causal effect of the subsidy on employment using an approach that accounts for the differences between workers who received JobKeeper and those who did not. For this reason, the effect of JobKeeper on employment remains an open question. Our paper helps to fill this gap in the evidence base.

Specifically, we seek to answer the following question: what effect did JobKeeper have on employment during the first four months of the program? In doing so, we provide the first quantitative estimates of the causal effect of JobKeeper on employment, which build on the descriptive evidence discussed by Treasury (2020b). Our goal is to estimate the counterfactual – that is, how much employment would have fallen in the absence of JobKeeper. We find that one in every five employees who received JobKeeper would have exited employment had it not been for the wage subsidy. Scaling our estimates up to the aggregate level suggests that JobKeeper reduced overall employment losses by at least 700,000 during its first four months (Figure 1). While our error bands are wide and our analysis has a number of important caveats, our findings are close to Treasury's ex post and ex ante estimates of the number of jobs that the program ‘saved’.

To identify the causal effect of JobKeeper on employment, we make use of a strict threshold in the eligibility criteria for the program. We compare the employment outcomes of casual employees who had a little less than 12 months of tenure with their employer in early March (who narrowly missed out on being eligible for JobKeeper) to that of casuals with a little more than 12 months of tenure (who were potentially eligible). Because our approach focuses on casual employees in a narrow range of tenure, these two groups should be similar in terms of their observable and unobservable characteristics. As such, any differences between these groups that emerged after the introduction of JobKeeper can be attributed to the effects of the program rather than to other factors, such as the uneven effect of COVID-19 across industries. To implement this approach, we use individual-level data from the Labour Force Survey (LFS) and a difference-in-differences strategy.

Our findings have implications for policy. First, a better understanding of the effects of JobKeeper on employment can provide additional guidance to policymakers on the benefits of extending (or costs of withdrawing) the scheme. While we do not perform a cost-benefit analysis, our results would be an important consideration in such an analysis. Second, our results will be useful for forecasters grappling with the question of whether the withdrawal of existing support measures in late 2020 and early 2021 will have implications for labour market outcomes and economic growth. For example, it may be reasonable to assume that the number of jobs saved by the introduction of JobKeeper provides an upper bound on the number of jobs that will be lost once the program ends. In saying that, any such employment losses could be offset by an underlying recovery in economic activity or further policy stimulus. It is reasonable to think that the effects of JobKeeper on employment will vary with the state of the labour market, and could plausibly be much lower by the time the scheme ends. Finally, as Treasury (2020b, p 39) have noted, a better understanding of the effects of JobKeeper can aid policymakers in the event of future economic shocks.

Throughout this paper we pay close attention to the assumptions that underpin our results. There are two that are worth emphasising upfront, because we were not able to test them in a rigorous way. The first of these key assumptions is that JobKeeper did not have spillover effects on workers who did not receive it, either at a firm level (for example, through its general support of firm profitability) or at an aggregate level via general equilibrium effects (for example, through its effect of supporting the overall strength of the economy). If this assumption does not hold, we may have either overstated or understated the effects of JobKeeper on employment depending on the nature of the spillover. The second key assumption is that the effects we estimate for casuals with limited job tenure can generalise to other JobKeeper recipients. That is, we assume that JobKeeper had similar effects on employment outcomes for casual employees as for permanent ones, notwithstanding that these employment relationships differ in a range of ways, as do the characteristics of the firms and workers who use them.

It is important to note that our analysis is entirely retrospective. Our focus is on how JobKeeper supported employment in the first few months of the program. We do not consider the effects of JobKeeper from August 2020 onwards. Notably, the changes in payment rates and eligibility that occurred from end September mean that our estimates may not generalise beyond our period of analysis. Treasury (2020b, p 7) has noted that JobKeeper has a ‘number of features that create adverse incentives which may become more pronounced over time as the economy recovers’.

An important policy question is whether JobKeeper was effective in alleviating the longer-run effects of labour market scarring. We do not consider this question in our paper. Even once the data become available, analysing these longer-run effects will be a more complicated task given the broader range of competing forces at play. An important avenue for future research will be to study the longer-term benefits and costs of the program on employment, earnings and productivity.

Another aspect of JobKeeper that our study does not consider explicitly is the role the program played in supporting incomes of firms and workers, which was one of its main objectives. As noted above, our analysis is also silent on the various indirect channels through which JobKeeper may have affected economic outcomes and employment in the first few months of the program, such as via second-round effects on aggregate demand. By focusing on the direct employment effects alone, our analysis provides a partial, albeit important, evaluation of the scheme.

The remainder of this paper is structured as follows. Section 2 provides some background on the JobKeeper Payment. Section 3 briefly discusses the existing evidence on JobKeeper and previous work on wage subsidy schemes. The data and empirical strategy are described in Sections 4 and 5. Sections 6 and 7 present the results and robustness tests. Section 8 provides our assessment of the short-run effect of JobKeeper and Section 9 provides some concluding remarks.

Footnote

The 3.5 million figure is based on Treasury's (2020b) estimate for May 2020 and more recent reports in the Budget (Australian Government 2020a, p 1-13) (these are point-in-time figures). The budget papers also noted that more than 3.8 million people have received the JobKeeper payment at some point since the program's inception. [1]