RDP 2020-07: How Many Jobs Did JobKeeper Keep? 2. The JobKeeper Payment

James Bishop and Iris Day

November 2020

2.1 Background

The outbreak of COVID-19 infections, along with the measures used to contain the spread of the virus, led to a sharp contraction in economic activity in Australia from around mid March 2020. The Australian Government responded by announcing a series of economic support packages in mid-to-late March. The single largest measure was the JobKeeper program, which provided a wage subsidy for businesses significantly affected by COVID-19 to help them retain and continue to pay their staff.

JobKeeper was announced on 30 March 2020 (effective immediately), and was originally scheduled to run for six months until end September 2020. The program had three objectives:

  1. to support business and job survival
  2. to preserve the employment relationship between employers and their workforce
  3. to provide income support to business owners and their workforce.

Our paper focuses on the second of these objectives (and, to a lesser extent, the first). Our study does not consider how effectively the program achieved its third objective of providing income support.

Although the program was originally due to end in September 2020, in July the government announced an extension until March 2021, albeit with some modified eligibility criteria and downward adjustments to payment rates (‘JobKeeper 2.0’). There were some further modifications announced in August in response to the increased social distancing restrictions in Victoria (Morrison and Frydenberg 2020). We do not study the effects of these changes or JobKeeper 2.0 in our paper. Instead, the focus of our paper is on the first four months of the program. In the remainder of our paper, any references we make to ‘JobKeeper’ or the ‘JobKeeper Payment’ will be referring specifically to this initial phase unless indicated otherwise.

2.2 Design Features

Under JobKeeper, eligible businesses were given a wage subsidy of $1,500 per fortnight for each eligible employee in order to help them retain those employees and reduce wage costs.[2] More specifically, eligible businesses that made wage payments of at least $1,500 per fortnight to an eligible worker were reimbursed that $1,500 amount in full by the Australian Taxation Office (ATO).[3]

There are several aspects of this payment design that warrant further discussion. First, the subsidy was paid as a flat per-worker rate: the value of the subsidy was the same for all covered workers regardless of the number of hours they worked during the program or their earnings. This flat rate distinguishes the JobKeeper Payment from the wage subsidy schemes used in most other OECD countries, which pay covered employees a proportion of their pre-scheme earnings up to a cap (RBA 2020).[4]

Second, the $1,500 payment rate also acted as a wage floor. If an eligible employee had been earning less than $1,500 per fortnight prior to the COVID-19 crisis, their employer needed to increase their wage payment to the $1,500 floor under the program.[5] This meant that many part-time employees were entitled to higher payments under JobKeeper than they would ordinarily receive.

The JobKeeper payment could also be extended to employees who had been ‘stood down’ by their employers. In this case, the employee would receive $1,500 per fortnight from their employer (who in turn was reimbursed by the ATO), even if they worked zero hours during the pay period. In this situation, the JobKeeper Payment is more akin to a transfer than a wage subsidy because the employee is transferred the full value of the subsidy without any production occurring (Treasury 2020b). People paid through JobKeeper could work less hours, the same hours, or more hours, than usual.

The legislation that accompanied JobKeeper also included some temporary changes to the Fair Work Act 2009 to give employers more flexibility to modify their employees' working arrangements while covered by the program. For example, an employee who received JobKeeper could have their hours reduced (including to zero), or be redeployed, at their employer's discretion. These provisions could override the conditions in the employees' employment contract that may otherwise have inhibited such flexibility. These provisions only applied to employees receiving JobKeeper, although other employees may also have been exposed to similar flexibility provisions given the temporary variations to certain modern awards. Previous research suggests that workplace-level flexibility can influence the extent to which firms adjust labour input by varying average hours rather than headcount (e.g. Bishop, Gustafsson and Plumb 2016). For this reason, it is possible the temporary flexibility provisions that accompanied JobKeeper had an effect on employment over and above the effect of the subsidy itself. Our analysis does not distinguish between these separate channels of effect.

2.3 Eligibility

The JobKeeper Payment program was designed to provide targeted support to businesses and workers who were adversely affected by COVID-19. To receive JobKeeper a job had to satisfy two tests:

  1. Worker eligibility: the worker had to be an Australian resident who was employed on 1 March as a permanent, fixed-term or ‘long-term casual’ – the latter refers to a casual employed for at least 12 months; and
  2. Firm eligibility: the firm must have experienced (or expect to experience) a fall in revenue of 30 per cent or more (for firms with less than $1 billion annual turnover) or 50 per cent or more (for firms with more than $1 billion annual turnover).[6]

This meant that an employee could have been working at an eligible firm but have been ineligible for JobKeeper if they were, say, a short-term casual, or if they were initially hired after the 1 March cut-off date.

Once a firm was enrolled in the program, they remained enrolled until the end of September, irrespective of how their revenues evolved or whether their expectations subsequently improved.

The relevant date for assessing worker eligibility was 1 March 2020.[7] An employee needed to be on the firm's books on this date in order to qualify for JobKeeper. Employees who were dismissed by their employer after 1 March but then subsequently re-engaged were eligible for the program, provided they were on the books as of 1 March and also met the other criteria. Employees who first joined the firm after 1 March were not eligible at that firm, and those who were eligible at one firm could not take that eligibility status with them to another firm if they changed jobs during the program (i.e. the subsidy was tied to worker-firm matches, not workers themselves). Given the eligibility date was one month prior to the announcement date and the program was developed very quickly, there is unlikely to have been an ‘anticipation effect’ on employment prior to the program announcement.

Casual employees faced some additional eligibility requirements. The program rules stipulated that a casual employee needed to have been employed at the business for at least 12 months on a regular basis in order to qualify. That is, their employer had to show that the employee had been engaged on or before 1 March 2019 and was still engaged on 1 March 2020. This 12-month tenure rule did not apply to employees on permanent or fixed-term contracts. We make use of this 12-month tenure rule to estimate the causal effect of JobKeeper on employment.

To enrol in the scheme, a firm had to log into the ATO website, make a series of declarations and provide their bank details (ATO 2020b; Hamilton 2020). If an eligible firm chose not to enrol, their eligible employees would not receive the subsidy at that firm. In saying that, conditional on eligibility, firm enrolment in the program was very high.[8] Firms could not selectively nominate employees to include under the scheme; any participating firm had to ensure that all of their eligible employees were covered by the program (a ‘one in, all in’ rule).[9] In cases where a worker had eligible jobs at more than one firm, only one firm was eligible to receive the JobKeeper payment on behalf of that worker. This was the employer the person chose to nominate as his or her ‘primary employer’.

The technology used to facilitate JobKeeper meant there was limited scope for firms to misrepresent the employment durations or employment status of their staff to the program administrators. The scheme was facilitated through the existing ‘Single Touch Payroll’ system in Australia, a technology that sends payroll data to the ATO via the firm's accounting software every time an employee is paid. The ATO could use this system to verify whether an employee was employed on a casual basis and if they had been with the business for at least 12 months as of 1 March 2020.

Footnotes

This amount is close to the national minimum wage for full-time employees ($1,481.60 per fortnight). [2]

The first of these ATO payments to eligible firms were made in arrears in the first week of May, and then on a monthly cycle thereafter. [3]

The New Zealand wage subsidy scheme has different payment rates for full-time and part-time workers. Cassells and Duncan (2020) emphasise the uniqueness of the flat payment rate. The authors note that ‘[o]f the more than fifty countries that have introduced emergency wage subsidies over the course of the pandemic, none paid a single rate to all eligible workers regardless of their normal wage or employment status’ (p 109). [4]

Hamilton (2020) argues that the flat per-worker subsidy undercompensates businesses for their higher earners, and the wage floor prevents them from being overcompensated for their lower earners. Cassells and Duncan (2020) note that most international wage subsidy schemes impose a floor on the amount an employer must pay an employee, normally a fraction (below 1) of the employee's usual wage. [5]

Revenue is on a consolidated basis, so includes the revenue of any individual or business affiliated with the entity. Self-employed individuals were eligible to receive the JobKeeper Payment where they met the relevant turnover test. There were also some additional restrictions on eligibility; for example, public sector agencies and entities subject to the Major Bank Levy were ineligible (ATO 2020a). [6]

On 7 August 2020, it was announced that from 3 August 2020 the relevant date of employment for assessing eligibility would move from 1 March to 1 July 2020, expanding employee eligibility for the existing scheme and the extension. [7]

An ABS (2020a) survey in late April revealed that 90 per cent of eligible firms (with at least some eligible employees) had enrolled in the program or were intending to do so. The reasons firms cited for not enrolling included insufficient cash flow to continue paying workers until the JobKeeper payments commence (23 per cent), difficulty understanding the eligibility criteria (23 per cent) and ‘other’ reasons (54 per cent). [8]

An employer could dismiss an employee receiving JobKeeper by following the usual process for ending employment (FWO 2020b). [9]