JobKeeper is the best $56 billion the Government ever wasted

A huge $56 billion was spent to save jobs when the pandemic hit. And a huge amount of it was seemingly wasted. But that wasn’t the case.

Does this sound like good news? The Government paid $56 billion in JobKeeper payments to 2.8 million people who were going to keep their job anyway.

I reckon it is. It might even be the best $56 billion the Government ever wasted. Here’s why.

The dollar figure comes from the Reserve Bank of Australia. Two RBA boffins named James Bishop and Iris Day have been doing some research into whether JobKeeper actually worked. Did it help Aussies keep their jobs?

The answer they found was – yes. The payment went to 3.5 million people. Of those, 80 per cent were going to keep their job anyway. But 20 per cent of them would have lost their job. That’s 700,000 jobs that were saved.

As you can see in this next graph, Mr Bishop and Ms Day found things would have been much worse in the hypothetical scenario without JobKeeper. They call it the “counterfactual” and it is the red line in the graph showing plunging employment. If it wasn’t for JobKeeper, the number of people employed would have fallen to below 11.5 million. Instead it remained well above 12 million.

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The ‘counterfactual’ line shows what could have happened if JobKeeper hadn’t been introduced.

The grey area represents the uncertainty around the hypothetical counterfactual scenario. Without JobKeeper, employment might have been even worse than they thought, or it might have been quite a bit better. They grey area is big because the uncertainty is high. But their best guess is the red line.

So a massive number of jobs were saved. But then JobKeeper was a massive spending program – the biggest thing any Australian government has ever spent money on. In history. JobKeeper paid millions of Aussies to keep jobs they were going to keep anyway.

Is that bad? Normally government spending should do what it says it will do. If the payment is to ‘job keep’, every dollar spent should keep jobs. But when a goal is important sometimes you need to accept a certain rate of misses. And 700,000 saved jobs is important. According to the RBA boffins, the cost per job saved was $100,000. That compares well to a similar program in America that ended up costing $US224,000 per job saved.

CAN YOU REALLY WASTE MONEY IN A RECESSION?

In a recession, the problem is not enough people are spending – so the government needs to do more spending. The usual thresholds for the quality of government spending are relaxed. You could even save jobs by paying a million people to dig holes and a million people to fill them in again.

For every person whose job was saved, four people were being paid to keep a job they would have kept anyway, at $1500 a fortnight. That wasn’t strictly ‘job keeping’ but it didn’t hurt either.

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It’s predicted that 700,000 people were saved from the dole queue through JobKeeper. Picture: Claudia Baxter/AAP

With the Government paying their wages, the businesses employing those people didn’t have to stretch and skimp to afford them. There was enough money to pay the bills, and they didn’t need to borrow from the bank. The owners could pay themselves a wage during the pandemic instead of just paying workers.

That created comfort for millions of businesses, and prevented the recession from feeding on itself in a negative spiral of insufficient spending.

There has been anger about some businesses that accepted JobKeeper paying dividends to their shareholders. But dividends are income for a lot of retired Australians, and for those of us who have superannuation, they help us save for retirement. JobKeeper kept the Australian economy operating closer to normal. Part of that normal is dividend payments.

You can call it waste for payments to go to businesses to keep them operating normally. But when you look at how quickly the Australian economy is recovering from this recession, it is hard to deny that it has been very helpful.

Comparisons to the Great Depression seemed fair in April, but not any more. We’re back baby! Commonwealth Bank has upgraded its forecasts and now expects very strong growth next year, as the next chart shows.

Australia’s economy is looking strong going into 2021.

What will lift economic growth over the next few years? Well, a lot of JobKeeper payments were saved in the bad times. They will be slowly spent over the next few years in what the Commonwealth Bank is calling a “savings drawdown”.

Seems like the benefit of all that “wasted” money will show up in our economy for a long time yet.

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.