Survival of the fittest? The economy post-JobKeeper
JobKeeper – it’s a word that most of us have become familiar with over the past year. It’s been the biggest economic support program Australia has ever implemented, at a cost of $90 billion [1]. Around one in three workers have benefitted from it but with many different opinions about its success, there is an air of hysteria surrounding its conclusion [1]. Let us explore Australia’s future post-Jobkeeper.
JobKeeper was vital in the beginning of the COVID crisis to help businesses stay afloat. Without the $1500 fortnightly payment, businesses have had no time to adjust to the “new normal”. Many businesses would likely have had to close without a grace period to adapt to online platforms. Data from the Reserve Bank of Australia suggests that Jobkeeper prevented roughly one in five people from losing their jobs in the first half of 2020 [2]. The loss of 700,000 jobs would likely have severely impacted the economy, along with the welfare of those no longer employed.
But will there be disastrous levels of unemployment now that JobKeeper has ended? Whilst some businesses will certainly close, the aftermath might not be as bad as feared. Many economists and advisors have identified collapsed businesses that were unable to adapt during the pandemic as “zombie” businesses. These will be the first to go since their insolvency was stopped only by Jobkeeper payments [3]. In particular, administration and support workers might be affected, as they lost much work when businesses first began cutting costs [4]. JobKeeper played a big role in insolvencies being halved in 2020, suggesting increased insolvency numbers in 2021 [3]. Patrick Coghlan, the chief executive of CreditorWatch, supports this view and maintains the collapse of “zombie” businesses will actually help companies by reducing competition [5].
Overall, fewer than expected businesses may enter liquidation, partly because they adapted to the “new normal”. Trends suggest eCommerce and online business is critical for future success, so businesses that failed to adapt may have had to shut even in a world without COVID[6]. But what about the industries that cannot go online? Tourism and hospitality can offer their services via virtual experiences or take away, but it’s not quite the same [7]. JobKeeper was certainly important in these industries, and its end is seeing businesses who cannot sell their services in the current environment scrambling to stay afloat [6]. Should JobKeeper continue for these types of businesses?
It’s not all doom and gloom now that JobKeeper has ended, with other policy offerings being made by the government to support struggling businesses. Treasurer Josh Frydenberg has announced help past the JobKeeper end date, which has recently come into effect [6]. JobMaker, increased instant asset write-off, and temporary cash flow boosts are all available to businesses that need it [8]. Only time will tell whether these support programs will help vulnerable industries and positively impact the unemployment rate.
Looking on the bright side, economists are optimistic about the future post-JobKeeper and expect little to no downturn. Andrew Boak, the chief economist at Goldman Sachs, believes businesses’ excess cash will allow them to survive [9]. This is due to increased household savings during lockdown-induced periods of uncertainty, which are at a 40-year high [9]. Economists are hopeful that consumers will begin to spend their savings, with levels of consumer confidence trending upwards since July 2020 and now reaching record levels[10]. The unemployment rate even decreased from 5.8% to 5.6% between February and March this year, with labour participation rate also rising [11]. The increased savings and consumer confidence will boost long-term economic growth, a promising sign for the country’s businesses[9].
JobKeeper had to end, and businesses had to adapt and learn to trade in the “new normal”. It may be years before we fully understand the aftereffects of JobKeeper, but it was integral in supporting the economy in the first half of 2020. Continuing to operate such a costly scheme for too long would have negatively impacted future economic conditions and kept uncompetitive “zombie” businesses alive [3]. Whilst most economists see a bright future for Australia despite small bumps in the road, it is now up to us to continue supporting our small local businesses and help them transition out of JobKeeper dependency.
References
[1] Ziffer, Daniel. 2021. “Jobkeeper Supports Nearly A Million Workers. It’s Over … So What Happens Now?”. ABC News. https://www.abc.net.au/news/2021-03-29/jobkeeper-ends-what-now-for-australian-businesses/100031668#:~:text=The%20%2490b%20JobKeeper%20wage,rise%20as%20the%20support%20ends.
[2] Reserve Bank of Australia. 2021. “How Many Jobs Did Jobkeeper Keep?”. Sydney: Reserve Bank of Australia.
[3] Terzon, Emilia. 2021. “A Wave Of COVID-19 Business Failures May Not Come But 2021 Will Still Be Excruciating For Some”. ABC News. https://www.abc.net.au/news/2021-01-14/business-failures-still-possible-2021-insolvency-cliff-covid-19/13053570.
[4] Le May, Rebecca. 2021. “Job Fears Amid Spike In Companies Going Into Administration”. News.com.au. https://www.news.com.au/finance/business/spike-in-zombie-companies-going-into-administration-fuels-fear-of-insolvency-wave/news-story/9e2cdac83aa8c7af7352e24424c79cbb.
[5] Brinsden, Colin. 2021. “Businesses Continue To Close After End Of Jobkeeper Payments”. 7News. https://7news.com.au/business/business-failures-increase-as-support-goes-c-2587296.
[6] Towell, Noel, Bianca Hall, Jackson Graham, and Michael Fowler. 2021. “‘Winter Is Coming’: 40,000 Melbourne Jobs On The Line As Jobkeeper Ends”. The Sydney Morning Herald. https://www.smh.com.au/business/the-economy/winter-is-coming-40-000-melbourne-jobs-on-the-line-as-jobkeeper-ends-20210326-p57ecz.html.
[7] Troncoso, Guillermo. 2021. “Let’s Talk: The End Of Jobkeeper And What It Could Mean For Your Business – Dynamic Business“. Dynamic Business. https://dynamicbusiness.com.au/leadership-2/jobkeeper-australia-ending-business-advice-lets-talk.html.
[8] Australian Taxation Office. 2021. “Support For Businesses And Employers”. Ato.gov.au. https://www.ato.gov.au/General/COVID-19/Support-for-businesses-and-employers/.
[9] Cranston, Matthew. 2021. “Jobkeeper, Jobseeker To End: Why There Won’T Be A Crash”. Australian Financial Review. https://www.afr.com/policy/economy/why-there-won-t-be-any-crash-at-the-bottom-of-this-fiscal-cliff-20210217-p57388.
[10] Westpac Banking Corporation. 2021. “Australia Consumer Confidence | 1974-2021 Data | 2022-2023 Forecast | Calendar”. Trading Economics. https://tradingeconomics.com/australia/consumer-confidence.
[11] Australian Bureau Of Statistics. 2021. “Labour Force, Australia, March 2021”. Australian Bureau Of Statistics. https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release.