Lifting unemployment benefits increases the average time job seekers spend out of work, research reveals, challenging assertions COVID-era support payments did not discourage people from looking for jobs.
The $550-a-fortnight JobSeeker Coronavirus Supplement reduced job-finding by 19 per cent, the study released on Tuesday by non-partisan think tank e61 Institute revealed.
Based on the data, researchers calculated increasing unemployment benefits by 10 per cent would lead to a 2.1 per cent decline in job-finding rates.
That means the average person would spend about one week extra out of work.
While some economists have long posited that increasing unemployment benefits acts as a disincentive to work, proving causality is notoriously tricky.
Economic theories are hard to prove in the real world because it's almost impossible to isolate the causal variables.
But the paper's authors were able to isolate the impact of the supplement from other economic changes by comparing Australians to New Zealanders living in Australia.
While both groups faced the same job market and disincentives to work such as fears of the virus and government lockdowns, they differed because Australians had access to the higher JobSeeker payment while New Zealanders did not.
"People eligible for the JobSeeker Coronavirus Supplement were less likely to find jobs than those who were not," e61 research manager Matt Nolan said.
"This tells us that higher benefits reduce the incentive to work."
It's a highly contentious topic.
Claims increased JobSeeker rates discouraged people from job hunting were rubbished by many economists during COVID as the then-coalition government considered extending the coronavirus supplement.
Former prime minister Scott Morrison pointed to anecdotal evidence from business as a reason to cut the payment, but University of Melbourne Professor Jeff Borland said there were no signs people were avoiding work to stay on welfare.
Even though raising unemployment benefits did lead to people spending more time out of work, it didn't necessarily mean it was bad policy, Dr Nolan said.
"It was designed to help households and limit the spread of disease during the pandemic," he said.
"While potential labour supply responses should be considered when evaluating changes to benefit rates due to the increase in fiscal costs, a reduction in labour supply does not undermine the justification for increasing payments.
"Beyond serving as insurance against job loss, unemployment benefits play a vital role in preventing poverty and maintaining a social safety net."
