New Analysis: Countries with Higher Unemployment Payments Have Lower Jobless Rates

New analysis from the Australia Institute shows Australia’s unemployment rate is worse than that of most OECD countries. In fact, this analysis shows that across the OECD, it is higher unemployment payments (the ‘net replacement rate of unemployment’) that correlate with lower unemployment rates.

The Government and commentators have long argued that Australia’s internationally low unemployment payments are required in part as an incentive to encourage the unemployment to look for and accept work.

Key findings:

  • Despite having the lowest unemployment payment, Australia did not have the lowest unemployment rate – or even place in the top half of OECD countries for low unemployment.
    • In 2019 Australia had the 20th lowest unemployment rate of 33 OECD countries.
  • If the Government’s theory that higher unemployment payments are a disincentive to work is correct, then comparing countries’ level of unemployment payments and their unemployment rate should show that countries with higher unemployment payments also have higher unemployment rates.
    • A study of 33 OECD countries does not support the Government’s theory. On the contrary, it shows that countries with higher unemployment payments are more likely to have lower unemployment rates.
chart from report which shows Australia has among the lowest unemployed payments but does not have the lowest unemployment rates
Figure: comparing unemployment payments (‘net replacement rates for unemployment’) with unemployment rates in 2019 for OECD countries

“This research shows there is no economic basis for unemployment payments to be set below poverty levels to incentivise the unemployed to look for work,” said Matt Grudnoff, senior economist at the Australia Institute.

“In fact, this analysis suggests the Government is being unnecessarily cruel to the unemployed and that lower unemployment rates are possible even with much higher unemployment payments.

“If the Government’s theory were correct, Australia should have one of the lowest unemployment rates in the OECD to match its low  unemployment payment rates, not one of the highest.”

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