Australian Unemployment Protection

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TABLE OF CONTENTS

Introduction

I. UI and UA: Eligibility and Administration

II. Disincentive Issues
    Unemployment Insurance
    Unemployment Assistance

III. The Cost of Unemployment Protection

IV. Some Empirical Examples
    Twelve Countries in 1992
    The Cost of UI in the U.S.
    The Cost of Unemployment Assistance

V. The Cost of Unemployment Assistance in Australia

VI. Unemployment and Benefit Availability in Australia and the U.S.

VII. Disincentives and Policy Changes in Australia
    Structure of the benefit phase-out
    Job search and mutual obligation

VIII. Initiatives to Affect Unemployment Benefit Duration in Australia
    Entry eligibility
    Ongoing benefit eligibility
    Limiting potential benefit duration
    Summary

IX. Conclusions

References

Tables and Charts

Executive Summary

This paper examines Australia's scheme of unemployment protection and makes some comparisons with unemployment protection in the United States of America. A major concern of the paper is to understand the differences in unemployment duration between these two economies. Policies followed in the United States intended to reduce duration are reviewed for possible applicability in Australia.

Because unemployment protection arrangements in the two countries are very different, the paper initially describes two broad systems: unemployment insurance (UI) and unemployment assistance (UA) as alternative ways to protect workers against the effects of unemployment. Australia operates a UA system of unemployment protection that limits eligibility to unemployed persons and families with low income. Its system of UA protection has existed for more than 50 years. The United States has operated unemployment insurance (UI) since the late 1930s.

The paper focuses on two topics: costs and labor market disincentives. It presents a framework for assessing the costs of unemployment protections (Part III) and examines comparative cost data for selected countries (Part IV). The discussion of labor market disincentives identifies the types of disincentive issues present in UI and UA systems (Part II), developments in Australia (PartVII) and potential interventions to shorten benefit duration in Australia (Part VIII).

Four conclusions are reached. 1) Even though UA systems base eligibility on family income, the costs of such systems (per percentage point of the unemployment rate) are not necessarily lower than the costs of UI systems. Examples of high cost and low cost UI systems are identified as are examples of high cost and low cost UA systems. For the cost comparison of main interest here, UA in Australia is considerably more expensive than UI in the U.S.. 2) In comparing Australian and U.S. labor markets over the past four decades, major contrasts are found in the growing disparities in the duration of unemployment and the duration of unemployment benefits. All duration measures in Australia are much longer than their U.S. counterparts. 3) While selected policy interventions could be considered to shorten UA benefit duration in Australia, many approaches have already been tried with only limited success. 4) Two initiatives might be worth considering in Australia, undertaking a new system for verifying the measurement of family income and placing a limit on maximum potential UA benefit duration.

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