Economists call for JobKeeper-style support during Sydney lockdown

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Leading economists say a JobKeeper-style wages subsidy which keeps struggling businesses connected to their workers would be the best way to support the economy during Sydney’s lockdown.

The JobKeeper program has been credited with helping the economy to make a rapid recovery from last year’s deep recession, in large part because of the way it retained links between employees and employers.

The lockdown has hit key sectors of the NSW economy hard.Credit:Jessica Hromas

University of NSW economics professor, Richard Holden, said a wage-subsidy scheme similar to JobKeeper is “exactly what we need” to combat the economic disruption caused by the present Sydney lockdown.

“Maintaining that connection between employers and employees was really crucial last year,” he said.

The Commonwealth and NSW governments are expected to unveil an economic support package on Tuesday that will include a cash flow boost for businesses affected by extended lockdowns.

Those who have lost work because of the lockdown are already eligible for a $500 federal emergency payment but the scheme does nothing to keep workers connected to their employers.

AMP Capital chief economist Shane Oliver estimates the Sydney lockdown is costing the national economy about $1 billion per week and warns there is a “big risk” that state final demand – the broadest quarterly measure of the NSW economy – would now contract in the three months to September 30.

Amid last year’s lockdown, state final demand in NSW plunged 8.6 per cent in the June quarter, the biggest contraction ever recorded for the state.

Dr Oliver said the “best way” to respond to the economic effects of the lockdown was with JobKeeper-style wages subsidy.

“Call it a different name if you want to, but we need something like that,” he said.

Dr Oliver said evidence from the US, where there was no national wages-subsidy program during the pandemic-induced recession, showed that when the relationship between employers and workers is not preserved it takes longer for the jobs market to recover.

“There is risk that you break down the relationship between employer and employee and then when things reopen again it takes a lot longer to get started,” he said. “I would rather a situation where JobKeeper kicks in and preserves that employee-employer relationship and keeps the business going.”

Dr Oliver labels JobKeeper “one of the best policy decisions” of last year.

“It worked a treat by keeping businesses afloat, keeping workers tied to their employers and by boosting household incomes,” he said.

Steven Hamilton, chief economist at Blueprint Institute, said businesses and workers need more certainty about what government support will be available in the event of a pandemic-related lockdown, and what circumstances will trigger that support.

“The lack of these sorts of contingent policies with triggers will have undermined confidence all along,” he said. “If businesses and consumers knew they would be protected if there was an outbreak, they would have been less cautious and more willing to spend.”

Dr Hamilton said the fixed period of the initial JobKeeper policy made it too inflexible.

“Having something more flexible and responsive is important,” he said.

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