Chapter 2: Consequences of unemployment

1 Old s like being increasingly penalised for a crime you haven t committed.(Anthony Powell, Temporary Kings: a Novel, Heinemann, London, 1973, p. 3)&RQVHTXHQFHV RI XQHPSOR\ unemployment is a major life event. It can have a devastatingimpact on people s lives. It affects not just the unemployed personbut also family members and the wider community. The impactof unemployment can be long-lasting. As unemploymentbecomes more long-term, its impact becomes more far reaching,often affecting living standards in retirement. The loss of incomeby the parents can damage the prospects of the next Quite apart from the personal impact, unemployment is a loss ofvaluable productive resources to the economy. The impact of jobloss in rural and regional areas flows through the local communitydamaging businesses as family expenditure is reduced. Furtherdamage to local communities may result from people leaving insearch of , budgetary and economic The financial, budgetary and economic effects of unemploymentare profound.

2 Many of those who leave the workforce unwillinglydo not have the resources for a comfortable and long price paid by society is increased income support, health andcommunity support costs and reduction in human capital and50 AGE Entrenched unemployment results in a dividednation where those with jobs benefit from economic growth whilethose missing out may be relegated to secondary The economic loss to the individual and the family cannot beoverstated. The Treasury advised that in the short-term, unemployment significantly reduces a person s income and, in thelong-term, reduces their ability to save for retirement and othergoals. This is because employer as well as employeesuperannuation contributions are lost and the capacity to savefrom disposable income is One witness gave a personalexample of some of the financial difficulties faced:The stress levels of just finding money to pay theutility accounts every quarter are never ending. Nosooner is one utility account paid off in instalmentsthan the next quarter's accounts are due and youhave to repeat the process of pleading with peoplefrom the utilities to allow you to pay that account ininstalments as well.

3 Home maintenance tends tosuffer because there are no spare funds for painting,parts replacements or general up-keep. Any majorincidents (burst water pipes, etc) mean getting thework done and then arranging instalments to pay offthe account, and, when added to utility instalmentarrangements, means less disposable money to payfor food and basic living costs. What I find is that thelonger I am out of work the greater is my level ofcompounding debt. Even having to buy a printingcartridge for my printer (to enable me to prepare thissubmission) has set me back a further $55 whichcomes at the expense of something Mission Australia reported they had clients who were unable toafford suitable clothing for interviews, a telephone, or transport Pep Employment Services argued that the lack offinancial support for home owners/purchasers who are unable topay their council rates often causes hardship. They argued that in1 COTA, Submission no. 109, p. City Council, Submission no.

4 118, p. Treasury, Submission no. 131, pp. 1, Submission no. 32, p. Mission Australia, Submission no. 110, Section 2, p. OF UNEMPLOYMENT51some cases mature-age job seekers build up large council debts orface selling their home. Whereas pensioners receive concessionsfor rates, the unemployed usually do The Treasury indicatedthat income support generally replaces only one-third of the netwages and superannuation benefits lost from work, a much lowerreplacement rate than exists in many other OECD country socialinsurance It was reported in several submissions that unemployment oftenimpacts harder on those mature-age people who have significantongoing financial commitments such as mortgages or rent, studenteducation expenses and obligations to support Thetrend to later marriages and child-bearing, and young peopleparticipating in education for longer periods, means that manymature-age people still have dependent children, and significantongoing family and financial responsibilities.

5 The changes inincome support policy requiring parents to provide more supportfor teenagers and young adults, for example with the introductionof Youth Allowance, means that the period of responsibility fordependants is extended into the years where mature-age workersare most vulnerable in the labour Some also have ageingparents to care many older people have the role of breadwinnersin the family, the economic impact is severe, not only forthe individual but, as with social issues, with rippleeffects for the family. Statistics show that over 300,000children live in families dependent on unemploymentbenefits and there is evidence that about one-third ofunemployed families live in A worrying long-term concern outlined by the Department ofFamily and Community Services (DFaCS) is the growth independence of mature-age people receiving income support,particularly over the recent period of improving job conditions formature-age workers (see Chapter 1). The Department noted:6 Pep Employment Services, Submission no.

6 81, p. Treasury, Submission no. 131, p. 4. Based on a single person on average wages orlower net wealth who is unemployed for up to five years from age 45, with the life-time increase in income support payments including age pension Employment Research Centre, Submission no. 58, p. 6; C. McCabe, Submissionno. 94, p. 9; J. Cameron, Submission no. 106, p. 5; COTA, Submission no. 109,pp. 9-10; Newcastle City Council, Submission no. 143, pp. 6 ACOSS, Submission no. 106, p. Office of Seniors Interests, Submission no. 79, p. 2; Hume City Council, Submissionno. 118, p. 14; Qld Government, Submission no. 163, pp. 5 Mission Australia, Submission no. 110, Section 3, p. on income support for prolonged periodsfor retirement is not in the best interests of the can result in erosion of their skills and their personalsavings, it can increase marginalisation within society andthere is an increased risk of low incomes and poor healthin Those workers whose children have left home and whosemortgages are reduced or paid, are in a position to increasesavings significantly from around the age of 45 as they becomemore aware of approaching retirement.

7 Others may still haveyoung dependants and substantial financial commitments. Inaddition, many mature-age workers in the 1990s began theirworking lives in a period of near full employment and did notanticipate the possibility of job The financial obligations in raising families and the relativeinfancy and recent acceptance of the compulsory superannuationarrangements are factors affecting people s insufficient savings forretirement. The Treasury advised that in 1986, only 40 per cent ofemployees were covered by superannuation and these tended tobe higher income and white-collar Award superannuation, introduced in 1986, and thesuperannuation guarantee levy in 1992, have increased thesuperannuation coverage of low income, part-time and womenemployees. In late 1999, however, the average balance insuperannuation guarantee accounts was only $8000 or $9000 while82 per cent of superannuation payments for those aged over 55were under $40 Consequently, the majority of retirees in theshort term will be reliant on the age pension (or part pension) tofund their A prime objective influencing policies affecting mature-ageworkers is the encouragement of people to remain in work for aslong as possible and to remove incentives for them to leave remaining in work they can maximise pre-retirement andretirement income.

8 Treasury pointed out that the longer a person is unemployed, andthe earlier they retire, the greater the adverse financial effect ofunemployment. People unemployed later in life are less able toincrease savings to make up the shortfall in expected retirement12 B. Wight, DFaCS, Transcript, p. Treasury, Submission no. 131, p. P. Gallagher, Treasury, Transcript, p. Gallagher, Transcript, p. DFaCS, Submission no. 115, p. OF UNEMPLOYMENT53income and this loss is greater the earlier a person provided an example:..an individual on average earnings, unemployed for ayear at age 64, would receive a gross retirement benefitaround $9500 larger than someone in the samecircumstances who was instead unemployed for a year atage 45. This reflects the additional interest accumulatedover these nineteen The financial impact of unemployment is also influenced by theinteraction of superannuation and income support assets test. Theinquiry received many complaints about the impact of the socialsecurity income and assets tests on people being retrenched.

9 A1996 Budget decision was that mature-age job seekers aged over55, unemployed for more than nine months, would have to havetheir superannuation assets assessed under the income test beforebeing eligible for benefits. Witnesses argued that this long durations of unemployment are common for thisage group, being forced to draw upon theirsuperannuation and savings early may have long-termnegative financial Consequences . Older people who are ininvoluntary early retirement are at risk of depleting theirfinancial resources before they reach the usual retirementage of 65. This will lead to an increasing proportion ofpoor retirees forced to rely solely or largely ongovernment benefits, who might otherwise have beenself-supporting, if their working lives had not been endedprematurely against their Unemployed people also have a greater usage of health services,such as higher hospital admissions, doctor and outpatient visitsand higher use of pharmaceuticals, than employed also results in an increased cost to Treasury, Submission no.

10 131, pp. Treasury, Submission no. 131, p. Submission no. 32, pp. 6 7; SA DOME, Submission no. 36, p. 4; ACOSS, Submissionno. 106, pp. 5 6; COTA, Submission no. 109, p. 21; Mission Australia, Submission 3, p. 8; ACTU, Submission no. 136, p. ACOSS, Submission no. 109, p. Australian Institute of Health and Welfare, Submission no. 157, pp. COUNTSI mpact on the Treasury advised that unemployment costs the Federal Budgetthrough: Reducing current and future tax revenue and receipts,including those on superannuation and investments; A greater number of people receiving age pensions, includinghigher payments for those who retire early and run downsuperannuation; and Greater spending on health, education and other A report by the Boston Consulting Group for the Business Councilof Australia (BCA) has said:A failed termination-back-to-work transition that ends upin a stint of long-term unemployment costs society in theorder of $50,000 to $150,000 per episode, depending onthe age, salary level and family circumstances of theworker whose employment is At a broader level, unemployed resources in the economy arelikely to result in lower economic growth than otherwise.