It seems quite likely that we will soon see the introduction of a wage subsidy along the lines of that announced by Boris Johnson (himself now testing positive!) in the UK. That is, a payment to employers equal to 70 or 80 per cent of workers’ pre-crisis wages, in return for keeping them on for some period. That would be better than doing nothing beyond what has already been announced, but I have two big problems with it.
First, it is paid to companies rather than workers. The ACTU is touting this as benefit, on the grounds of administrative simplicity, but I suspect that there is lots of potential for abuse through complex corporate structures. Second, it creates essentially arbitrary distinctions between workers. If you happened to work for a company that closes and stays closed, or if you were already unemployed you are out of luck. A final issue (on which opinions may differ) is that the benefit depends on previous salary, rather than being the same for everyone.
I’m thinking about an alternative model. Rather than paying money directly to employers, we should allow recipients of benefits like Newstart to use their benefit as a wage subsidy, either with their current/most recent employer (this would be specific to the pandemic emergency) or with a new employer. This would give workers more freedom and more agency, and could potentially form part of a Jobs Guarantee, which is, I have argued, the natural complement to a Guaranteed Livable Income (the term now being used by advocates of BI/UBI/GMO schemes in Australia). In particular, it could be sustained beyond the current emergency, which is not the case for the wage subsidy ideas.
There are plenty of issues to be addressed in the long run version of the voucher idea, such as the problems of additionality and churning (ensuring that the employer is creating new jobs, rather than replacing existing workers with voucher-holders). But such issues have been addressed in other contexts, with some success.
The ABC has an article quoting University of Melbourne epidemiologist Tony Blakely as saying (approvingly) that the object of the current “flattening the curve strategy is to smooth the path to herd immunity. Key quotes
You don’t go in too hard because you actually want the infection rate to pick up a bit and then hold,” he said.
“What they’re not saying is [that] ‘flatten the curve’ likely means [that] by the time this is over, 60 per cent of us will have been infected, to develop herd immunity,” he said.
The arithmetic here is pretty horrifying. 60 per cent of the population is 15 million so with a 1 per cent fatality rate, that would be 150 000 deaths. The number surviving but with long-term lung damage could easily be over 1 million.
It gets even worse. If herd immunity is supposed to be achieved over 12 months (by which time we are hoping for a vaccine) that would imply 40 000 new cases every single day. If even 10 per cent required hospitalization for several weeks, they would fill every bed in the country.
As for intensive care, we have a total of just over 2000 beds. Even with a hospitalization rate of 1 per cent, they’d be full in five days. And given that 1 per cent is the estimated fatality rate with treatment, that implies triage on a massive scale, which in turn would greatly increase the death rate.
This is simple arithmetic. If Blakely’s explanation of the government’s strategy is correct, it should be spelt out.
We won’t be travelling anywhere much by air for some time to come, so this is a good time to reconsider our whole approach. I thought I’d start by digging out this post from 2007.
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A new sandpit for long side discussions, conspiracy theories, idees fixes and so on.
Back again with another Monday Message Board.
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The coronavirus crisis is very different, at least in its origins, from the Global Financial Crisis. Both differ in crucial respects from other crises in living memory, notably including the Great Depression and World War II, as well a string of severe but not catastrophic crises that have affected the global economy and society. But thinking about them all together brings home the point that major economic crises are quite common events. The crisis of the past took each took between five and ten years to resolve. Even if the current crisis is shorter, we can draw the conclusion that crisis of one kind or another is not an aberration, but a regular occurrence in a complex modern society.
What they have in common is that the result in a need for urgent government action. The greater the capacity and willingness of governments to act to protect society from the economic damage associated with such crises the better, in general, the outcome has been.
The most immediate requirements for dealing with a crisis are a strong and comprehensive welfare state, and strong protections for workers. In the aftermath, we need a substantial economic role for government, including control over infrastructure and financial enterprises and public provision of services like health and education. In short, we need socialism.
(More to come soon!)
Last year I published a book chapter arguing that the first step way to get to a Universal Basic Income was to expand the existing benefit system, increasing payments and removing conditionality (relevant extract over the fold).
This is often called a Guaranteed Minimum Income (GMI). I counterposed the GMI approach to the alternative of making a small payment to everyone in the community, and then trying to increase it over time. I suggested three initial steps
Assuming a ‘basic first’ approach is preferred, how might it be implemented? Three initial measures might be considered:
(i) increase unemployment benefits, at least to the poverty line;
(ii) replace the job search test for unemployment benefits with a ‘participation’ test;
(iii) fully integrate the tax and welfare systems
We are already on the way to taking these steps. Having floated the idea of a separate benefit for people who lose their jobs due to the virus crisis, the government has quickly abandoned it in favour of an increase in existing benefits. This is supposed to be temporary, and, in theory, at least, there has been no change in compliance efforts like work testing. But ‘temporary’ will turn out to be a long time, and compliance efforts are going to be impossible until things return to normal.
In a subsequent post, I”ll look at the alternative of a universal payment which might be increased from the levels in the stimulus package to an amount sufficient to live on.
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