With recent economic modelling suggesting more than a quarter of Australians could be out of work due to COVID-19, the federal government is being urged to provide better support for those who find themselves unemployed.
On April 20, 2020, Australian Council of Social Service (ACOSS) CEO Cassandra Goldie told ABC viewers it was important to get people out of unemployment quickly.
Goldie said: “Many people lived through the global financial crisis, and almost 10 years later, when we looked at the effectiveness of what was done, we left far too many people behind. The experience was that if you were out of paid work for over a year, then you almost halve your chances of ever getting back into employment.”
She repeated the claim that day in a media statement: “We know from past experience that when someone is unemployed for over a year, their chances of securing paid work typically fall by 40%.”
Do your chances of finding work nearly halve after 12 months of unemployment, and was that the experience following the global financial crisis?
RMIT ABC Fact Check investigates.
Goldie’s claim is a fair call.
Studies show the longer a person is unemployed, the slimmer their employment chances become.
The evidence supplied by ACOSS does not allow for a precise calculation of chances within the first 12 months of unemployment, but experts said it was likely they were roughly halved at 12 months.
Recent analysis suggests people unemployed for one to two years have a 44% smaller chance of finding work within the next year than people unemployed for less than three months. For those unemployed longer, the likelihood is even slimmer.
None of the studies seen by Fact Check showed what happened to people who lost their jobs during the global financial crisis.
However, experts said it was reasonable to use past experience as a rough guide.
They also said there were several reasons why people unemployed long-term may see their job prospects diminish, meaning it was not simply down to the length of their unemployment spell.
The global financial crisis
During her interview, Goldie referred to the experience of the global financial crisis.
Fact Check has previously written that there is no precise way to measure when the crisis started and finished, though it might be roughly said to cover the period from the September quarter of 2007 to the March quarter of 2009.
But the economic fallout continued for some time after that, with unemployment peaking in mid-2009.
Source of the claim
Asked for the basis of the claim, a spokeswoman for ACOSS told Fact Check via email: “The evidence we have for this statement is both more recent (2016) and from the last recession (early ’90s) as distinct from the GFC [global financial crisis]. Evidence from the two periods, either side of the GFC, is consistent.”
She supplied Fact Check with a 1993 academic paper by economists from the Reserve Bank of Australia (RBA) and a presentation by the Department of Social Services to a 2016 conference.
A summary of the department’s presentation was cited in an ACOSS report published the day Goldie made her claim, titled Faces of Unemployment 2020.
Using welfare data
Both analyses relied on by Goldie examined welfare data from the Department of Social Services.
This data covers anyone receiving unemployment support payments, including people working part-time.
That means it is not directly comparable with ABS unemployment data, which excludes anyone who has worked more than an hour in the previous week.
Michael Dockery from the Faculty of Business and Law at Curtin University told Fact Check the data was “not perfect” but “probably if I was to grab the statistics that I thought were available that would cast a light on this question, it’d be the [department’s].”
Jeff Borland, a professor of economics with the University of Melbourne, said there was no problem using the departmental data as a proxy for unemployment data, something many studies had done in the past.
What the department found
In its conference presentation, the Department of Social Services (DSS) looked at who was on unemployment benefits in April 2015 and who was still on them 12 months later.
“These outcomes are used as a guide for the likelihood of recipients exiting payment in the next year based on their current duration,” it said.
Results were presented for six groups, categorised by how long they had been receiving payments when the study began: zero to three months, three to six months, six to 12 months, one to two years, two to five years and more than five years.
The department found that of the people who had been on benefits for up to three months, nearly 55% had “exited payment” within the year.
By contrast, of those who had been on benefits for one to two years, only 31% were off benefits by the end of the study.
That makes their chances 44% lower than people unemployed for up to three months — chances that continued to fall the longer they were on benefits.
Only 23% of those who had been on benefits for two to five years were off benefits by the end of the year, along with just 13% of those who had been on benefits for over five years.
“The longer a person’s income support duration the more likely it is they will still be on payment twelve months later,” the presentation concluded.
A spokeswoman for the department told Fact Check the study was a one-off analysis, but declined to confirm whether “exits” only included people who had found a job.
A fair reading?
Goldie said a person’s chance of finding work was 40% lower after being unemployed for “over a year”.
She did not specify whether this was in contrast to the entire period under year or the period at the start of unemployment.
ACOSS’s spokeswoman told Fact Check that her claim was based on a comparison of the department’s results for the zero to three month and the one to two year groups.
Dockery said making a precise comparison of people unemployed for less than 12 months with those unemployed for more than 12 months would require weighting the results to account for the number of people in each group (i.e. zero to three months, three to six months and six to 12 months), so, based on what was available, Goldie’s comparison was “about the best you can do”.
Borland echoed the point about weighting the data, but said it could be “roughly” inferred from the department’s analysis that “your probability of leaving unemployment in the next year is less than half once you get to 12 months compared to the average in the first 12 months”.
This was consistent with evidence from other studies and data sources, he said.
However, Goldie spoke of the chances of “ever” finding a job.
Borland explained this made it “very difficult”, maybe “impossible” to test, and said it was more usual to investigate the probability of finding a job in a specific interval of time.
The RBA paper
ACOSS also supplied a Fact Check with a 1993 peer-reviewed paper by two Reserve Bank economists.
It examined the average rates at which people moved off unemployment payments in any given three-month period between 1985 and 1991, using DSS data.
According to the authors, the departmental data for males provided “the most accurate reflection of the labour market” at the time because, for example, an unemployed married woman would generally appear as a dependent spouse on her husband’s benefit entitlement.
The results show men who had been unemployed less than three months at the start of the quarter had a 43% chance of moving off benefits by the next quarter.
Those who had been unemployed for one to two years had a roughly 20% chance of leaving within the quarter. In other words, their chances were 53% lower.
After two years, the chance of leaving benefits fell to 15%.
The paper said the data “shows very clearly that exit rates decline as the duration of unemployment increases”.
Confirming the trend
Experts said most of the research on long-term unemployment was done following recessions in the 1980s and 1990s when unemployment had been high.
They pointed Fact Check to a handful of more recent studies that similarly showed employment prospects diminish with time spent unemployed.
An ABS analysis of 1994-97 survey data, for example, found the chances of someone ending a spell of unemployment “falls continuously as duration increases”.
Co-authored by Dockery in 2000, it used time spent job searching as an estimate for the length of unemployment spells.
Dockery told Fact Check the results showed that “the rate does pretty much fall by half after 12 months”, and that on previous evidence, “it’s probably even more”.
In 2006, a peer-reviewed study of data from the Household Income and Labour Dynamics (HILDA) survey found the rates of people finding work “do not fall with duration initially, but after a period of approximately four months they then appear to decline by a large amount”.
More recently, in 2016, an ABS research paper using longitudinal data from the labour force survey found: “The relative odds of exiting into employment decrease with the time spent in unemployment and the rate of change is quite steep at first and then tends to smooth out.”
Fabrizio Carmignani , a professor of economics at Griffith University, told Fact Check the ABS paper confirmed the general finding of the 1993 Reserve Bank study.
“So you’ve got the story being told in two different ways, but consistently, in the two papers,” he said, noting that while that did not confirm the precise figures quoted by Goldie, it did confirm “the economic logic”.
Does it apply to the GFC?
While Goldie spoke of the people who lost their jobs during the global financial crisis, the studies cited by ACOSS did not specifically track people during this period. Nor did the studies identified by the experts contacted by Fact Check.
Borland said economists would expect that, in downturns, “the outlook for people who are long-term unemployed probably becomes worse than on average”.
But while it was “not unreasonable” to apply the lessons of past experience to the global financial crisis, he said it was “important to be clear about the time periods from which the data were taken”.
Carmignani told Fact Check that “on strict econometric grounds you cannot unambiguously conclude that the estimates of the 1990s are identical to the estimates for 2000s”, but said the results from the 1990s would probably carry through to the global financial crisis.
Cause and effect
Experts consulted by Fact Check said there were several possible reasons why a person’s chances of finding work diminished over time.
Phil Lewis, director of Canberra University’s Centre for Labour Market Research, said: “It’s not a simple matter of, you get a recession, therefore, people become unemployed for a period of time, and therefore, they’re always going to be unemployed.”
People may lose motivation and skills the longer they are unemployed, or employers may use length of unemployment as an imperfect way to screen candidates in the absence of other information.
Or, time spent unemployed may simply reflect your original chances of finding work, which might have been low to begin with.
“So just from a statistical point of view, people who can get a job easily tend to leave the queue first, so the people left in the queue are the people who haven’t got the qualities that firms desire,” Lewis said.
Echoing this point, Dockery said it was “really hard to say” how much a person’s shrinking prospects were due to time spent unemployed, and to what extent they instead reflected “the people with the least chance [being] the ones that are left as you go on over time”.
Principal researcher: David Campbell
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- Cassandra Goldie, Afternoon Briefing interview, April 20, 2020
- Cassandra Goldie, ACOSS media statement, April 20, 2020
- ABS, Long-term unemployment (definitions), accessed: May 1, 2020
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