Income Support Policy Incentives Regarding Compliance with Unemployment Payment Requirements

Abstract

<p>Over the next four years, an estimated $60.5 billion will be spent on Australian unemployment payments (Department of Social Services, 2021A). As of 31 March 2021, 1.3 million people received these payments (Department of Social Services, 2021B). A condition for receiving these payments is meeting ‘mutual obligation requirements’, which usually involves looking for work, meeting with privately-run employment services providers and undertaking activities designed to increase the likelihood of finding work (Australian Government, 2019).</p> <p>While the end goal of these policies incentivising participation with requirements may be to increase employment, the extent to which policies increase compliance with requirements is important in its own right. Jobseekers are not sanctioned when they do not find work; they are sanctioned when they do not comply with their requirements.</p> <p>It is estimated that in 2021-22 Australia will spend $2.4 billion on employment services administering these requirements (Department of Education, Skills, and Employment, 2021), and a fundamental reform of these employment services was announced in the 2021-22 Commonwealth Budget (Department of Education, Skills, and Employment, 2021). Accordingly, if policies that are designed to incentivise compliance with requirements do not work, this raises important questions about foregone Commonwealth expenditure. For example, payments will be made for employment services provider staff who arrange appointment times with jobseekers who do not turn up. An important additional concern is that non-compliance with requirements can result in significant penalties for jobseekers. If policies are not effective or their harm outweighs their benefit, this would imply that these policies need to be revised.</p> <p>Mutual obligation requirements and sanction policies have also been subject to intensive political scrutiny. For example, over recent years, there have been nine Australian Parliamentary inquiries with a significant focus on compliance arrangements, jobseekers’ requirements, or a combination of both</p> <p>Notwithstanding the widespread use of compulsory requirements in unemployment payment systems across the world, only a limited number of empirical studies have examined the effect of sanctions on compliance with payment requirements instead of employment outcomes. This represents a significant gap in the empirical literature since a key reason that sanctions exist is to encourage people to comply with their requirements. These requirements are intended to increase employment.</p> <p>This is also a key rationale for sanctions arrangements. In July 2018, a new targeted compliance framework commenced and the Explanatory Memorandum for the legislation introducing the changes emphasised the role of penalties in encouraging compliance.</p>