Do people change their earnings to avoid losing benefit payments?

by Matt Nolan

Following the 2023 Federal Budget, policymakers are debating the most appropriate way to provide financial support to unemployment benefit recipients – should the JobSeeker payment be raised, or should the JobSeeker income-free threshold be increased? A higher threshold can put money in the hands of those who are working while receiving JobSeeker and provides a financial incentive to work more. But will working JobSeeker recipients work more if the threshold rose?

In a two-page e61 micro note, we find that an increase in the threshold would provide more income to JobSeeker recipients but that they would not choose to work more. Detailed analysis of individual-level social security data shows that the earnings of working recipients do not `bunch’ at the income-free threshold – even though the marginal tax rate rises from 0% to 50%.

We also find:

  • At least 90,000 JobSeeker recipients would see an increase in their take home income if the threshold was increased.
  • Mutual obligations may explain the result. A greater number of recipients have been exiting the JobSeeker scheme due to failures to meet mutual obligations criteria since the mid-2010s.