The COVID-19 crisis: where is help needed most?



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Meg Cuddihy joined CEDA as a Senior Economist in November 2019. Before joining CEDA, she spent several years as an economic analyst at the Australian Bureau of Statistics working across Australian industry statistics, business indicators and national accounts. She also spent two years volunteering in the South Pacific as an analyst and policy officer. She is currently studying a Master of Analytics at RMIT and holds undergraduate degrees in Economics and Arts from the University of Queensland.
 

Ahead of the anticipated announcement of the government's next fiscal package, CEDA Senior Economist, Meg Cuddihy, gives a comprehensive assessment of the sectors and people most in need of government assistance during the COVID-19 economic crisis. 

Meg Cuddihy | 20/03/2020 | 0 Comments


Many Australians are anxiously awaiting the government’s next fiscal package this weekend in the face of the COVID-19 pandemic and increasingly stringent isolation measures. Thousands have already felt the immediate impact of unprecedented changes to our economy and there is no question that immediate financial relief is needed. 

A little over a week ago, the government announced an initial $17.6 billion package, including $750 one-off direct payments to pensioners and others accessing Centrelink support to stimulate consumer spending, along with cash payments of up to $25,000 to eligible businesses to help pay wages and lessen the need for staff cuts. These measures, which seemed reasonable at the time, have already been overwhelmed by the daily signs of economic deterioration we have seen streaming through our newsfeeds.  

The government’s next steps need to target those facing the greatest hardships as a result of the pandemic. A big focus needs to be supporting displaced workers and those most vulnerable, while also supporting business with the vital task of labour hoarding – the only kind of hoarding that Australia needs to be engaged with right now. With so many Australians bracing for impact, who does the data suggest is in most urgent need of help right now? 

What sectors are most vulnerable in the pandemic? 

Off the back of bushfires and the initial outbreak of COVID-19 in China, Australia’s tourism-related industries were already in precarious positions. Following stringent measures to restrict the entry of most foreign nationals into Australia, along with crowd caps of 100 people for indoor events and 500 people for outdoor events, businesses in these industries are facing nearly a complete drop-off in demand.  

In the 2018-19 financial year, retail trade, accommodation and food services, and arts and recreation services contributed more than 7.3 per cent of total GDP. These industries are also a significant source of employment for over 2.5 million people – just under 23 per cent of the Australian workforce.




Real-time data scraped by OpenTable demonstrates just how drastic the drop-off in demand is for the restaurant industry. The growth rate of year-on-year bookings was relatively flat only a month ago. As of the 18 March, the rate of restaurant bookings in Australia had dropped by 50 per cent compared to a year ago.  

Of course, these industries do not exist in isolation. Cratering demand for inputs and intermediate services will have huge implications for other industries, such as agriculture; transportation; and administrative and support services, which includes temporary staff hired from employment agencies for large events.  

The drastic fall in international student numbers will also affect wide swathes of the economy. Aside from iron ore and coal, education is Australia’s largest export, constituting roughly eight per cent of total exports in 2017-18 – a $32 billion contribution to the economy. The drop-off in the number of students accessing Australian’s education services this year will cut deeply across many sectors.  

Which businesses are most vulnerable? 

The prevalence of small and medium businesses in these vulnerable industries means that many operators face the squeeze of a highly competitive market even during times economic stability. In accommodation and food services, almost 80 per cent of industry employment comes from small and medium businesses. 

In terms of industry value added, small and medium businesses in retail trade, accommodation and food services and arts and recreation contributed over $80 billion to the economy in the 2017-18 financial year.
 


Which workers are most vulnerable? 

These industries are highly reliant on casual employment. Casual employees have no paid leave entitlements, such as sick leave and annual leave. They face a much higher degree of income uncertainty during times of economic hardship, as their weekly hours can be modified or cut completely without notice. Casual workers are paid a higher hourly wage to compensate for when leave needs to be taken or when hours are reduced, but this is premised on the assumption that disruptions to work hours will be relatively short-term and not widespread across several industries so there are options to change jobs if needed. 

Over 60 per cent of employees in the food and accommodation industry are casually employed. This represents around 500,000 people whose income could be drastically reduced or completely eliminated without notice by businesses struggling to survive.
  



More broadly, casual employees account for 24 per cent of the Australian workforce, or 2.6 million employees. The age distribution of casual workers is much younger compared to non-casual workers, so despite a higher hourly wage, many of these workers are not likely to have had time to accrue enough savings to accommodate a long-term period of unemployment. A third of casual employees are dependent students and non-dependent children. Twenty three per cent of casual employees have parental responsibilities and five per cent of all casual employees are single parents.  
 

Who else is vulnerable? 

Median weekly earnings for employees with leave entitlements are twice as high for men compared to casual employees and 2.5 times higher for women. According to data from the Melbourne Institute’s Household Income and Labour Dynamics in Australia (HILDA) Survey, underemployed workers are more likely to be casually employed. Casual staff are also more likely to be employed by a small or medium sized business. 
 


While a focus on jobs and businesses is certainly needed from governments, it’s important to remember that there were a significant number of people already facing considerable hardship and poverty before the pandemic struck.  

In CEDA’s Disrupting Disadvantage: Setting the Scene report, we highlighted the fact that 700,000 Australians have been in income poverty continually over the last four years. 460,000 Australians relied on the Newstart allowance for over a year, while 156,000 of these people have relied on it for over five years. Even during times of economic stability, the Newstart allowance has shown to be inadequate to raise disadvantaged Australians out of poverty. Now that we face a time of unprecedented economic disruption, a one-off payment of $750 to members in our community who are already struggling to get by is not going to cut it. 

Conclusion

Australia has shown great economic resilience in the past; if we dig deep and take the necessary action, we can help our most vulnerable communities and businesses through this crisis.  


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