Unemployment payments and work incentives: An international comparison

by Matt Grudnoff

A study of 33 OECD countries shows that Australia could substantially lift its unemployment payments without any meaningful disincentives for working.

The Government has argued that Australia’s internationally low unemployment payments are needed, in part as an incentive to encourage the unemployment to look for and accept work.

This briefing note tests the Government’s theory by comparing Australia’s unemployment payments and unemployment rate (pre-COVID) to that of other countries in the Organisation for Economic Co-operation and Development (OECD). Since Australia had the lowest unemployment payments in the OECD, if the Government’s theory is correct then Australia should also have one of the lowest unemployment rates.

Instead, Australia’s unemployment rate is worse than that of most OECD countries. In fact, across the OECD higher unemployment payments (the “net replacement rate of unemployment”) are correlated with lower unemployment rates.

Full report