Discussion of Unemployment and Income Distribution

The central point of this informative paper is that the unemployed in Australia are disadvantaged in several ways. They are, first of all, out of a job – a circumstance that often makes for a dispirited and even depressed condition. Second – and this is what much of the paper concerns – the unemployed are poor. Not only are they poor, but they are considerably poorer than are the working poor – those working at the minimum wage. (Frankly, I would be rather nervous about any benefits system that made the unemployed better off, on average, than those working at the minimum wage.) Although there is no doubt that the unemployed are disadvantaged, the question I must first raise is whether the authors measure the income of the unemployed appropriately. The measure they use is the reported weekly earnings of the family during the week in which the household member in question experiences unemployment. Such a measure vastly overstates the difference in economic well-being between those experiencing unemployment and those who do not. The reason is because the income measure applies only to the week during which unemployment is experienced. Most families smooth consumption over intervals as brief as a week. Many of the currently unemployed will be employed at some point during the year and some of those currently unemployed will experience a spell of unemployment at another time. By measuring income for only the week during which unemployment is experienced, the difference in economic well-being between families with an unemployed member and those without, will be greatly magnified. Note that the odd result in the paper that the long-term unemployed fare better economically than do the short-term unemployed is most probably a consequence of this method of measuring income. A better measure of economic well-being would be to use annual or quarterly income (were it available) for the family.