Do higher unemployment benefits reduce incentives to work?

The Coronavirus Supplement, introduced during the COVID-19 pandemic, was a temporary policy aimed at mitigating financial hardship for Australian households. However, its effect on employment behaviour has been the subject of debate. This research examines whether the Supplement reduced incentives to work by comparing labour market responses of Australians to New Zealanders residing in Australia, who were excluded from the policy. Using propensity score matching and a difference-in-differences framework, we identify a 19% decline in job-finding rates and a 64% increase in job separations attributable to the Supplement. These findings underscore the balance policymakers must strike between financial support and labour market incentives, particularly during crises. We also explore implications for optimal unemployment benefits, highlighting the need for careful calibration to address both social insurance and incentive effects.

Ali Vergili is a Postdoctoral Researcher at e61 Institute and recently completed his PhD in Economics at the University of Technology Sydney. His research covers applied microeconomics—particularly labour, demographic, and development economics. Drawing on microdata, Ali explores how legal reforms influence labour market decisions, fertility choices, and auction market outcomes.