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Relocation reimbursement for New Start Allowance



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Relocation Reimbursement for New Start Allowance

16 August 2010

The following briefing was comm

issioned on behalf of a non-Government member of

Parliament by the Pre-Election Policy Unit of the Parliamentary Library. The Unit was established to assist non-Government Senators and Members develop polices in the lead-up to federal elections. The views expressed do not reflect an official position of the Parliamentary Library, nor do they constitute professional legal opinion.

NATSEM www.natsem.canberra.edu.au

16 August 2010

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RELOCATION REIMBURSEMENT FOR NEW START ALLOWANCE

NATSEM is a research centre associated with the University of Canberra that undertakes research and analysis specialising in the use of microdata and microsimulation modelling to address ongoing and emerging research agendas and client demand and contribute to and enhance social, economic and business decision making.

Using microsimulation models, NATSEM can estimate the effect of changes in Tax/Transfer policies before these policies are implemented. This provides a powerful tool to Government policy makers, and NATSEM’s microsimulation models have been used extensively in the past by the Government, researchers and lobby groups to model particular Tax/Transfer policies.

It should be noted that NATSEM is a professional independent research agency, with no political or social bias. The results in this report are based on a number of assumptions, and these are central to the results obtained. We would therefore ask that if this report is released, the whole report is made available, so media and commentators can see all the assumptions being made. We would also request that NATSEM is consulted on any media release, to ensure that the results are shown and interpreted correctly.

The scenario modelled in this paper is a relocation reimbursement for people on New Start Allowance (NSA) of up to $6,000 for regional jobs and $3,000 for metropolitan jobs to cover moving costs including airfares and two months rent allowing the person to move to take up a job vacancy provided through the Job Network. If they refused this offer their entitlement to NSA would be limited to six months from the time they refused the offer. A further $3,000 bonus is provided to families with children or dependant students. The offer would be limited to people who are:

 not currently working and on NSA;  take up a position of at least 20 hours paid employment.

Employers would gain a subsidy of $2,500 for employing an individual for at least 12 months. This will be $2,500 for each job taken up, being $500 per week for 5 weeks. We will be assuming that the employee will be in the job longer than 5 weeks, so the maximum employer benefit will be paid.

NATSEM www.natsem.canberra.edu.au

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This project involves a relatively complex policy analysis covering a range of variables, some of which are difficult to estimate, such as job offer rates and take-up rates. The extremely tight deadline provided by the Department of Parliamentary Services (DPS) required NATSEM to provide only a basic analysis with little regard for potential ‘unintended consequences’ of policy change. NATSEM asks that the client respects these limitations and treats the results with due caution.

The relocation allowance is likely to involve an administration cost to the government. NATSEM is unable to provide an estimate on this cost.

METHOD

The modelling used NATSEM’s STINMOD microsimulation model, which is based on 2005-06 and 2007-08 ABS Survey data. The decision path used for the modelling is shown in Figure 1.

It can be seen that from the study group (NSA recipients and not currently working), a person is randomly chosen to either be offered a job; or not offered a job. A range of acceptance rates were used.

For some people accepting the subsidy, they would have got the job without the subsidy. For these people, the cost is up to $6,000 + $2,500 + $3,000 (for families with children), but there are no additional benefits which can be directly attributed to the policy - these people would have got a job anyway. We have assumed that 40 per cent of people accepting a job would have got a job without the subsidy.

To improve the reliability of the results, NATSEM used re-sampling techniques. This involves taking several alternative samples of those offered and those accepting the relocation allowance. Averaging these results reduces the error margins of the estimates.

Once these offer and acceptance rates were applied to the study group, the people selected as accepting the offer were given the average wage ($493 per week) for those moving from unemployment to employment (of at least 20 hours per week) for those respondents of working age. This was taken from the HILDA longitudinal survey. Each person who accepted the offer was then given a subsidy of $2,100, which equates to an assumption of a random subsidy of between $0 and $6,000 for the regions (assuming 40 per cent of jobs were in regional areas) and $0 and $3,000 for metropolitan areas (assuming 60 per cent of the jobs were in metro areas). A further $3,000 was provided to families with children. Only around 16 per cent of recipients had dependants. The people who were made an offer but did not accept were either assigned to a group that found another job within 6 months, who were again given the average wage of $493 per week; or a group that did not find another job, so were off NSA.

STINMOD was then used to calculate how much tax the people who are working would be paying; and how much NSA was no longer being paid to this group. For the group leaving NSA after 6 months, the savings counted are the NSA savings.

NATSEM www.natsem.canberra.edu.au

16 August 2010

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Relative to the previous study where the age group was limited to 18 to 30 year olds NATSEM used lower offer and acceptance rates. This decision reflected labour supply issues for a potentially large pool of recipients (480,000) and older age groups being less likely to be willing to accept an offer to move given family constraints.

Given the time constraints, we had to make a number of assumptions relating to the analysis, which included: - assigning NSA recipients who take a job a fixed wage; - a certain percentage of people who are offered a job but don’t take it then get

another job (we have assumed 60 per cent, which is 20 percentage points above the average number of NSA recipients who find a job, so we are assuming the 6 month timeframe for NSA provides an additional incentive to find a job); - For those who are offered a job, don’t take it and then find another job, we attribute the additional tax paid and NSA savings to the policy because of the additional incentive that the 6 month cut off provides in finding a job. This is different to the people who were offered a subsidy, accepted the subsidy, but we assume would have found a job without the subsidy, where we do not cost the additional tax paid and NSA saved as these are not a direct outcome from the policy. - Conversely, we have assumed 40 per cent, which is 20 percentage points below the average number of NSA recipients who don’t find a job. - Of those accepting the job relocation offer, we compare the job gains and monetary gains relative to a base world where 40 per cent would have gained an alternative job with a similar wage within 6 months. - assigning a subsidy of $2,100, which is equivalent to randomly assigning a value of $0 to $6,000 for 40 per cent of people (those in regional areas) and $0 to $3,000 for 60 per cent of people (those in capital cities); - The full $3,000 is provided to families with dependants; - randomly assigning take up rates to the study group; - The base year was chosen to be 2010/11. Results beyond this year assume population growth of 1.5 per cent and inflation of 2.75 per cent for all wages and benefits. - Each year is assumed to be independent of previous years. STINMOD is a static model so takes no account of a potentially smaller pool of NSA each year. Caution must be taken in interpreting beyond 2010/11. Any shrinking of the pool of NSA as a result of the allowance will most likely lessen the impact on aggregate unemployment, taxation and benefits. - The model has only taken into account economic costs and benefits of the proposal, not social costs and benefits. So the social benefits of finding a job; and the social costs of being forced off NSA 6 months after refusing a job offer, have not been counted in the analysis. - The job gains relate to an improved labour matching process in account of the relocation allowance, and an incentive for job seekers to find employment once they have been offered a job, given the removal of NSA after 6 months. - There are no offsetting reductions in the job offer rate to local residents through the relocation allowance attracting workers outside the local area.

NATSEM www.natsem.canberra.edu.au

16 August 2010

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Figure 1 - Decision path

NSA Recipients aged 30 or less, not currently working

Offered a job Not offered a job

Take the job Don’t take the job

Wouldn’t have got a job without subsidy

Find another job within 6 Months

Off NSA

Cost

Up to $3,000 in metro areas Up to $6,000 in non-metro areas $3,000 for families with

children

$2,500 employer assistance Benefits NSA Savings Tax Payments

Cost

None modelled Benefits for those assume find jobs Additional NSA Savings Additional Tax Payments

Cost

None modelled Social costs for those not getting NSA Benefits

Additional NSA Savings

Would have got a job without subsidy

Cost

Up to $3,000 in metro areas Up to $6,000 in non-metro areas $3,000 for families with

children

$2,500 employer assistance Benefits None

RESULTS

Results are provided for 9 scenarios (3 offer rates and 3 take-up rates). The simulated results are provided for the current financial year (2010/11) up to 2013/14. The impact of the policy is assumed to have fully impacted on each financial year.

The scenarios provide projected results only and do not represent forecasts. The scenarios enable the client to better understand a range of possible outcomes. Given the short time-frame of the modelling work there was little prospect for forecasting job offer rates or allowance take-up rates. NATSEM is unable to provide guidance on the relative likelihood of given scenarios.

By way of example, for the 2010/11 financial year, an offer rate of 20 per cent and an acceptance rate of 20 per cent is estimated to yield the payment of 17,600 allowances costing the Federal Government $82.7 million dollars. The incentive provides 21,700 jobs including 4,100 jobs for current NSA allowees who do not take up the relocation allowance. These jobs are as a direct result of the incentive to move from NSA to employment given the 6 month cut-off for NSA once an offer has been made. The unemployment rate for is estimated to drop by 0.18 percentage points.

NATSEM www.natsem.canberra.edu.au

16 August 2010

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The relocation allowance would increase personal income taxation receipts to the government by $29.5 million; reduce government social security payments by $271.9 million and reduce the number of NSA recipients by 51,000. These estimates increase in line with population growth and inflation as forecast over the next three years.

Scenario Analysis Scenarios Estimates

Offer Rate Acceptance Recipients Allowance Additional Unemployment Additional Less Less

Rate Cost ($million) Jobs Rate Change Taxation Benefits NSA Recipients

2010/11 * ($million) ($million) **

10 10 4,600 22.5 9,900 -0.08% 13.2 124.0 24,400

10 20 9,600 45.1 10,000 -0.08% 13.5 125.1 23,900

10 30 14,300 67.2 12,700 -0.11% 17.4 161.4 24,500

20 10 9,100 42.8 18,900 -0.16% 25.6 236.2 50,800

20 20 17,600 82.7 21,700 -0.18% 29.5 271.9 51,000

20 30 27,900 131.1 25,500 -0.22% 34.8 322.2 51,300

30 10 15,400 72.4 32,600 -0.28% 45.1 411.7 81,400

30 20 29,400 138.2 36,500 -0.31% 50.5 460.7 80,400

30 30 45,500 213.9 43,400 -0.37% 60.3 550.6 81,200

2011/12 10 10 4,700 23.4 10,000 13.8 129.3 24,800

10 20 9,700 47.1 10,200 14.1 130.5 24,300

10 30 14,500 70.1 12,900 18.1 168.3 24,900

20 10 9,200 44.6 19,200 26.7 246.3 51,600

60 20 17,900 86.3 22,000 30.7 283.6 51,800

60 30 28,300 136.8 25,900 36.3 336.1 52,100

30 10 15,600 75.5 33,100 47.0 429.4 82,600

30 20 29,800 144.1 37,000 52.7 480.5 81,600

30 30 46,200 223.0 44,100 62.8 574.3 82,400

2012/13 10 10 4,800 24.4 10,200 14.4 134.9 25,200

10 20 9,800 49.1 10,400 14.7 136.1 24,700

10 30 14,700 73.1 13,100 18.9 175.6 25,300

20 10 9,300 46.5 19,500 27.9 256.9 52,400

60 20 18,200 90.0 22,300 32.1 295.8 52,600

60 30 28,700 142.6 26,300 37.8 350.5 52,900

30 10 15,800 78.7 33,600 49.1 447.9 83,800

30 20 30,200 150.3 37,600 55.0 501.1 82,800

30 30 46,900 232.6 44,800 65.5 599.0 83,600

2013/14 10 10 4,900 25.5 10,400 15.0 140.7 25,600

10 20 9,900 51.2 10,600 15.3 142.0 25,100

10 30 14,900 76.3 13,300 19.7 183.1 25,700

20 10 9,400 48.5 19,800 29.1 268.0 53,200

60 20 18,500 93.9 22,600 33.4 308.5 53,400

60 30 29,100 148.8 26,700 39.4 365.6 53,700

30 10 16,000 82.1 34,100 51.2 467.1 85,100

30 20 30,700 156.8 38,200 57.3 522.7 84,000

30 30 47,600 242.6 45,500 68.4 624.7 84,900

* Based on change from ABS Labour Force, June 2010.

** STINMOD estimates 480,000 NSA recipients in 2010/11.

NATSEM www.natsem.canberra.edu.au

16 August 2010

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Relevant Parliamentary Library Publications Parliamentary Library, Budget Review 2010-11, Research Paper, 26 May 2010, No. 17, 2009-2010, http://www.aph.gov.au/library/pubs/RP/2009-10/10rp17.pdf

© Commonwealth of Australia 2010

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This work has been prepared for the Pre-Election Policy Unit of the Parliamentary Library in response to requests from non-Government Members and Senators to support them in developing policies in the lead-up to the Federal election. The views expressed do not reflect an official position of the Parliamentary Library, nor do they constitute professional legal opinion.

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