Incentives to Work: Replacement Ratios and the Cost of Job Loss among Indigenous Australians

Abstract

The relationship between the social welfare system and employment incentives has received considerable attention in the literature. This paper uses data from the National Aboriginal and Torres Strait Islander Survey to consider these issues for indigenous Australians. Two measures are calculated: the replacement ratio which measures the expected gains from employment for those not in work; and the cost of job loss which measures the expected costsof becoming unemployed for those in employment. The estimates presented here show that the replacement ratio is higher for females than males and for those in a married or de facto relationship compared with single people. About 5 per cent of single males and females could expect a higher income from social security than from non‐Community Development Employment Projects (CDEP)scheme employment. Among those with dependent partners 24 per cent of males and 40 per cent of females looking for work could expect a higher income from social security than from non‐CDEP employment. The estimates of the cost of job loss, which include the effects of the duration of unemployment and the replacementratio, show a high cost for some indigenous Australians because of their expected longer duration of unemployment.