Benefit Numbers Fall: Really?

Don Brash was Reserve Bank Governor from 1988 to 2002, and National Party Leader from 2003 to 2006

Yesterday, the Minister for Social Development Carmel Sepuloni waxed enthusiastic about the June quarter Benefit Statistics, which showed what she called a “continuing fall in the number of people receiving a Main Benefit”. Well yes, there was a fall between the end of the March quarter and the end of the June quarter but benefit numbers show a pronounced seasonal effect. The real comparison should have been between the end of the June quarter of 2020 and the end of the recent June quarter. And that comparison would have revealed virtually no change in the number of those on a Main Benefit.

At the end of June 2020, the number of those on a Main Benefit was 352,429; at the end of June 2021, it was 354,744.

At the end of June 2020, the number of those on Jobseeker Support was 190,455; at the end of June 2021, it was 190,257.

At the end of June 2017, shortly before the Labour-New Zealand First Government came to power, the number of those on Jobseeker Support was 118,776. To June 2021, the number is up a shocking 60%.

It is perhaps not surprising that there was a big increase in the number of those on Jobseeker Support between June 2017 and June 2020 given the impact of the pandemic. But why has there been no reduction in the number of those on Jobseeker Support between June 2020 and June 2021?

After all, migration has been slowed to a tiny trickle, so New Zealanders are not being kept out of jobs by lots of immigrants – on the contrary, employers in virtually every industry are screaming out for staff, including relatively unskilled staff to pick fruit and serve at tables in restaurants. Inflationary pressures are building and the Reserve Bank has indicated that the time has come to start withdrawing some of the extraordinary stimulus which, while appropriate at the height of the Covid crisis, is no longer so.

Clearly having more than a third of a million adults dependent on a benefit at a time when employers are desperate for staff shows that there is something fundamentally wrong. What is it?

Of course, some of those on a Main Benefit are on what we used to call the Invalid’s Benefit, and almost 66,000 others are on “Sole Parent Support”, what we used to call the Domestic Purposes Benefit. But the number of those who are on Jobseeker Support and who are classed as “work ready” has increased from 63,027 in June 2017 to 110,790 in June 2021 despite all the Government’s talk about “getting the ‘nephs off the couch” through the Provincial Growth Fund, despite the massive fiscal stimulus, despite the most stimulatory monetary conditions in New Zealand’s history, and despite the best export prices in a generation.

What’s gone wrong?

From an employer’s point of view, the high number of “unemployed but work ready” suggests that those on the benefit are not worth hiring at the minimum wage. They lack the skills or the work ethic to justify the direct and indirect costs of hiring them. They may not be able to read well enough to read safety instructions or pallet labels. They may not be in the habit of turning up at the start of the work day, or of following simple instructions.

And the Government has greatly increased the risk to employers of taking on somebody with limited work experience by ending the previous arrangement where employers could end an employment relationship with few questions asked within 90 days of its commencement if it didn’t work out.

So hiring somebody with limited work experience has not only become more expensive – our minimum wage is now one of the highest in the world relative to the median income – but has also become much riskier. In other words, the Government has created an environment that strongly discourages employers from taking on the unemployed.

From the point of view of somebody on a benefit, there may well be the fear of rejection after unsuccessfully applying for many jobs previously.

But there may also be the realization that after the benefit is lost, tax is paid, travel and lunch costs are paid, childcare and clothing costs are incurred, there really isn’t much advantage in getting a job. Why work for 40 hours a week if, when all the additional costs are incurred, there really isn’t much advantage in being employed? And with no time limit on how long a benefit can be received and little pressure to take jobs which are offered, remaining on the benefit can seem an attractive option. Little wonder then that as at 30 June, 118,767 people had been on the Jobseeker Benefit a year or longer, despite employers’ desperate search for staff.

Being in long-term unemployment – indeed, being in any kind of involuntary unemployment, even for a relatively short period – must be extremely demoralizing. Policy should be focused on radically reducing unemployment, both by reducing the cost and risk to employers of taking on more staff and by encouraging those who are unemployed to get a job.

The high minimum wage and the inability to end an employment relationship which is proving unsatisfactory are two obstacles to reducing unemployment. We know that countries like Singapore and Switzerland – both countries which have no statutory minimum wage – have virtually no unemployment.

The absence of any kind of time limit on access to the Jobseeker Benefit also reduces the incentive for the unemployed to take a job which may not be their first, or even second, choice. Several countries have a life-time limit for being on an unemployment benefit – perhaps six years – with a shorter limit for being on the benefit at any one time.

There has been support from both the Left and the Right of the political spectrum for removing the problem of what economists call the Effective Marginal Tax Rate facing those getting off a benefit by introducing some form of Universal Benefit Income. This was proposed by The Opportunities Party in both the 2017 and 2020 election campaigns. I toyed with the idea myself when I was Leader of the National Party in 2004 but abandoned it when my colleagues saw enormous political risks in a system which would only work well with neither unemployment benefit nor minimum wage.

In my very first speech to the Orewa Rotary Club – no, not the one which everybody thinks of as my only Orewa speech but one given a year earlier than that more famous speech – I floated an idea which was suggested to me by a man who had worked closely with former Labour Party Leader, Mike Moore. He suggested that instead of paying the unemployment benefit on a weekly or fortnightly basis, it should be paid daily, in cash, to all the unemployed who turn up at some central location in each town or city and remained there all day, available to do whatever jobs the local authority needed doing. That would create a strong incentive to find more fulfilling work and prevent other jobs being done “under the table”.

The most radical suggestion for dealing with Maori unemployment was put to me by a Maori woman who was on Jim Bolger’s Employment Taskforce when unemployment reached 11% in 1991. I was at the Reserve Bank at the time, and she told me she wanted to discuss Maori unemployment with me, not in my office in Wellington but in her office in South Auckland. At the end of a long conversation, I asked her what I should do about Maori unemployment in the unlikely event I found myself with total authority in New Zealand. She looked me straight in the eye and said that, with effect from 1 January, I should stop the unemployment benefit completely. Completely? I asked. Completely, she said. “Too many of my people don’t have many skills so they can’t get high paying jobs. They can’t live well on the dole, but with four or five in the same house, all on the dole, and perhaps doing a few cash jobs under the table, they can live adequately on the dole. And that’s a disaster – for them!”

I am not dogmatic about what combination of policies should be adopted to reduce the terrible blight of hundreds of thousands of adult New Zealanders living on a benefit, sometimes for years on end. But what I am quite clear about is that the current Government has made things worse by increasing the cost and risk of hiring people – with increases in the minimum wage, additional sick leave, additional public holidays, threatened Fair Pay Agreements and removal of the 90 day probationary period – while providing few incentives to get off a benefit. As a country, we need to do better, for the sake of those footing the bill for the benefits and, even more, for the sake of those locked into dependency.

Please share this article so that others can discover The BFD.