By Tony Burton*
Many New Zealanders feel government is not meeting the needs of the long-term unemployed. Who counts as unemployed remains an issue: A third of your taxes are spent on the welfare system, mostly in payments to support people we believe cannot fully support themselves with paid work, so the definition of unemployment is not an abstract question.
The loosest definition would be the proportion of New Zealanders not in paid work. However this would imply one in three adults are unemployed, and it includes people no society expects to work. Mothers with newborn babies, full time students focused on studying, and 80-year-olds are not going to be filling out job applications.
Therefore the indicator that is popularly used – if a statistic could ever be said to be popular – counts those ready to work and actively searching for a job. In effect it is a measure of the queue for employment. This is the 3.9% unemployment rate announced a few weeks ago, and it’s the right indicator for some purposes such as Treasury predictions of government tax receipts and future government expenditure.
The problem is that the indicator excludes many people who common sense suggests are unemployed: people with disabilities in areas with no suitable local jobs, solo parents struggling to find appropriate childcare, and surfies who live off their parents. In other words, it excludes most of the people we want counted for policy purposes.
An example of just how misleading this indicator can be is shown in the graphs below. The first graph compares the unemployment rate for people in their late teens and those in their late 60s. The teen unemployment rate is increasing over time but is erratic. Little would appear to have changed for people in their late 60s.
The second graph includes the looser definition of unemployment: those who could be working but don’t have a job for a variety of reasons. It shows that far fewer teens are in work than the unemployment rate would have us believe. Meanwhile it indicates that the number of people retiring from work in their late 60s is not 90%, but a little over 55%. People in their late teens are now less likely to be in paid work than those who have just reached “retirement age”.
These kinds of demographic changes raise all sorts of questions, like why does superannuation eligibility starts at 65 if so many people are continuing to work into their retirement years? Whatever the explanations, there is something wrong with the standard measure when it does not even show these profound trends.
This is not the worst of it. The queue for employment is probably the unfairest queue you will ever be unlucky enough to join. Those who have waited the least time are most likely to get jobs. Understandably many in the queue give up, or knowing what the queue is like, don’t even bother joining it. The risk of using the narrow Work and Income “work ready” definition of unemployment is you create a system that’s designed for the people in the queue, because only their outcomes are measured.
So is this an example of the cliché “what gets counted counts”? There is certainly a remarkable consensus that the system is not helping those in greatest need. One of the statements below was written by the National/ACT/Maori Party welfare working group which reported in 2011, and the other comes from the Labour/Green/New Zealand First welfare working group report delivered in May this year. Can you work out which is which?
“There are major deficiencies in New Zealand’s welfare system … This is particularly apparent for some groups, including Māori, young people with few qualifications, disabled people, those who are sick and many sole parents. Addressing these issues requires fundamental change to the welfare system rather than further piecemeal change.”
“We propose [a new] approach based on mutual expectations and responsibilities governing interactions between the state and welfare recipients. It is a commitment to improving wellbeing by supporting positive long-term outcomes for the individual, including increased skills and labour market capability.
Of course, consensus on the problem does not extend to agreement on what to do. I was one of the civil servants assigned to research and draft the 2011 working group report. The language of that report reflects the views of a member whose use of the word “compassion” reminded me of a Dickens character’s claims of being “humble”. Its content is a damning critique of how little the welfare system does to help those in greatest need and provides suggestions for how to improve it.
he more recent report focused on benefit payment rates. However it also made many recommendations on the need to change the welfare organisation and its culture. Its most damning recommendation is simply that MSD “establish an effective employment service”.
For the avoidance of doubt, the first statement comes from the 2011 report, while the second is from 2019.
The unemployment rate is one of a number of indicators that became institutionalised in the first half of the last century (GDP is another one). This means we are using indicators that made sense when the forefront of technology was talkie movies and disability payments were only available to those “of good moral character and sober habits”. The lack of consistent alternatives to these out of date indicators mean the institutions we want to make New Zealand fairer may not be doing that job.
*Tony Burton is a former deputy chief economic adviser at Treasury. This article first appeared on The Spinoff here and is used with permission.
20 Comments
Couldn't agree more with the analysis that Unemployment Rates don't aid at all in understanding the modern economy. Since Rogernomics gutted the working class jobs in many sectors: Manufacturing, Freezer Works (2/3rds less Sheep), Government Services ( Road Boards, Telecom, Shipping, etc all these Governments Departments were the employer of last resort in the Regions-so that grown men didn't sit in front of TV all day).
In the Regions at least a program is underway buy so far underwhelming. Welfare is not the answer for those not counted in Unemployment Stats. Adults and teenagers need to work. Governments up to 1984 all understood that-which is why the Law was" What can be made in NZ-must be made in NZ". The social ills and drug use in my opinion has only skyrocketed in 35 years because so many people were left behind in what Helen Clark euphemistically called the "Knowledge Economy". Expecting people who were school leavers and never loved learning in the first place to join that economy never made sense. Governments fail this population when like in the Christchurch thousands of offshore workers were flown in and little "war footing like" push was made to incentivize those not in the "unemployment stats" to be drawn into the trades. Wouldn't have mattered how big the cost the long term gain to taking 10,000 off the benches and into paid employment is well worth it. These people have little voice and have been neglected too long and the damage it has been causing society for past 35 years is too little understood.
If Alliance Meat Works and the Government can't sit down and work out a solution on how to ship in Kiwi's on the dole in other regions to fill these jobs-even if it means 2 wks on and 2 wks off like in the offshore gas industry-or mines in Aussie-then Government Ministry's have a serious lack of interest in solving this problem. Our rural affairs Minister should be all over this.
MSD has been focused on abusing beneficiaries and violating human rights. If they became a effective service connecting people with employers that would be a radical organisational change. Carmel Sepuloni is the wrong Minister for the job. She does nothing but cover up for the failings of MSD while doing nothing to cause improvement. It's little wonder that the opposition pick on her so much as she is an easy (lazy) target.
I worked in a McDonald's and various supermarkets in my teenage years (early 00's). It was extremely common to be surrounded by similarly aged employees. Now days walk into any restaurant or supermarket and the whole staff dynamics have changed big time.
Seems like these days an employer would rather spend the same money and hire someone we've just imported who will likely have good life experience over giving someone fresh out of school a chance to start their own journey.
And employers seem to almost universally want university qualified employees (how many companies are hiring and training out of high school these days) yet folks in the demographic of owners get awfully upset at the idea of funding the tertiary education to educate that workforce they're after. As opposed to what they had in their day.
We really need a thorough review of all this malarkey .
We need to get the numbers right , how can we have 96.5% employment when 1 out of every three people is on welfare ?
We need proper stats for stay-at home mums , disabled people , and the mentally ill , people in jail , and those on super who are not working
Its evident that some people on disability grants are actually able to work , ( we have had cases of people on the sickness benefit playing club rugby or getting involved in nightclub brawls ) .
And this inter-generational welfare is another big problem , how can people in a single family have no work for more than a whole generation ?
The District Courts are over-burdened with these layabouts with all sorts of driving offences and misdemeanors and minor drug offences , in most cases they dont have anything constructive to do with themselves , and heaven only knows what they do all day ! Little wonder they get into trouble
Working for families is working people with kids collecting a benefit. In the past a family with one or two adults working used to be able to support 2-4 kids without needing a benefit. When the employed need benefits something is seriously wrong (excluding health, education, etc).
I've joined a Winz Advice Facebook page, for curiosities sake. There are often questions posted such as "my son/daughter is about to turn 18 what are they entitled to?". People getting grants for 50 inch TVs, new fridges/washing machines etc to be paid back at $5 per week no interest. Apparently a TV is a necessity.
Hasn't that basically failed everywhere its been tried?
You can only buy certain things.. which you then barter for the things you can't buy but still want (at hugely unfavourable rates). And the costs of administering the scheme, and catching out the shop keepers that fiddle the system (eg by ringing up cigarettes/booze as two bottles of janola, a pack of toilet paper, and a prepay phone card etc)
Sometimes having them sitting in front of the TV drinking cheap beer is the best of a bunch of bad options.. better than them not having a TV and spending more time in the bedroom creating the next addition to the brood, who will most likely end up in the same situation in 20 odd years.
The current system simply imposes a penalty for any attempt to improve your situation so many do the opposite to firm up their entitlement. I say bring on the UBI, shutdown MSD and drain the swamp, the savings must offset costs. Each time I see a security guard outside an MSD office I ache to tell them that satisfied customers do not attack or shoot your staff. Currently I have no job but will not subject myself to the degradation that is to even be seen in there much less to become the subject of their judgement and indifference. Unless I am completely alone where does that figure in your statistics?
The problem with unemployment is a lack of jobs. Most employment readying programmes just shuffle the queue a bit. If there are 100 dogs and only 90 bones 10 miss out no matter how well trained and cv readied. This is why in my opinion we need a government employer of last resort job guarantee at the minimum wage. So there's always 100 bones for 100 dogs. The private sector does not always provide the 100 bones no matter how low wages fall. That is macroeconomic reality. Why punish the unemployed for the lack of jobs? Provide decent transition jobs for anyone that needs one. Give people dignity.
Totally agree CS, well said, +1
We run a price stability inflation targeting macroeconomic policy, which by default REQUIRES an unemployment rate (unless you are willing to live in a slave society).
At the macro level, 1 person into employment, is another out.
The unemployed, of all types, deserve the full support of society, but also deserve the opportunities to participate in society to the fullest possible extent.
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