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Motu Economic and Public Policy Research says wage subsidy successfully protected jobs and sole traders during the pandemic

Public Policy / news
Motu Economic and Public Policy Research says wage subsidy successfully protected jobs and sole traders during the pandemic

The Covid-19 wage subsidy was a cost effective way to keep workers employed and sole traders from going under, according to Motu Economic and Public Policy Research. 

The independent research firm was commissioned by the Ministry of Social Development to assess whether the wage subsidy scheme had achieved its intended outcomes. 

Approximately $18.8 billion was paid out to protect more than 1.8 million jobs between March 2020 and December 2021. 

Motu only looked at the first four iterations of the wage subsidy, since not enough time had passed to properly assess the impact of the August 2021 wage subsidy. 

The March 2020 subsidy was the largest by far, accounting for over 77% of all payments in the first four iterations of the scheme. 

It had one of the better cost-to-benefit ratios in Motu’s analysis at 1.45, meaning it had a net benefit of about $5 billion. 

The first extension had a ratio of 1.14 ($396m), the resurgence subsidy had a ratio of 0.83 (meaning a net loss of $63m), and the March 2021 wave had a ratio of 1.61 (a $163m benefit). 

Motu measured the benefit based on the number of employees and sole traders that received the subsidy and were still around after 12-months. 

The subsidised firms were compared to unsubsidised firms that were a similar size, had a similar growth rate, and similar number of employees. 

This analysis did not consider macroeconomic effects of the subsidy, making a more conservative estimate of the total benefits of the scheme. 

“The wage subsidy provided a fiscal stimulus to the NZ economy as a whole, that reached beyond subsidised firms and their workers. This would have benefited workers and firms that did not receive the wage subsidy as well as those that did,” the paper said. 

Not looking at macroeconomic impacts also means the analysis doesn’t attempt to measure whether it had any impact on inflation, which emerged about a year after the scheme ended. 

Few zombies 

Between late August and early September 2020, the Government offered a Resurgence Wage Subsidy. This one had a negative cost-to-benefit ratio. 

Motu said it was because firms that did not receive this subsidy had better employment retention and sole trader survival, even factoring in differences between the two groups.

“Although we find no evidence that it supported non-viable 'zombie' firms, it is possible that the wage subsidy scheme may have supported firms with poorer growth prospects on average, cushioning the impact of lockdowns and the pandemic by keeping afloat firms that were surviving but not thriving,” the paper said. 

Wage subsidies were used in many countries but New Zealand had one of the highest take-up rates, with 66% of all jobs estimated to have been supported by it. 

A similar programme was run after the Christchurch Earthquakes in the 2010s. Analysis of those payments found they protected jobs in the short term, but had no effect after five months. 

In Ireland, a covid subsidy scheme protected about 25% of jobs in the country for a cost of €2.8 billion or €4214 (NZ$7,494) each. 

Motu said despite the scale of the wage scheme, it couldn’t prevent negative employment and earnings impacts arising from the pandemic and associated public health measures.

“Nevertheless, it appears to have been effective at offsetting the impacts on subsidised firms and workers, and did not result in widespread adverse consequences,” it wrote.

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28 Comments

Yip, the double dippers loved it.

18.8 billion is only have of the true cost 

The lost productivity due to lockdown over zealous mania was probably the same... And all for what?

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Don't mention the lockdown cost benefit.

"Fairly early on in 2020 it became clear that the lockdowns had little impact on Covid-19 mortality. This was true if one compared across countries at a point in time (Chaudhry, Dranitsaris, Mubashir, Bartoszko & Riazia, 2020), across counties in the United States (Gibson, 2020a) and within the same country over a span of time (Meunier, 2020). It was also clear early on that the main drivers of Covid-19 mortality had more to do with human action as people voluntarily adopted precautions than lockdowns. (Allen, 2021). It was also clear relatively early and long before countries were imposing renewed lockdowns in the later part of 2020 or even into 2021, that the aggregate costs of lockdowns exceeded any benefits by large magnitudes, something that led Allen (2021) to refer to lockdowns as a huge public policy failure. See Allen (2021), Gibson (2020b) Heatley (2020) and Miles, Stedman and Heald (2020) and other papers cited by Allen (2021)."

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8890786/

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6

Could be a little biased with the title “…A review of the “The Great Covid Panic”…”.

I’d also question the quality given the author frequently refers to themselves in the first person and numerous minor referencing errors

 

 

 

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1

Yes we are complaining because it seems the authorities over stepped to a degree, but what would we be saying if they had done nothing, saying "we just have to learn to live with it" and the outcome had been as devastating percentage wise as the first flu epidemic?

It is easy to be critical when you don't the responsibility or with 20/20 hindsight.

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Plenty of case studies of countries who did nothing as they could not afford to do anything, or chose to do less. It was clear from the data early (post Italy and New York) that only the old and sick were at risk. 

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You must not have been part of the 3 month Auckland only lockdown in 2021. Huge waste of everyone's time. By then it was clear there was no stopping it and look what has happened since - NZ has gotten on with it. 

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It's not hindsight Murray86 - note the dates in papers below. Anyone who bothered to read the Diamond Princess data at the start, or compare historic age adjusted death rates, could see it was an overblown panic. In hindsight it looks like the induced panic and responses were designed to sell as much experimental gene therapy as possible. Well played Big Pharma. Paying off celebrities and influencers to tell people to stay at home to ramp up the fear was a master stroke in drug marketing.

"Fairly early on in 2020 it became clear that the lockdowns had little impact on Covid-19 mortality. This was true if one compared across countries at a point in time (Chaudhry, Dranitsaris, Mubashir, Bartoszko & Riazia, 2020), across counties in the United States (Gibson, 2020a) and within the same country over a span of time (Meunier, 2020)."

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This article is a nice compliment to another headline on Interest today: Why might people distrust economists & how can economics better serve them?

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11

When they win a tender for research into the effectiveness of govt decision making? 

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You can't assess the effectiveness of the wage subsidy in a vacuum, and this analysis is only valid if you agree the nature and length of the lockdowns was justified.

They need to evaluate the subsidies together with the lockdowns, as the policies were a package. The good in one doesn't mask over the bad in the other.

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14

Who funds this research group?

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10

Your taxes

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6

Right so not at all an impartial/independent research organisation.

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12

Yep like Infometrics, the Motu crowd largely sucks its $$$ from the government

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5

Man there is some whining in the comments section today. I loved the lockdowns. Bring em back - let's lockdown for the last 2 weeks of February every year. Mandated closing down of Summer lockdown. 

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Feel free to lock yourself down any time. Immuno-compromised have been doing it since Adam was a cowboy. People are doing it right now and don't expect to have it funded by their neighbours unborn child.

"It was also clear early on that the main drivers of Covid-19 mortality had more to do with human action as people voluntarily adopted precautions than lockdowns. (Allen, 2021)."

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Hey this is the positive comment thread, take your pity party somewhere else. Maybe we should have a mandated all-stores-closed public holiday every Wednesday. Break up the week a bit. Brunch brews at my place wooo!

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The lack of macroeconomic impact analysis was probably by design... don't ask if you don't want to know the answer. Of course the wage subsidy was a massive contributor to domestic inflation.

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Quite right Ollies. First thing I looked for was the interest cost on Government borrowings. And didn't find it. So the report is drivel. Typical economist nonsense. Take the perfect scenario and build your model around it. Forget RBNZ being made to print money creating future inflation, forget interest on Government debt. Forget the coming reduction in tax take as the country goes into a recession. Forget the costs of unemployment that have just been pushed out into the future. 

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You'd be wrong.

The major contributor to domestic inflation was a total mis-management of the money supply. The RB of NZ failed to recognise the inflationary pressures of a severely constrained supply chain and numerous shortages, while failing to appreciate the inelastic supply of assets that could be bought (e.g. houses). Rather than constrain the money supply, they did the exact opposite. They opened the floodgates by dropping interest rates to absurdly low levels and held them there for far, far too long. Further, through various mechanism, including the Funding for Lending Program, they threw money at the retail banks and just kept it flowing - once again for far too long.

In a nutshell ... far too much money chasing an extremely limited supply of goods. Perfect recipe for rampant inflation.

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Kind of like this. The population survey that never was.

https://www.health.govt.nz/news-media/news-items/covid-19-prevalence-su…

COVID-19 infection prevalence and seroprevalence surveys are complex projects involving a number of agencies, stakeholders and external providers. The Ministry accepts it took longer than expected to reach this conclusion, given the challenges of a multi-stakeholder, complex project developed during the health reforms.

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All that this "policy research" proves is that the government is determined to learn nothing from the greatest health, social, and economic blunder that the country has ever made.

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Agree, the next pandemic will be a disorganised shambles.

 

Lessons learned..

 Carry on as normal

Isolate the old and vulnerable

Wear masks

 

 

 

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Hear hear! Interesting social experiment wasnt it, good sheep, stay inside. Never listen to the government.

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The other lesson learnt was the importance of a healthy weight and a healthy lifestyle. As we know obese people were particularly venerable to Covid19, governments have learnt this and that is why they have implemented all these policies to encourage a healthy population. A lot was learned.

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Sarc?

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This outcome doesn't surprise me.

Government placed support money directly with businesses so they could support their workers. I.e. the monies were targeted to end up in worker's hands.

Contrast that with the RBNZ actions. The RBNZ created a funding bonanza and gave it to ... banks!

And, as they say, the rest is history.

Economic textbooks will be updated and they will not be kind to the RB of NZ  - deservedly so. I mean - throw billions at banks who lend to people to who want to buy stuff while supply chains are broken and the elasticity of supply is near zero for other stuff (e.g. houses) and what did the RBNZ think was going to happen? There was only ever one outcome: inflation!

 

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Protected? You mean made them very well off? 

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