Benefit policy: Give me a value judgment

I have avoided discussing Nationals benefit policy so far. I just haven’t seen any need given that I like to stay relatively apolitical – and also given that it does not imply much of a change from the status quo (do you guys know how difficult it is to renew your benefit anyway nowadays!).

For anyone that does want to see the partisan discussion we have:

Kiwiblog links, The Standard links, No Right Turn.

However, I’m low on things to write about, so when Kiwiblog linked to this article in The Press, I thought I would form some value based argument on the first line of the article (it is not necessarily my beliefs – just an argument against the first line) – then we can discuss what value judgments I’m making etc in the comments.

So the first line is.

It is widely accepted now that long-term dependency on welfare benefits should be avoided where possible

Really? Now I’m sure that a lot of people out their agree, but I’m not sure I would look at the issue and say that.

Why? As a mainstream economist I believe in a natural rate of unemployment – which implies that we don’t necessarily have full employment, even in the long run. If we have policies that set some long-term rate of unemployment, and if it is people with a low endowment of other resources who are unemployed, then I don’t have a problem with people being given the income to live through welfare payments.

If a household is unlucky enough to be in this situation, I’m happy to be in a society where we look after them.

You may counter by saying the quote says “where possible”. I would ask – how the hell do you define that. It sounds like a term that is used to shove all inconvenient circumstances under the carpet, so that the article can focus on saying why people should not be on the benefit for very long. The terminology is far to anti people on welfare – there is an expectation that people SHOULD be able to live without welfare payments.

Now back in the day, these people would die – is that the sort of society we want now? If not, then we have to accept that there will be some long-term unemployed, and paying for their survival is part of the cost of a civilised society!

I don’t think thats the issue – there are other costs from being unemployed you know!

Yes, definitely, there are other substantial costs to being unemployed, for the unemployed person. But an attitude that attacks people that finds themselves in this situation merely creates more costs in society – so how can it be welfare enhancing?

Schemes that try to match people to jobs, upskill unemployed people, and a society that pushes people towards the goal of work (without the implication that people without jobs are inferior) is the best way to improve social outcomes.

Stating that “long-term dependence” should be avoided places the burden for this on the individual – if the individual is unable to get work, we make them feel guilty – this does not sound like a social happiness enhancing way to treat policy.

But what about lazy people!

If we don’t want people who could work not working when the opportunity is there – then make their benefit dependent on it (like we do now).

Furthermore, we have to ask – if a person is sufficiently “lazy” such that they will jump through hoops to avoid work, the cost of working must be very high for them. As a result, the net impact on social happiness from paying them not to work may be positive!

Conclusion

Above I have argued why the idea that “long-term welfare dependency should be avoided” is not an appropriate way to view social happiness or policy.

As I have already said, this is not necessarily my point of view at all, so try to avoid personally attacking me 😉 I’ve just tried to make a slightly coherent argument to reach a certain point of view.

Now, is anyone keen to raise a different point of view, or argue any of the specific assumptions. Remember, the focus is this part of the quote:

long-term dependency on welfare benefits should be avoided where possible

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  • Michael Kluge

    “long-term welfare dependency should be avoided”

    Dependency is the key word in the statement. If someone depends on it, then they need it to survive. Therefore it’s not long term dependency that should be avoided, as this is the result of unemployment, domestic responsibility or sickness. What should be avoided is a welfare lifestyle – where people see it as an alternative lifestyle to working, IE the voluntary beneficiary.

    However, I don’t think New Zealand has a problem with this. Our unemployment is reasonably low. Allowing a welfare lifestyle should still be avoided though and I believe the current measures are sufficient to avoid this. The only way to avoid welfare dependency is to create an economic situation where welfare is never required, which seems an impossible task.

    I think it is a much clearer and more productive goal to try and avoid the abuse of welfare than to try and avoid the dependency on it. I also believe our current system is doing to pretty well to avoid welfare abuse.

  • Good points Mike, think your comment was far better than my post 😉 .

    The one thing I would add is:

    “What should be avoided is a welfare lifestyle – where people see it as an alternative lifestyle to working”

    Why? If the market wage on offer for a person is very low (compared to the value added in the production process), why should we put people in a position where they have to work just to live – in this case being on the benefit is an alternative to working in a subsistence job.

    In this sense, allowing anyone to have the benefit can help increase workers bargaining power in cases where their bargaining position is sufficiently worse than their employers.

    Of course, this only justifies having a benefit that allows people to live 😛

  • CPW

    “As a mainstream economist I believe in a natural rate of unemployment – which implies that we don’t necessarily have full employment, even in the long run.”

    I disagree with the implications of this statement – that there is something about the economy structure that implies unemployment must be at a certain level. New Zealand is a good example where almost all current unemployment could be described as transitional of the kind that will always exist. Although there is a small amount of unemployment which could be described as arising from people with chronic lack of skills or inability to perform a job, this is not a result of the system – if these people had better skills, the natural rate of unemployment would be lower. Anyway, this is a tiny number – of the 17,000 people on the unemployment benefit, only 30% have been on it for more than a year. So 0.25% of the total labour force!

    Of course, if you’d said that our minimum wage policy guarantees a certain level of unemployment I might have been more sympathetic 🙂

    “Why should we put people in a position where they have to work just to live” – last I time I checked we’re all in this position.

    “In this sense, allowing anyone to have the benefit can help increase workers bargaining power in cases where their bargaining position is sufficiently worse than their employers.”

    True, but I’d rather help low-income workers by giving them income assistance which provides an incentive to work (rather than an incentive not to work), e.g. EITC-type measures.

  • “I disagree with the implications of this statement – that there is something about the economy structure that implies unemployment must be at a certain level”

    But there is – as wage imperfections that result from asymmetric information ensure this 😉

    “last I time I checked we’re all in this position”

    Huh? If people are producing more value than they consume, and if these people would be willing to do so for a lower return, then we aren’t all in a situation where we need to work to live – we can just redistribute.

    At the extreme, once robots can do everything hardly anyone will need to work to live.

    “True, but I’d rather help low-income workers by giving them income assistance which provides an incentive to work”

    If there is a natural rate of unemployment then this causes a wedge between those who are “lucky” enough to get a job vs those who are “unlucky” enough to not be able to get work.

  • CPW

    “But there is – as wage imperfections that result from asymmetric information ensure this”

    Are you being cereal? 🙂 Why do we need to subsidize job search? And how is that relevant to long-term benefit dependency?

    The distinction I’m making is that I think there is an argument for unemployment benefits to ease transitional unemployment (although private unemployment insurance might do the job too), but the idea that the economy is structured in a way that ensures that people must be unemployed, and hence we owe it to them to provide unemployment benefits, is false.

    “Huh?” Collectively, we are all in the position of having to work to eat. Given that, I don’t think that some people should be able to claim that it is unfair to expect them to work because they don’t like the jobs on offer.

    “If there is a natural rate of unemployment then this causes a wedge between those who are “lucky” enough to get a job vs those who are “unlucky” enough to not be able to get work.”

    Well, going back to my first point – this natural rate is people moving between jobs so there’s no wedge over the long-run. I took your argument to be: a positive “bonus” of more generous unemployment benefits is a transfer from employers to low-wage employees. I think the resources would be better spent (and more transparent) in an EITC system.

  • “Are you being cereal?”

    Are you accusing me of being a breakfast meal, or are you calling me surreal?

    BTW, the wage imperfections i’m talking about stem from imperfect information on the employers side – eg efficiency wages. I believe Stiglitz-Shapiro (1984) illustrated this.

    “Collectively, we are all in the position of having to work to eat. Given that, I don’t think that some people should be able to claim that it is unfair to expect them to work because they don’t like the jobs on offer.”

    Doesn’t this depend on what we believe is fair. Given that some people will work and create value, and given that people in society value the fact that people have a certain minimum income, redistribution in this sense could easily be “fair”.

    “Well, going back to my first point – this natural rate is people moving between jobs so there’s no wedge over the long-run”

    Well, the natural rate does have a non-transitory component because of issues such as efficiency wages – therefore a wedge does exist 😉

  • David

    Born in the muldoon era I grew up in south auckland, a suburb called otara.

    Muldoon failed to address family violence with his term, he was too busy thinking globally and “thinking big”.

    As a result I came away from Otara with bronchiectasis, several allergies, a couple of congential defects with my health deteriorating to the point where now I have a couple of eye diseases, an oral disease and osteoarthritis accompanied by seizures, post traumatic stress and a muscle disorder.

    The compensation we get for failure of the national party (or labour in recent times for that matter) to respond? $230.00 per week.

    We have had muldoonism, rodgernomics, the mother of all budgets and now with key we have darwinism.

    Everyone out there is complaining about tax’s the cost of living, but 20 years ago a basic benefit was the equivelent of 75% of minimum wage. today that sits at just over 55% of minimum wage with everyone wanting the proposed $15.00 an hour taking us to what the equivelent of 48% of minimum wage.

    Remember that the ministry of social development answers to no one, they are one of the only branches of government left allowed by law to use descrimintory legislation, one of the only branches for which government fails to provide an advocacy service and are also well known for not providing full disclosure on cost entitlements to clients, a case manager as an example can decline to help you on costs even when you go with a doctors letter, and they arent trained medically at all.
    The M.O.S.D breaks the law on a daily basis by not telling beneficiaries their cost entitlements, people who are dieing, chronically ill, these people are not given what the are entitled too but people expect us to say thankyou for keeping us below minimum wage, unable to access medical treatment or doctors unless we get a nice case manager and you put us in the same class as unemployment beneficiaries and DPB recipients and we suffer the same petty bigotry as everyone else.

    And remember that the M.O.S.D only pay 80% percent of what they believe your actual cost deficiet to be with limits on the amount you can claim overall.

    Think about it people the ones you know and love try suriving on this when they are sick, when they are in need and many of you spend more than this on entertaining yourselves each week and still want more breaks from the government.. I really question who the moochers are here.

    National ransoms the country after stripping all assests leaving as with no asset base to build on for the future and they do this every time, borrow, put us in debt and then we throw labour back in to fix it up again.

  • CPW

    Hmm, I was somehow unaware of that Stiglitz result. It’s quite cute though I can’t say I’m convinced that is describes reality.

    Wouldn’t unemployment benefits lead to a higher unemployment rate in that model? Even assuming the result did hold, surely a realistic extension would still be to model the unemployment as higher search costs, so unemployment would still be transitory.

    “Doesn’t this depend on what we believe is fair.” Doesn’t anything? Do you really want to defend a positive right to laziness? I think that will be difficult to do with the arguments commonly used to justify the other positive rights.

  • I read a simliar post just the other day by Sandra Kosineck but yours is much better.

  • “It’s quite cute though I can’t say I’m convinced that is describes reality”

    Efficiency wages – I think they are a large part of reality – however this will be discussed in the next benefit post.

    “Wouldn’t unemployment benefits lead to a higher unemployment rate in that model?”

    Unemployment is people who are willing to work but can’t find work – the higher the benefit, the less people are willing to work 😛 . However, if the benefit is dependent on being “willing to work” then the recorded unemployment rate would be higher.

    Still, this has nothing to do with the fact that efficiency wages cause structural unemployment.

    “Doesn’t anything? Do you really want to defend a positive right to laziness?”

    Yes. However, I was just making it clear that the distinction between our points of view in this post (as this isn’t necessarily my true point of view) is based on different value judgments – rather than us having different objective models. I was not trying to say that what I was saying was positivist – it was definitely not.

    Hi David,

    What you describe is an example of the unluckiness that government can help through these welfare policies. However, I would not blame the government for the fact that community where you grew up had issues – the community, and the individuals involved, have to take some responsibility. The government cannot solve all social ills – even if it wanted to.

  • Kimble

    “…no asset base to build on for the future…”

    Because thats how it works, right?

  • CPW

    “Efficiency wages – I think they are a large part of reality”

    I don’t dispute the existence of efficiency wages, I’m just skeptical that the macro-level result that they lead to unemployment would hold up once we introduce heterogeneous agents and employers. As I said before, empirically, most NZ employment is very short-term, and a substantial majority of the unemployed left their previous job voluntarily.

    I know you’re being a devil’s advocate today (your alter ego needs a name by the way, “mattilda” perhaps :;), but it seems you initial post was basically:
    “I’m going to defend an unpopular value judgement”;
    to which I said “that’s not a very convincing defence”;
    to which you replied “well it’s just a value judgement”.

    So why not just say that to begin with?

  • “most NZ employment is very short-term”

    We don’t know that – as we can’t measure the number of discouraged workers.

    “I know you’re being a devil’s advocate today”

    Wait till you see my next benefit post! I will eventually put down my position, but before that I have a couple of other positions to raise 😛

    “So why not just say that to begin with?”

    Not a convincing defense!

    I’m stating that people on long-term welfare do not need to be victimised – they are the victims of inefficient signals in the labour market that cannot be solved. As a society we should be willing to look after those people.

    Now I realise that I have made two (maybe three) value judgments, but that does not necessarily mean they are wrong, fundamentally:

    1) Long-termed unemployed are not their by choice,
    2) Society values fairness,
    3) It is fair for society to look after those who are punished by unfortunate circumstances.
    Therefore:
    4) Society should look after long-termed unemployed – instead of focusing on “welfare dependency” in that way.

  • CPW

    That was a crappy wink 😉

  • CPW

    “We don’t know that – as we can’t measure the number of discouraged workers.”

    I like arguments along the lines of “Aha, the lack of data supports my point”. We have data on duration for HLFS unemployment and Social Welfare unemployment, both suggest duration is short.

    And I mostly agree with 1-4) I’ve always been specifically disagreeing with your claim that even if long-term unemployed are there by choice that is OK.

  • “I like arguments along the lines of “Aha, the lack of data supports my point”.”

    😀

    “And I mostly agree with 1-4) I’ve always been specifically disagreeing with your claim that even if long-term unemployed are there by choice that is OK.”

    Ahhh ok, I will move to discussing that then.

    That is solely a value judgment – I could appeal to diminishing marginal utility and state that ex-post redistribution is welfare maximising as long as the ex-ante impact on production is sufficiently small. As a result, I will assume that it is maximising, and that the impact is small 😛

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