Benefit policy: Another value judgment

Following our discussion of one possible value judgment associated with benefit policy I’ve decided to have a crack at another one. Now note that what I say here is not necessarily my opinion – a fact that should be obvious given that it is completely different from my last post.

This post will be based on an article by Nigel Pinkerton in the Dom post on Saturday (link here). Furthermore, we will start off by discussing the same line as we did last time from the press article:

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

Lets see what we come up with:

Should we avoid long-term dependence – hell yes. Outside of the case where people have to have assistance (eg the disabled) long term reliance on a benefit does not make sense.

As long as wages are allowed to change sufficiently, there is no such thing as “long-term unemployment” – all the unemployment we see is transitional (or temporarily structural). The best thing the government can do is remove “barriers” and thereby improve responsiveness of the labour market to changes in economic conditions.

The purpose of the unemployment benefit is to act as a security net for when the economy slow, or changes occur that make peoples skills irrelevant. However, it is not a way of life.

By allowing people to stay on the benefit in the long-term, we are giving them the option to avoid work – now people don’t like to work, so if you can get the same payoff from sitting around watching the Olympics why wouldn’t you. This is the type of dependence we should be trying to avoid – as these are people who could add value to society, but don’t!

Comeon though, hardly anyone is long-term unemployed – where is the dependence?

The “dependence” on government hand-outs – which are not related to the value you add to society or how hard you work, has increased substantially under Labour – even if the number of long-term unemployed has slumped.

The reason for this is Working for Families. Following WFF, large sections of the middle, and even upper-middle class have become dependent on a government handout. This process of taking peoples money and then giving it back to them is a gigantic waste of money. Furthermore, by increasing marginal tax rates, this policy decreases the incentive to work – and ultimately reduces the size of New Zealands economic pie.

It is the people that work in this country that create the wealth. However, an increasing culture of dependency will make it more difficult to generate this wealth, to the detriment of us all.

Conclusion

This time I argued that long-term welfare dependency is exactly the sort of factor we should fight against (As compared to last time when I said it was a straw man).

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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  • “The “dependence” on government hand-outs – which are not related to the value you add to society or how hard you work, has increased substantially under labour – even if the number of long-term unemployed has slumped.”

    Shouldn’t that be the “Labour-led government” ? 🙂

  • “Shouldn’t that be the “Labour-led government” ?”

    It should at least still have a capital L 😛

  • Michael Kluge

    “so if you can get the same payoff from sitting around watching the Olympics why wouldn’t you.”

    Because, quite frankly, my job is more exciting than sitting around watching the Olympics.

    I don’t really have much to add to the discussion except this little anecdote:
    About 4 years ago I was made redundant from my job and went on the unemployment benefit, where they made me attend a work-track course. On one of the first days they asked us to each say what kind of job we’d like. One of the older guys on the course, about 45, had been on the dole for a long time already and when it was his turn, he stated quite simply and forcefully “I don’t want a job. I don’t want to work.” I think the fact that the WINZ employee just brushed the comment off and moved on with the course, allowing him to continue to collect his unemployment benefit while being completely unprepared to look for work or even consider it, is allowing blatant abuse of the system.

    Although I completely support having these services, they have to act when someone receiving an unployment benefit shows absolutely no interest in working. To put it simply and rather bluntly, WINZ aren’t making life hard enough for them to want/need to work.

    Attending a worktrack course is a real eye-opener to the amount of waste and wishy-washy ‘education’ that goes on. One day I turned up only be told that we wouldn’t be looking for jobs today, doing self-esteem building instead. I ended up sneaking away from the course at morning tea to apply for a job (which I got). I also got first hand experience of some people who are on the unemployment benefit but also bording on hopelessly unemployable. For example, I helped one guy write his CV because he was completely illiterate. There was almost nothing to put in his CV due to all his stints in prison and when he was reluctant to list any work history of previous employers. When I asked him why, he confessed because all his previous employers had fired him within days for theft.

    This isn’t a bash, but pointing out from first hand experience that there are long-term unemployed in the system who either simply don’t want a job or some who are going to struggle to get off unemployment because of their education, criminal and employment histories.

  • “Because, quite frankly, my job is more exciting than sitting around watching the Olympics.”

    Very true, so do I. However, the people that are likely to avoid work will be people who value their outside option (watching TV) at a higher relative rate to the enjoyment of working.

    “This isn’t a bash, but pointing out from first hand experience that there are long-term unemployed in the system who either simply don’t want a job or some who are going to struggle to get off unemployment because of their education, criminal and employment histories.”

    So there are two different issues there.

    1) People who are lazy and need to be kicked out of dependence
    2) People who have specific structural issues that make it difficult for them to get work at any wage – even if they are willing.

    Now these are important facts to discuss – however, I think in terms of this specific post it is also important to remember that we are talking about long-term dependence on the government handouts, not specifically unemployment benefits.

    As the post stated that the dependence mainly stems from welfare programs such as working for families, this must be the focus of the dependence question, isn’t it?

    Ultimately, this is equivalent to saying that the government has no role in trying to redistribute income based on an idea of need for people that can work – as they can service their own needs. Any such redistribution merely reduces production in the economy, and as a result must hurt other people more than disproportionately.

  • Steve

    ultimately the reason for the WFF is exactly to create these dependent middle and upper middle class voters, dependent upon welfare. As they are dependent on welfare, to continue their welfare they must continue voting labour and as such labour continues to lead government. Not because they do a good job, simply because they have created a larger portion of society dependent upon them.

    I do actually agree with supporting families and the government should place value on the work of parents, i.e. a mother working part time to care for her kids when they come home from school. But a better way to do this is wage sharing (i think that’s what it’s called) where the wages of two married people (potentially even with a restriction of dependents) can be shared equally and tax paid accordingly. In particular this encourages stay at home parents back into work and provides the right incentives without the significant loss of money churning through the welfare system.

  • Kimble

    “long-term dependency on welfare benefits should be avoided where possible”
    I “disagree”. You assume that everyone who works is going to add something to society, but this isnt necessarily true.

    The problem, as I see it, is that it is very difficult to discern the value of a single employee in a work place. In fact, it seems to be the second job of individual workers to obscure their true worth, whether unintentionally (as part of the ingrained modesty we have in New Zealand or through low self esteem making us devalue our work) or intentionally (because we really are shyte at our jobs or we just dont want to do them). These intentional obscurers could also be dragging down the productivity of other workers without anyone really noticing it.

    It is the last part that is important. Add to this that it is easier to hire someone than fire them and that employers become emotionally attached to their workers, and you end up with a situation where it is certainly possible for employers to be holding on to workers that are actually, insidiously, costing them a lot of money. This is an inefficient allocation of resources. It is certainly possible that having these people on a long term benefit may actually increase total welfare in the country.

  • Hi Steve,

    The first point you raised is actually the same as another of the commentators here, goonix:

    http://tvhe.wordpress.com/2008/02/13/working-for-families-or-nazi-medals-2/

    The second point on WFF is also very interesting. Ultimately, I am not for income splitting as I’ve stated here:

    http://tvhe.wordpress.com/2008/04/28/household-structure-economic-units-and-income-splitting/

    But I think another post on the issue would be useful. I’ll try to do something at some point and we can discuss it there.

    Hi Kimble,

    Interesting little model you have there, I’m impressed 🙂 – you’ve taken to the question like a true economist

    One comment I would have is here:

    “Add to this that it is easier to hire someone than fire them and that employers become emotionally attached to their workers, and you end up with a situation where it is certainly possible for employers to be holding on to workers that are actually, insidiously, costing them a lot of money”

    Does the emotional attachment increase the cost of firing the employee, or increase the benefit of having them there. In the first case it is an economic cost – in the second case it is efficient to keep muppets on your payroll 😉

  • Michael Kluge

    “As the post stated that the dependence mainly stems from welfare programs such as working for families, this must be the focus of the dependence question, isn’t it?”

    I would say that a lot of the dependence on Working for Families (WFF) isn’t actually real dependence. Again, speaking from personal experience, I know many people who receive WFF and consider themselves dependent on it, but only because their spending increases to match the new welfare. For example, I have heard someone state how they rely on WFF yet their family also has Sky TV and broadband in the home.

    Long term dependence on WFF is actually, in my opinion, a perceived dependence on a middle-class standard of living. Many of the families I know who receive it were surviving before hand. They receive WFF and then the family starts spending more and can’t imagine going back to the level of spending they survived on before having it. I think it’s more of an attachment than a dependence. Their current standard of living depends on the welfare, but their life doesn’t.

  • Ok, just so no-one gets to upset here, I would like to again remind readers that what I’m saying (and some of the other commenters are saying) is not necessarily our opinion – it is just a point of view that we are trying to understand.

    “Their current standard of living depends on the welfare, but their life doesn’t.”

    If employment is available for everyone and we have a welfare benefit that provide safety net, then isn’t this the case for everyone? Ultimately, no-one needs to be dependent on welfare as a means to look after themselves.

    The “perceived” dependence is the issue – if people want a certain quality of life, they suddenly don’t have to work for it, they can just let the government tax productive citizens in order to get it. Is that fair?

    Given that no-one who is able to work needs to be dependent on welfare to live, any “dependence” is merely a function of wanting to sustain a certain quality of life without working for it.

  • Michael Kluge

    “Given that no-one who is able to work needs to be dependent on welfare to live, any “dependence” is merely a function of wanting to sustain a certain quality of life without working for it.”

    Yes, but here I see difference between welfare like the unemployment benefit and sickness benefit and WFF. The former benefits are their to provide a safety net to provide people with what most of society would deem an adequate standard of living when they can’t work – shelter, food, power, medical care etc. Where the WFF is different, in my view, is that a lot of people receiving it already receive an income that covers those previous things that are ‘givens’ in our society. The extra welfare from WFF is actually just a boost to increase standard of living in terms of class rather than providing commonly accepted necessities. WFF is often received by people who already work and can afford the essentials of life, which is why I was saying they don’t really depend on it. Not in the same way someone who is really unwell or disabled depends on the sickness benefit.

    Coming back to the crux of this topic: “It is widely accepted now that long-term dependency on welfare benefits should be avoided where possible”

    WFF is obviously going to create a long-term dependence because, unlike the unemployment benefit, there is no motivation or pressure to get a person off WFF. It’s is a given until either the government changes or the benficiaries income becomes incredibly high. So I think essentially yes, labour is causing people to become long-term dependent (or in my view accustomed) to a standard of living that is provided by welfare.

  • Hi Mike, agree with a lot of what you say again (for the purpose of this post).

    However, have to talk about this:

    “I think essentially yes, labour is causing people to become long-term dependent (or in my view accustomed) to a standard of living that is provided by welfare.”

    The thing to remember is that redistribution also retards economic growth – when we try to share around the pie, we end up making it a bit smaller. WFF is essentially redistribution – we are making people with families better off, to the detriment of people who have not had children.

    However, there will also be people who would have been better off in the absense of WFF even though they receive WFF – as the policy reduces economic growth. These people could have had a better standard of living in the absense of the poicy.

    As a result, I don’t put it down to people getting used to a standard of living that is the bad thing – however, I am stating in this post that the given redistribution is likely to reduce the amount of work people do in order to achieve a standard of living. Eg, you want a TV, and now you don’t have to work for it – and as a result you don’t work.

  • “there will also be people who would have been better off in the absense of WFF even though they receive WFF – as the policy reduces economic growth.”

    For me this is the key point: WFF ( or as prefer it described Working For Other Peoples Families) reduces economic growth and therefore reduces everyones income. It is irrelevant to me if a few choose to live off a benefit: I personally would much rather work but I detest paying tax for it to be redistributed via Working For Families and in the process reduce economic growth and therefore my income. I am being pinged twice: once by the additional tax to fuind WFOPF and secondly by the reduce gross income as a consequence of WFOPF.

  • “For example, I have heard someone state how they rely on WFF yet their family also has Sky TV and broadband in the home.”

    Broadband isn’t a luxury it’s an essential service like electricity 🙂

  • “Broadband isn’t a luxury it’s an essential service like electricity”

    Ahhh, but Broadband at home has more direct substitutes than electricity – such as internet cafes and broadband at work.

    It is hard to define what is “essential” – this stems back to defining what sort of absolute poverty line we think is appropriate:

    http://tvhe.wordpress.com/2008/08/04/what-is-poverty/

  • Kimble

    “Does the emotional attachment increase the cost of firing the employee, or increase the benefit of having them there.”

    More the cost, I reckon, but thinking about it just now it could be another factor obscuring the employers recognition of the counterproductivity of having a particularly congenial worker.

  • Sam Callander

    “For me this is the key point: WFF ( or as prefer it described Working For Other Peoples Families) reduces economic growth and therefore reduces everyones income.”

    One thing (of many) that economic growth fails to measure, is the benifits of parents spending time with children. I see WFF attempting to recognise in a small way the huge positive externalities of families investing time into children. (I imagine that there are many cases where WFF doesn’t end up achieving this. Rather it just leads to greater consuption. But if economic growth is what we’re into then we need people growing there consumption to fuel it.) However, I am sure that families who are weathly enough to not get WFF are on the whole better off in a community where other peoples kids grow up in a loving environment and (for example) beat up thier kids less.

    Its a shame that “working for other peoples families” is seen as such an terrible thing. Perhaps if as communities we cared for each other better there would be no need for things like WFF, or any benifits for that matter, but until we do, I for one am pleased that the government attempts to helps us do this.

  • “I see WFF attempting to recognise in a small way the huge positive externalities of families investing time into children”

    Exactly – WFF has to be taken as a way of promoting something that has a positive externality. Otherwise the policy is solely redistributive.

    However, once we take this as given we have to ask – what is the size of the externality. You think the externality is large, but other people think it is small – as a result of these differing assumptions different people will think different things about the policy.

    “However, I am sure that families who are weathly enough to not get WFF are on the whole better off in a community where other peoples kids grow up in a loving environment and (for example) beat up thier kids less”

    If the externality is that “poor families beat up their kids” then we have to ask – why are families that are in no way “struggling” able to get WFF’s?

    Furthermore we have to ask – do parents beat kids because they are poor, or is it the sort of people who beat kids that end up poor (because of a lack of social skills). If it is the second, then giving these people money won’t help anything – there is no positive externality from this channel then.

    “Perhaps if as communities we cared for each other better there would be no need for things like WFF, or any benifits for that matter, but until we do, I for one am pleased that the government attempts to helps us do this”

    But why would communities do this if a government is just going to do it for us? In that way, progressive taxation replace charity rather than supplementing it.

    I am glad that you are happy with the policy. However, because I do not believe the positive externality is as large as you do I am not supportive of the policy.

    However, you are exactly right that any justification of WFF has to be on the basis of a positive externality – or else it is just a redistribution based on an even more tenuous “moral” belief.

  • John

    On externalities there is an argument that something called “welfarism” increases crime and misbehavior.

  • “On externalities there is an argument that something called “welfarism” increases crime and misbehavior.”

    Indeed. There is also an externality from people not receiving welfare – as they may need to steal to eat.

    As a result, you will want to have a security net, but provide greater incentives to get people into work than you would in the absense of the externality right. However, we have to quantify what size we think this externality is and what way it works. For example one question we need to answer is, is it people who are most likely to start robbing people when on welfare who are also the most likely to be on welfare?