I guess I’m childish – is that a bad thing?

I noticed this during my trip down the internet:

New Zealand needs to get out of the “childish mentality” that wide-ranging benefit reforms which come into force today are punitive, Finance Minister Bill English says.

And also this via Kiwiblog:

Work and Income says the results are “some of the best from any case management trial” in recent years, with 6000 of the 10,000 people in the pilot no longer on a benefit. More than half of those people found work, the rest opted out or cancelled benefits for reasons such as no longer meeting eligibility requirements.

Hold up – hold the hang up.  Opted out due in ineligibility?  Don’t we mean they had their benefit canceled because they didn’t fit the new criteria?  Nearly a third of beneficiaries were pushed off the benefit without employment income in other words – ummmm is that really a good result?  Now note, this isn’t actually the case, in truth over that period of time some people would have become ineligible or found work irrespective of the benefit policy – I was just throwing this here to illustrate how they exaggerated the “benefit” of the policy, and how we could do the same thing to exaggerate the “cost”!

Look, all this makes sense if your priors are “the benefit is and hand up, not a hand out” and “get a job you hippies”.  But we have two things other going on:

  1. We still have a weak labour market and high unemployment – it is distinctly difficult to find work.
  2. Do we really view the benefit as a temporary stop gap – or as a minimum income that an individual gets as part of society.

I find it incomprehensible to push people out of benefits in a situation where the labour market is distinctly weak.  Also, in moral terms, I believe that society should offer people an outside option – there is something distinctly perverse about basing someones status and self-worth solely on our view of them as a “labour input”.  Part of the reason for the benefit is to give workers an “outside option” to improve their bargaining position, it cannot be viewed independently of this.

Now a lot of people won’t agree with me on the second point, that’s all gravy I’m not the social planner.  But when we have a very weak labour market these reforms do appear punitive – kicking people off benefits because they have taken drugs, because they are disenfranchised around spending a long time looking for work and being rejected, that is punitive.  Look I 100% agree with some of the reforms – more targeted case management is nice (in line with trying to solve the “matching” problem in labour markets) – but mixing this in with punitive policies doesn’t stop them being punitive policies.  Telling beneficiaries and those who feel uncomfortable with suddenly tightening requirements when the labour market is weak to stop being childish doesn’t change this interpretation either 😉

My views are coloured by the fact that I remember what happened during the early 1990s with benefit reform – I remember how policies were “interpreted” at the branch level, and how much changes in benefit eligibility created hardship in my community.  But more generally I see government as a way society agrees to “co-operate” on some things, and I have an inherently different belief in the ways we should co-operate than some of these policies represent – if that makes me childish then I should spend more time talking to children about their views on the inherent social contract within society!

8 replies
  1. Blair
    Blair says:

    It’s a great little experiment in monetary policy. Presumably the government expects about 55,000 of 91,000 people to re-enter the workforce over the next little while. That’s what, 2-3% of the labour force, so the RBNZ can take that into account in setting rate expectations.

    • Matt Nolan
      Matt Nolan says:

      Not sure how much it will influence monetary policy – after all if it “lowers the natural rate of unemployment” by forcing individuals to take on the cost of matching themselves, and accept work that they would not have with an outside option, then the impact on monetary policy is unclear.

      The idea that people are suddenly making themselves more available for work implies an increase in general capacity as well as a lift in measured employment in other words – leaving the impact on both inflation expectations and the output gap a touch unclear!

      • Blair
        Blair says:

        I was being a bit tongue in cheek, but my point is that for the Government’s policy to be logically consistent, you would want aggregate demand to make a one-off jump above trend of 2-3% in the next quarter basically, so these 55,000 people can get jobs. Then the effect on inflation will be unchanged. This could happen through the market, a rate cut or verbal guidance by the RBNZ. How else will demand happen? The unemployed can’t spend more, they don’t have jobs yet.

        Absent this though, won’t these 55,000 people simply increase search activity, slowly grinding down wages? If the RBNZ waits for the move outwards of the AS curve to show up in inflation, it could be a year or more for demand to catch up.

        • Matt Nolan
          Matt Nolan says:

          I took it as a joke – but I find the best way to answer jokes is with a seering amount of seriousness. The reverse also applies 😉

          With these 55,000 people, if they all jumped into jobs at once I suspect that there will be 55,000 jobs sitting around that they just were not interested in due to their outside option. This is a different kettle of fish to a demand shock – tis in fact a positive supply shock. There would undoubtably be mismatch between the skills sets required and the skills sets available, which would appear in both low productivity and the wage …

          The real point is, ex-ante, would our central bank expect all this and respond with appropriate policy! I can’t see how they would, as the claims of 55,000 instata jobs seems pretty incredible.

          I think the best thing the RBNZ could do is build a time machine, and then respond to information from the future – the hard thing to figure out is whether the future stream of information is due to what they’ve seen, or is something they could change …

  2. VMC
    VMC says:

    Can certainly agree with your sentiment – but not all of it. I certainly do not see why a benefit should be paid to a drug consumer. Taking drugs renders people unsuitable for many types of jobs and these folk should be making sure they are job ready. Also, we know that benefits of all types are the subject of fraud and I suspect that closer case-management (what ever that means) may identify some fraud or make it likely that the fraud will be found out – thus some people at least might prefer to opt out of the benefit system.

    Actually, for all sorts of reasons, I think the govt should be creating the jobs that the temporarily jobless can move into – so much better than being on a benefit.

    • Luc Hansen
      Luc Hansen says:

      So, VMC, in reply to your second paragraph, the policy that took effect today is aimed not at the ‘temporarily jobless’ but at the long term unemployed. There is no need to coerce the short term unemployed into a ‘job’ that would necessarily restrict their ability to look for a new one, and securing a new one for these people is often a matter of just waiting for the right job to pop up – trust me on this, I’ve been there!

      Your first paragraph is more problematic. The question here is this: is a person unemployed because of drug use, or did unemployment drive the drug use? If the case is the latter, then employment actually solves the drug problem (if one exists: why don’t we drug test the ultimate state beneficiaries, the MPs?). By the way, the latest research from Europe, post GFC, indicates the latter case is the reality.

      Furthermore, Florida recently enforced compulsory drug testing for benefit applicants and guess what, they found that the incidence of drug use was lower in that group than in the general population.

      And if drug use drives beneficiary numbers, why was unemployment so low only six years ago? Can things really change that fast?

      As for fraud, yes fraud occurs, but ongoing audits prove only that fraud is actually minimal, especially when compared to white collar types (think South Canterbury Finance, Bridgecorp, et al). In accounting terms, one category of fraud is material, the other less so. Take a guess as to which is more material.

      Another expressed target of the new policy is beneficiaries with arrest warrants to their names, mainly for fines for offences that were caused by lack of money to begin with, like car rego – perhaps they prioritised feeding their kids. Removing their last remaining legitimate income flow will solve everything, right?

      But let’s get real here, the main targets of the policy is sole parents, who are given a choice between no income or their kids roaming the streets, and the halt and the lame.

      And the really, really sad aspect to this debate is today’s Herald poll that showed 50+% in favour of the policy.

    • Matt Nolan
      Matt Nolan says:

      As I said there are two things here – the more general point we can all pretty easily agree upon is that tightening conditions when the labour market is weak appears to be a bit tough. There is an understandable concern that this is the type of situation that may lead to unnecessary hardship.

      But there is a second point, the real elephant in the room, which a lot of people will inherently disagree about. It is about the nature of our social contract as a society. You see, I do think that people who choose to take drugs and completely avoid work still deserve a minimum standard of living – they are part of society, they are just as valid as a person to receive some return on the land we implicitly own as a society.

      We view jobs as an issue of status, we view work as our purpose, but is that truly right – is that what our social contract is inherently about. It is true that at some level of a “minimum income” there may be such a distortion to supply labour that the whole situation would fall in on itself – but this does not mean the question of inherent purpose is invalid.

      Some may view judgment as an important part of the social contract – your decision to accept goods and services from society likely entitles them to this right. Then we have the argument between the rights of the individual against the rights of society when this “social dividend” is paid out.

      Ultimately, the society we have now is an answer to these previous questions – but whether it is the right answer is something we have to confront as a society. Implicitly I disagree with it, hence why I tend to lean more towards a minimum income than society does. However, it is not my choice but societies – which is why I tried to tone it down (while still mentioning it) in the post 😉

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