Cheers, I’ll have a peek at that in the weekend.

There is some evidence, albeit buried in the second annex of an MSD report. Basically lower numbers of second earners and some evidence of increased supply of sole parents that diappeared with the onset of the GFC:

http://www.msd.govt.nz/documents/about-msd-and-our-work/publications-resources/evaluation/receipt-working-for-families/couple-parents-technical-report.doc

A cynic might wonder if this was buried because MSD’s corporate ideology is that sole parents do not work because “work does not pay”, and the small effect suggests this is not true….

Hi Steve,

Good comments. I agree with you that removing the requirement for job search may well remove the need for a minimum wage. In fact, the very nature of changing opportunity by doing this could lead to a big change in the relative wage rates for different forms of work – which would make such a question very difficult to think through. However, conceptually it fits our idea of “opportunity” fairly well, which is nice.

There are a lot of details though, and it would take a team of people far smarter than me to make headway on them! Hopefully that team turns up soon 🙂

Thanks. Yes these really are empirical questions. I am assuming that demand for unskilled labour is relatively inelastic in that they are jobs that cannot easily be replaced by capital goods in production. With this in mind, the incidence of the subsidy could be one to employers as I suggested. But yes, it is an empirical question. I suppose it also depends to what extent supply of unskilled labour is inelastic. And this too will be related to their alternatives for income. With no support for those who choose not to work, supply of their labour is also inelastic sharing the incidence between employers and workers. But this supply would be much more elastic if they had a basic income not tied to working. As a result, of the basic income thing, it might also remove the need for the minimum wage. Sorry I don’t mean for these to be conclusions. They are more hypotheses where I am interested in your opinion. They would be interesting things to study empirically.

the wage thing is also true, I had forgotten that employers cannot discriminate between the childless and parents. So the result is not so much that people without children are unemployed, but that they might choose to exit the workforce, except as I describe above their supply of labour is probably inelastic, resulting in unemployment as I originally describe.

I suppose the GMI inequality thing might not be as I predict. But it would reduce poverty (by either measure) which is my main concern with increasing inequality. So I am also in favour of it.

I have no problem with targeting but it is how that targeting is implemented. This is also the issue with WFF in that as parents earn more, their WFF is reduced very quickly meaning they have a very high effective marginal rate of tax. If we choose targeting as our collective value judgement it needs to be implemented in a way that the effective marginal rate of tax is not so high as to discourage earning more. I do have a problem with tying it to working because I hypothesised that this means at least some (if not most) of the incidence goes to employers.

“To what extent is working for families a subsidy for employers?”

This depends on the elasticity of demand and supply of labour right – it is a question of tax incidence. A very important point when thinking about designing the scheme, and how it meets need!

One thing I’d keep in mind is that employers also have to pay single people the same rate as those in families – and WFF creates a wedge between the return to labour for these two groups. As a result, those with children will drive down the net wage received by people without children. As the questions were focused on this area that is another point.

“But what about a basic income policy as a better alternative? I’m surprised none of the economists proposed this in the discussion”

We were given scenarios and asked to comment on them – we didn’t really have space after all that to suggest the article should be on something else! Saying that I’m a big fan of minimum income schemes (http://www.tvhe.co.nz/?s=%22Minimum+income%22), and Eric and I have both written on them. I like Eric’s post discussing the trade-offs we need to think about with such schemes:

http://offsettingbehaviour.blogspot.co.nz/2011/10/impossible-trifecta.html

I would be a bit careful with your conclusions about it though – you are definitely on the ball with a lot of the areas of interest, but many of these things are empirical questions that we can measure and then discuss. Furthermore, it is definitely not clear that such a scheme would reduce income inequality!

One thing I would note with minimum income schemes is that New Zealand has a minimum income scheme – but we also tie it to work testing. In reality, supporters of the GMI are saying two things:

1) Remove work testing

2) Remove targeting

They both involve value judgments – and in fact the second one is very harsh. Oft time too many things are chucked in the “GMI” basket – there is a lot of debate to be had around the trade-offs that exist for different specifications of a GMI!

But what about a basic income policy as a better alternative? I’m surprised none of the economists proposed this in the discussion. It would mean the subsidised income isn’t tied to working, so doesn’t end up in the pockets of companies. It also reduces inequality without discriminating between families and the childless and doesn’t increase unemployment. Some people may choose not to work under this policy, but that isn’t necessarily a bad thing. People have that choice. There is also an argument that it allows entrepreneurs to pursue innovation rather than otherwise feeling required to work in order to support themselves. It could even be a varied amount depending on whether our collective value judgement is that those with children should get a greater basic income.

Agreed. It is an issue I currently very much want to look into – but it is all about access to sufficiently disaggregated HES data.

I would totally expect increased LFPR among single-parent families. Then household income equals that earner’s wage income; the wage subsidy draws those who hadn’t been in the labour force into the market. Clawback rates on WFF might stymie progression a bit once they’re in the market, but the big effect would be getting those people into the labour force.

You’d need individual-level data to do this up properly – it’d be a big job. I don’t think we can just look at aggregate LFPR, which dipped a bit among women post WFF then came back. We really need to know the by-cohort EMTRs, whether they were in-work or not prior to WFF, kids’ ages, partner’s incomes… no way I can do it from my desktop. Somebody would have to do the special pleading to go sit at a StatsNZ data centre and start working it out.

Ahhh that was lazy of me at the end – I should update that to be more conditional.

I’m not aware of any actual estimation work post-reform – only simulation work prior to the reform. And that suggested that the positive employment effect of the in work tax credit would be small, and that there would be a disincentive effect from abatement.

It was one of those situations where I wanted to say “given the strong lift in the participation rate post WFF, it may be the case that WFF was behind this lift. If this was the case, removing this, especially when combined with a policy that is likely to reduce labour supply incentives may have the net impact of reducing labour supply, and reducing GDP”.