Monday, September 9, 2013

Forget the propoganda: people are staying on welfare longer

It's been a recurring theme of this government that sustained economic growth is just around the corner: a little bit of red-tape cutting here, a bit of deregulation there, and pretty soon you're moments from resuming or even surpassing normal growth. Which would be great if it was true. But now, four years after the 'green shoots' of economic recovery have withered and died, the New Zealand economy is still haemorrhaging jobs and the number of panhandlers on Queen Street has not diminished, at least not that anyone would notice. (And no, being homeless is not a 'lifestyle' that is chosen by more people coincident with economic hard times.)

In the end, it is the availability of secure jobs that determines people's economic and social wellbeing and this apparent recovery ain't generating any. As previous posts (see here and here) have noted, unemployment is not falling and labour market participation is declining. One way to assess distress in the labour maket is how long people have been unemployed. This data is available for other countries, notably the US, but not, so far as we're aware, for New Zealand. So we've had a look at the benefit data to try to get a proxy assessment of how long people have been unemployed: mostly people leave benefits when they find work so the two are closely - though not perfectly - matched. 

As an aside, Spider and I are strictly amateurs when it comes to labour market economics which raises the question where are the real labour economists? Doesn't real-world research get funding, or are other-worldly problems more pressing?    

But back to our story: In times of high unemployment people tend to be out of work for longer, and the longer people are unemployed the harder it is for them to re-enter the labour market. An analysis of benefit data at three different periods (December 2004, 2008 and 2012)  is shown in the table below. These dates were randomly selected - you could pick any dates or more of them. What we're interested in here is to see if there is a pattern. 

Percent of beneficiaries on a benefit for <1 year, 1-4 years, and >45 years. (Figures for December quarter.)
We see that in December 2004 25% of Domestic Purposes beneficiaries (DPBs) had been on that benefit for less than one year. In 2008 when the economy had higher rates of employment almost a third had been on a benefit for less than a year. By 2012 less than a quarter had been on a benefit less than a year, but 36% had been on a benefit for more than four years, up from 31% in 2004. In other words, despite moves to force them into work, high unemployment has meant more DPBs are staying on a benefit for longer. A similar pattern can be seen with Sickness (SB) and Invalids (IB) beneficiaries. For those on an Unemployment benefit (UB), the proportion on a benefit for less than a year has slumped from 83% in 2008 to 76% in 2012. The proportion on a benefit from 1-4 years almost doubled, from 12% to 21%, but the proportion on a benefit for over four years has decreased. Since it is this group that has the greatest difficulty finding work, it seems likely that these individuals no longer receive a benefit either because they have failed to meet their work test obligations or have not re-applied for their benefits. In fact, one of Spider's other girlfriends recently told us WINZ staff had been directed to target long-term beneficiaries to get them off a benefit. While the fall in those receiving a UB for over 4 years is good press, it is unknown whether these long-term unemployed have moved into sustainable paid employment. I'm guessing...not.

So what are these people doing for money? Who knows? But the longer periods people are spending on benefits, despite the enormous state and propaganda resources poured into getting them off welfare, suggests that the work is simply not there. Perhaps we need and actual job creation strategy and not the ideologically-driven deregulation agenda National has followed since coming into office. Having people fall through the social safety net can only contribute to New Zealand's infamous income inequality. Is this really what we want? Think carefully before you answer: the evidence shows high levels of soeconomic inequality mean your kids will find it easier to fall between the rungs of John Key's ladder of opportunity than to claw their way back up.