The Dim-Post

March 1, 2012

Timing and the $130 million

Filed under: economics — danylmc @ 6:54 am

I think the logic of National’s benefit changes is that the majority of DPB recipients transition back into paid work after a couple years. So disincentivising beneficiaries from having additional children and compelling them to look for work at certain age markers is about flattening the tail of the distribution shown in this chart, which represents the duration of DPB recipients as a proportion of all DPB recipients, sourced from the MSD fact sheet for Dec 2011.

The Nats are spending $130 million dollars over four years to try and squash down those last two bars. But the graph everyone else is pointing at is this one, also sourced from MSD, which shows unemployment beneficiaries as a percentage of the working age population:

How do you transition 50,000 DPB recipients into work when you currently have 60,000 people on the unemployment benefit? Why spend $130 million setting up state child care and investing in MSD case managers to transition people into work that isn’t there?

National used to have an answer for this. You see how unemployment was really low in 2006-2007? Well that’s about to happen again! Treasury predicted it! So the government would set up this policy to transition DPB (and sickness benefit) recipients into the work force just in time for it to reap the benefits, and save a billion dollars by 2016.

The problem is that Treasury has revised all their rosy forecasts down. Unemployment is now predicted to stay above 5% until 2015.

Bennett’s new answer is that ‘the jobs are there’. If that’s the case, why don’t the unemployment statistics look like they did back in 2007, when the jobs were, actually there? Yeah, there are jobs on TradeMe. If you’re unemployed and a qualified nurse, or a senior java developer – ie working in an industry experiencing a world-wide shortage in which overseas salaries are significantly higher – then the New Zealand labour market would love to hear from you. But only 14% of the jobs currently listed are part time: 1650, and National plans to (somehow) transition tens of thousands of DPB recipients into those roles.

Looks to me as if the government is about to piss away $130 million dollars.

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38 Comments »

  1. Now that makes more sense than most of what you’ve posted recently.

    I also suspect the policy was originally expected to be popular with the electorate but has now gone sour…

    Comment by antoine — March 1, 2012 @ 7:27 am

  2. I suspect the govt would much rather piss away $130 mil than admit that the rosy projections offered before the election were complete bullshit.

    Comment by Psycho Milt — March 1, 2012 @ 7:39 am

  3. So far so good – thousands are going on strike or being locked out, but the chief concern this morning of this particular middle class blog? DPB numbers.

    If $130 million is what it costs to get the serfs fighting amongst themselves whilst jobs, wages and conditions collapse under the sustained attack of an emboldened and militant capitalist class then John Key and Steven Joyce probably think it is money well spent.

    Comment by Sanctuary — March 1, 2012 @ 7:41 am

  4. Some excellent points. Shall we slash education funding so we don’t piss that money away on people who won’t get jobs?

    Comment by Richard — March 1, 2012 @ 8:44 am

  5. There are two sides to a market. If people are trained and willing, employers will be more likely to structure their business such that there are roles for them.

    Comment by swan — March 1, 2012 @ 9:16 am

  6. Those people who spend 10 years plus on the DPB. What’s the story? Should they really be on the sickness benefit because they have serious mental illnesses, addictions etc that are making it impossible for them to find work? Are they just having HEAPS of kids. It’s hard to believe anybody would make a choice to remain in that situation so I have to assume that most of them are stuck in it for some reason… I’m guessing work testing probably won’t help solve those problems, whatever they are.

    Comment by Amy — March 1, 2012 @ 9:39 am

  7. It’s the 1990s all over again. Global economy + poor government macroeconomic management = increased number of people on benefits. Rather than face this fact the government of the day instead spins narratives about welfare dependency and lazy single mothers. Fits nicely with popular prejudice and gets them out of a tight spot politically…depressing really.

    Comment by terence — March 1, 2012 @ 9:55 am

  8. Some excellent points. Shall we slash education funding so we don’t piss that money away on people who won’t get jobs?

    Comment by Richard — March 1, 2012 @ 8:44 am

    No – because (1) education confers all sorts of benefits, not just work related ones and (2) (despite National’s best efforts) the recession is cyclical, not structural. By the time most people leave school the jobs will be back again.

    There are two sides to a market. If people are trained and willing, employers will be more likely to structure their business such that there are roles for them.

    Comment by swan — March 1, 2012 @ 9:16 am

    If that’s the case why do unemployment rates shift around so much? Why were they so low in 2007? Have tens of thousands of New Zealanders suddenly become less trained and willing?

    Comment by terence — March 1, 2012 @ 10:00 am

  9. Well it COULD be that National actually wants a third term, so they’re planning on giving Bollard’s successor as RBNZ chief a mandate to pursue employment growth as well as controlling inflation.

    [/monetarist fantasy]

    Comment by bradluen — March 1, 2012 @ 10:17 am

  10. >Bennett’s new answer is that ‘the jobs are there’.

    And they are there. They just don’t pay enough to survive on. But they’re still more than the benefits, which are the barest possible subsistence.

    Bennett doesn’t have a clue. She’s actually moved towards being a liability for National on account of her obvious hypocrisy. Also, nearly losing Waitakere.

    Comment by Ben Wilson — March 1, 2012 @ 10:49 am

  11. I loved Bennett’s response to being called a hypocrite: “It was different in my day! The benefit now is CPI adjusted and stuff!”

    Comment by Me Too — March 1, 2012 @ 11:02 am

  12. Don’t forget “I’m not a hypocrite! I’ve always been very open about having being on a benefit.” I’m unsure if it was an attempt at misdirection, or that there’s a genuine misunderstanding of why people says shes a hypocrite.

    Comment by The PC Avenger — March 1, 2012 @ 11:04 am

  13. “If that’s the case why do unemployment rates shift around so much? Why were they so low in 2007? Have tens of thousands of New Zealanders suddenly become less trained and willing?”

    As I said there are two sides to a market. Employers may be less willing to hire for any number of reasons. However, for a given level of confidence on the side of the employer, increasing the supply and quality of employees will increase employment. And that is not including subsequent virtuous circle effects.

    Comment by swan — March 1, 2012 @ 11:36 am

  14. With that sort of money, they might as well resuscitate the old Ministry of Works and Railways Dept, instead of telling people they’re unpeople. Oh wait…

    And Minister Bennett: you fail economics fovever, so stop shifting the goal posts. Who exactly are we trying to economically compare ourselves with, Australia or Indonesia? And as for Key’s much-touted ‘financial hub’ industry – all I can say is that the big jet plane won’t be coming, no matter how many rain-dances he and English perform.

    Comment by DeepRed — March 1, 2012 @ 11:37 am

  15. “…As I said there are two sides to a market. Employers may be less willing to hire for any number of reasons. However, for a given level of confidence on the side of the employer, increasing the supply and quality of employees will increase employment. And that is not including subsequent virtuous circle effects…”

    I heard this joke once. Two Treasury economists were walking down the Terrace deep in conversation when one suddenly gasped and pointed and said “Look! There is a $100 note lying on the footpath!” To which colleague, without pausing to look, simply snorted “Impossible! It would have been picked up by now.”

    Do us all a favour – look at the footpath every now and again.

    Comment by Sanctuary — March 1, 2012 @ 11:44 am

  16. There’s not a lot of jobs out there, even the Government is cutting jobs at the moment, meat workers are being locked out of their workplace if they belong to a union, it’s just grossly untrue to say that “there’s jobs out there” when there’s fewer and fewer jobs out there every week.

    The other thing is that there will be less people on the unemployment benefit because the Government has gotten to the stage where it’s bullying them off the unemployment benefit. It doesn’t matter if they’ve previously done training, worked part of the year, actively seeking work, whatever, all that matters is the Government wants to lower the amount of people on the benefit. Admittedly, those that are not actively seeking work will be the first to go, but I suspect that there will be people in there that have been looking for work and will be targeted for the cancellation of their benefit as well, just because they are perceived as easy targets.

    Comment by Daniel Lang — March 1, 2012 @ 12:43 pm

  17. Yesterday in Parliament National Party colleagues sprang to the defence of Paula Bennett claiming she is the bravest Minister to undertake welfare reform, and that rhetoric may well be the case.
    The governments strategy here is to cut and hope, a number of beneficiaries will find part time work and the balance will get more intensive placement coaching. The impact of a number of beneficiaries in the labour market is that there will be increased competition for jobs, thus forcing down pay rates and entitlements, which may prove to be detrimental to employee’s in fulltime employment.

    Comment by Kevin — March 1, 2012 @ 12:59 pm

  18. Unless I can’t work a calculator, $130m Ministry of Works could employ about 4642 people on a salary of $28,000, DeepRed @14.

    Comment by Clunking Fist — March 1, 2012 @ 2:20 pm

  19. Those people who spend 10 years plus on the DPB. What’s the story?

    My guess is that it’s a mix of (in no particular order):
    a) People who are working part time, or not at all, because it’s actually illegal to leave a kid under 14 alone, and would rather look after them themselves than pay someone else to do it,
    b) People with limited skills and experience who, if they didn’t have kids, would be unemployed for some of the time anyway. Particularly in areas with limited job prospects.
    c) People whose kids have disabilities or behavioural problems and need a parent round pretty much all the time,
    d) stereotypical welfare mothers.

    Comment by helenalex — March 1, 2012 @ 5:05 pm

  20. The economics editor in granny herald (Brian Fallow) also clinically pulled apart the government’s claims about jobs for beneficiaries. Even on the rosy Treasury prefu figures, there was a big shortfall between jobs becoming available and 45,000 odd people that Key and Bennett claim will shift from welfare to paid employment. John Key doesn’t look like the media darling this year.

    Comment by Andrew R — March 1, 2012 @ 6:13 pm

  21. “..John Key doesn’t look like the media darling this year…”

    You haven’t read Duncan Garners blog, where it appears he has had a brain hemorrhage and been replaced at the last minute with a pro-National cliché generator.

    Comment by Sanctuary — March 1, 2012 @ 7:50 pm

  22. All this crapola started with tax cuts for the already wealthy and how the rest of us unwashed were going to match Australia. Whatever happened to that?

    This government really knows how to drive NZ into 3rd world territory with international corporations being the new imperialists.

    The National Party are are having a competition amongst themselves about who is best at shifting the deck chairs about on board a steeply listing Titanic.

    At least Key will be able to smile and wave at us from his sanctuary in Hawaii.

    Comment by peterlepaysan — March 1, 2012 @ 8:16 pm

  23. “…big shortfall between jobs becoming available…”

    You have heard of the lump of labour fallacy, haven’t you?

    Comment by Swan — March 1, 2012 @ 8:18 pm

  24. ooo er, “At least Key will be able to smile and wave at us from his sanctuary in Hawaii” I never realised Key was taking Sancy on holiday

    Comment by stephen — March 1, 2012 @ 9:00 pm

  25. Swan is right. As soon as we have more of those DPB mum’s out looking for work the sooner employers are going to start hiring more people. Solved. It is all so logical.

    The only way to fix the unemployment problem is to allow people to starve in the streets by not providing a welfare net. Then, even if the economy is screwed, business’s will employ more people. Genius.

    Comment by Tim — March 1, 2012 @ 9:40 pm

  26. “The only way to fix the unemployment problem is to allow people to starve in the streets by not providing a welfare net. Then, even if the economy is screwed, business’s will employ more people. Genius.”

    Additional stimulus could be provided by training the young unemployed to build concrete barriers and razor wire fences, install armour plates and bulletproof glass on SUVs and limos, or to become security personnel. I also hear IG Farben is set to make a killing on the NZX.

    Comment by DeepRed — March 2, 2012 @ 12:46 am

  27. I’m not seeing a lot of understanding of the difference between structural unemployment and frictional and cyclical unemployment on this thread.

    I guess it would get in the way of a lot of self-righteous indignation, though.

    Comment by Rick Rowling — March 2, 2012 @ 8:29 am

  28. “I guess it would get in the way of a lot of self-righteous indignation”

    enlighten us, then, my good sir.

    what are these magical terms you bandy about with such casual economic wizardry? how are they going to make the jobs for the bludgers who are about to be debludged?

    more plainly, since there is no sign of the unemployment decreasing anytime soon – regardless of whether it’s stuctural or cyclical or monkeyful – what justification is there for trying to force people into work?

    Comment by nommopilot — March 2, 2012 @ 9:26 am

  29. “I guess it would get in the way of a lot of self-righteous indignation”

    “what justification is there for trying to force people into work?”

    There it is. Right there.

    Comment by Rick Rowling — March 2, 2012 @ 9:54 am

  30. “There it is. Right there.”

    How about just saying what you mean? Do you think the benefit changes are going to lead to improvements in the job market? or the lives of solo parents on the DPB? or their kids?

    you’re coming across a little bit self-righteous yourself with your five-word “arguments”, and yet it’s not actually clear what your point is…

    although you’re probably just waaaay too smart to be understood…

    Comment by nommopilot — March 2, 2012 @ 10:03 am

  31. I’m not seeing a lot of understanding of the difference between structural unemployment and frictional and cyclical unemployment from the National government.

    I guess it would get in the way of a lot of self-righteous indignation, though.

    Ftfy.

    Comment by bradluen — March 2, 2012 @ 11:01 am

  32. Rick, why don’t you explain it for us? If unemployment levels right now are structural, then we depend on them *not* finding jobs, so it seems unfair in the extreme to cut people’s benefits for being in a situation they have been put in structurally. If unemployment levels right now are cyclical, then as the economy bounces back (or recycles) by definition unemployment will decrease, so why bother cutting benefits to solve a problem that is cyclical?

    Comment by Tui Head — March 2, 2012 @ 11:57 am

  33. At the moment unemployment levels are cyclical, as they have increased due to the bad space the economy is in.
    From my experience over the course of two decades of observing percentages of unemployment, I would say 4% or 5% unemployment in New Zealand is structural and anything above that is cyclical.

    As unemployment here is about to reach 7% I believe, I would say that we are only at the start of the middle of the cyclical unemployment phase and that we have another percentage (8% unemployment) to get to before the Government puts in the necessary changes that reduce the cyclical element and make it more structural.

    Why bother cutting benefits to solve a problem that is cyclical?
    1. Unemployment generally double in New Zealand under the cyclical unemployment phase
    2. $5billion has been borrowed and spent on tax cuts for the rich and $7billion is being garnered from asset sales primarily for education and health, so there’s “no money” to keep benefit payments as they currently are
    3. National’s brief is always to cut benefits, make the rich richer, hurt anyone in poverty and smirk continually throughout the entire process

    Comment by Daniel Lang — March 2, 2012 @ 12:48 pm

  34. The argument “it’s pointless to make X class of beneficiary look for work when there are 60,000 unemployed” rests on the assumption that jobs are homogenous commodities, and jobless get jobs in some first-in-first-out or other arbitrary way.

    The total number of unemployed is irrelevant if most of them (a) have a different skill set and/or (b) are located elsewhere.

    There’s always going to be frictionally unemployed (between jobs) and cyclically unemployed (when the economy is undercooked), these changes aren’t about this. These changes are about that small part of the structurally unemployed (who believe that they aren’t expected to work so aren’t looking).

    A significant fraction of these people with have skills and location that other unemployed don’t.

    And sure, a fraction won’t have skills that are in demand, and they won’t be where jobs are available, but that’s no reason to give up on those that do / are.

    / And you can say they shouldn’t be expected to work, and should be looking after their kids, which is a valid argument, but has nothing to do with how many other people are unemployed.

    Comment by Rick Rowling — March 2, 2012 @ 1:51 pm

  35. “Why bother cutting benefits to solve a problem that is cyclical?”

    Becuase there is a concern that the cycle of welfare dependency adds to the structural element, in that the beneficiaries beget numerous beneficiaries who beget numerous bene, etc. I’m not sure whether this is proven, mind.

    What page of “the big kahuna” is everyone up to? “Anyone… anyone?”

    Comment by Clunking Fist — March 2, 2012 @ 2:16 pm

  36. “These changes are about that small part of the structurally unemployed (who believe that they aren’t expected to work so aren’t looking). A significant fraction of these people with have skills and location that other unemployed don’t.”

    Does that include the retirement age benefit recipitants, some of whom are unemployed and skillful, and appear to make up the largest plurality of welfare recipients (http://dimpost.wordpress.com/2010/08/09/chart-of-the-day-elephants-in-the-room-edition/)

    FM

    Comment by Fooman — March 2, 2012 @ 2:33 pm

  37. “These changes are about that small part of the structurally unemployed”

    And the question is how small is this small part? Is $130 million well spent on making major structural changes to the entire welfare system in an attempt to target the small group that are the most resistant to seeking work?

    “And sure, a fraction won’t have skills that are in demand, and they won’t be where jobs are available, but that’s no reason to give up on those that do / are.”

    No one’s suggesting we give up on these people, but that’s no reason to assume that this particular policy is the best way to achieve the goal. The fact that supermarket positions have ten times more applicants than they need for any given vacancy is a sign that there is no problem with the supply of unskilled labour anywhere in the country. The problem lies elsewhere methinks.

    Comment by nommopilot — March 2, 2012 @ 4:10 pm

  38. “No one’s suggesting we give up on these people, but that’s no reason to assume that this particular policy is the best way to achieve the goal. The fact that supermarket positions have ten times more applicants than they need for any given vacancy is a sign that there is no problem with the supply of unskilled labour anywhere in the country. The problem lies elsewhere methinks.”

    Ah, so why do we keep raising the minimum wage again?

    On your point though, there I would suggest that supermarket positions in cities are a little easier to fill than say fruit picking or forestry jobs for example.

    Comment by swan — March 2, 2012 @ 5:51 pm


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