Bill Rosenberg

Support for Workers in the Covid-19 Emergency he main support for workers affected by the Covid-19 emergency Tin New Zealand was a wage subsidy. what can Some aspects of it were highly effective; others were problematic and tolerable only because it was responding to a crisis and was temporary. It demonstrated the we learn? systemic weaknesses in New Zealand’s support for workers when jobs are lost. This Abstract article first describes existing pre-Covid-19 This article first briefly describes pre-Covid-19 support for workers support for workers who lose their jobs; outlines and evaluates the government who lose their jobs in New Zealand, then outlines and evaluates the response; and finally considers what is government response to potential and actual job loss in the Covid-19 needed to prepare New Zealand better for times of job loss. emergency. The main response was a wage subsidy. Some aspects of it were highly effective; others were problematic and tolerable Context only because it was a crisis and temporary. It demonstrated the New Zealand’s pre-Covid-19 support for workers whose jobs cease was primarily systemic weaknesses in New Zealand’s support for displaced workers. based on benefits, allowances and The article finally considers what is needed to prepare New Zealand programmes administered by the Ministry of Social Development. Tightly income- better for times of job loss. tested jobseeker benefits are supplemented Keywords Covid-19, income support, welfare, unemployment, by various targeted allowances, such social insurance, social assistance, active labour market as accommodation supplements. Programmes to assist workers are focused programmes, future of work, just transition, New Zealand on those most likely to claim a benefit

Bill Rosenberg is a senior associate of the Institute for Governance and Policy Studies and the Future rather than the full range of jobless of Work director at the New Zealand Council of Trade Unions Te Kauae Kaimahi. workers. This system has been examined

Policy Quarterly – Volume 16, Issue 3 – August 2020 – Page 67 Support for Workers in the Covid-19 Emergency: what can we learn? in two recent reports: by the government’s of the more minimalist OECD countries insignificant’ (McAllister, 2020). Welfare Expert Advisory Group (2019)and in terms of employment supports for Household disposable income after by the OECD (2017). displaced workers.’ Consequently, ‘the costs housing costs rose an average of 17.5%. The Welfare Expert Advisory Group of economic restructuring largely fall onto But couples on jobseeker benefits still found that both income support and active individual workers’ (OECD, 2017, pp.74, received just 34% of estimated labour market programmes to assist 104). Replacement jobs were often inferior. equivalised median household disposable workers to find jobs were grossly inadequate. This is consistent with income replacement income, and single people as little as 29%, For example, a single person receiving the being insufficient to allow workers to well below standard poverty benchmarks. jobseeker support benefit and renting search for a job that suits their skills and A $1.6 billion free trades and privately had an income, after housing experience, and poor active labour market apprenticeship training scheme was costs, at around 22% of the median programmes. There was a lack of announced, as were additional employment household income; a couple with two programmes for ‘better-skilled’ workers programmes, though whether they children renting privately received around and only about a third of displaced workers included substantial quality enhancements is unclear. The principal income support was a The principal income support was wage subsidy, providing $585.80 weekly per employee working 20 hours or more and a wage subsidy, providing $585.80 $350.00 weekly for other employees, paid weekly per employee working 20 hours to the employer in a lump sum in advance for up to 12 weeks. Applications could be or more and $350.00 weekly for other made to the Ministry of Social Development immediately. The self-employed could also employees, paid to the employer in apply. To qualify, employers attested to an a lump sum in advance for up to 12 actual or projected 30% reduction in revenue compared to the same period in weeks. 2019 for any month between January and June. They declared that ‘on their best endeavours, they will continue to employ the affected employees at a minimum of 29% of the median. ‘By any measure of received a benefit. Wage losses were more 80% of their income for the duration of poverty, these examples reveal a dire than in Germany, the United Kingdom, the the subsidy period. This is the equivalent situation’ (Welfare Expert Advisory Group, United States and Portugal. Hyslop and of keeping people working 4 out of 5 days 2019, p.98). Townsend (2017) estimated that New of the week.’ They also undertook to take Stand-downs and income testing Zealand displaced workers’ earnings were active steps ‘to mitigate the impact of intensify the inadequacy. For example, 25–30% lower in the first year and 13–22% Covid-19’. workers are frequently ineligible for lower five years after being displaced. Their Leave payments at the rate of the wage income support if they have employed employment prospects were reduced for subsidy supported employees who were partners, yet many households depend on several years. required to self-isolate, caught Covid-19, two incomes (ibid., p.136). or had to care for others in those Active labour market programmes The government’s response to the Covid-19 circumstances. Their employers had to ‘focused too narrowly on reducing the emergency apply on their behalf. number of people on benefits and short- The government’s main support for It was deliberately ‘high trust’, allowing term fiscal costs with insufficient regard for workers through the Covid-19 emergency rapid take-up with minimal compliance the suitability of the jobs people go to’, came in a $12.1 billion package announced costs. Employers who broke the rules, the creating poor employment outcomes. on 17 March. government emphasised, would be Spending on such programmes was among Social welfare beneficiaries received committing fraud. Later, the ministry the lowest in the OECD, ‘far below the level increases costed at $2.8 billion over four published a list of all subsidised employers, needed’ (ibid., pp.129, 134). years. This comprised a permanent $25 which was scrutinised by academics, In response, the government has per week increase per household in all journalists and others, and auditors were indexed benefits to the average weekly wage main benefits from 1 April and doubling employed to check the applications. By 15 rather than the Consumers Price Index, but of the winter energy payment from 1 May May the ministry had reported 569,344 not yet actioned recommendations for to 1 October. Annual benefit increases applications for wage subsidy and leave significant benefit increases. also occurred from 1 April, for the first payments, of which 449,551 had been Similarly, the OECD found that ‘many time indexed to the average wage. The approved. displaced workers end up in poverty’. It Child Poverty Action Group’s analysis By 15 May, the scheme covered 1.641 concluded: ‘Arguably New Zealand is one was that the changes ‘were not million jobs (compared to 2.667 million

Page 68 – Policy Quarterly – Volume 16, Issue 3 – August 2020 people employed in the March quarter), workers relied on employers listing and relaxed means testing that allowed including over 219,000 self-employed, them as employees. Some employers most two-income households to claim it; costing $10.85 billion. laid workers off rather than claim the yet it failed to cover temporary immigrant subsidy. workers and showed other design problems. Strengths • It was open to abuse. Conditions were It was, therefore, appropriate that the • The wage subsidy distributed funding very difficult to enforce. Unions and government simultaneously announced very quickly. Within 10 days, almost labour inspectors attempted to police that it was working ‘on the possibility of a 200,000 applications covering almost it, but their resources were far from more permanent unemployment insurance 460,000 jobs worth $3,772 billion had enough. The New Zealand Council of scheme in New Zealand. The Future of been paid out, and half of the $10.85 Trade Unions website received 2,100 Work ministers group has commissioned billion within a further week. complaints in less than three weeks the work following a request from Business • It maintained connection between (Young, 2020); by 24 May, the Ministry New Zealand and the Council of Trade workers and employers, allowing many of Business, Innovation and Unions’ (Robertson and Sepuloni, 2020). employees to keep their jobs, and firms to resume work quickly when conditions permitted. To make our active labour market • It supported firms by paying a significant part of their largest cost: programmes fit for purpose, labour. • Even if an employee received only the programmes must suit not only subsidy, it was considerably more than workers most frequently needing the jobseeker benefit, and many received much more than that. Some social assistance but all workers, kept their full normal income, and employers were expected to pay at least because most workers experience 80% (though see below). Two income major involuntary change in earners in a household could receive it because it was not income-tested. employment some time in their • It applied to all types of work arrangements. Permanent, fixed-term, working lives, and that may happen immigrant workers without resident more often. status, casual workers and the self- employed were covered (but see below). • It slowed the rise in unemployment. The number of people on a jobseeker Employment had received 3,888 What is needed to prepare New Zealand ‘Work Ready’ benefit rose 50,579 complaints, including of employer better for such disruptions? between 17 May 2019 and 15 May 2020 fraud (RNZ, 2020). Auditing was also Disruptions to employment are – approximately 2% of the labour force at an inadequate scale. unfortunately not rare. Climate change, – despite over 1.641 million workers The wage subsidy was therefore a very technological change, globalisation and being affected by the lockdown. effective response in the circumstances, but changing demographics are affecting showed many signs of having been put the ‘future of work’. Natural disasters, Weaknesses together in haste. It was a place-filler because pandemics, global crises, business cycles • A low income-replacement rate: there New Zealand did not have adequate systems and company closures and restructuring was ultimately no assurance that to cope with income and employment loss may well recur more frequently. This employees would receive more than the in such an emergency – systems as basic as demands policies and institutions that bare subsidy (for example, if their work being able to pay all workers directly. Its support people through change so that ceased). The subsidy was only 58% of payment level and conditions were implicit costs do not land on those with least a 40-hour week on the June 2019 acknowledgement that social security control over, responsibility for or ability median hourly wage, and 48% of the benefits were much too low and conditions to withstand them: a ‘just transition’. It is average wage (pre-tax).1 too tight to provide an acceptable response. unfair and will create resistance to needed • It required the employer to apply and A temporary ‘Covid-19 income relief change if the costs continue to be loaded pass it on. This gave rise to multiple payment’ announced on 25 May for on those least able to offload them onto problems. Employers paid employees workers who lost their jobs after 1 March someone else. varying amounts, with little control in was further acknowledgement. Welcome To make our active labour market practice by employees. Some unlawfully features included direct payment to programmes fit for purpose, programmes demanded employees take leave. Casual workers at roughly twice a jobseeker benefit, must suit not only workers most frequently

Policy Quarterly – Volume 16, Issue 3 – August 2020 – Page 69 Support for Workers in the Covid-19 Emergency: what can we learn?

Table 1: Possible types of income support schemes

Personal provision Redundancy payment Social insurance Status quo

Description For example: Mandated, lump sum either Common fund, like ACC Social welfare benefit • Allow use of KiwiSaver • Paid by employer; or system, with or without the savings • Levy or government Pays proportion of previous Welfare Expert Advisory • Personal loan scheme funded income for defined period Group’s proposed reforms • Personal insurance

Availability • Disadvantages low- • Mandating creates • High if mandatory and • Conceptually universal income workers and availability universal (like ACC) • But currently many higher-risk jobs (e.g. • But failed firm may not • Individual entitlement are not eligible due to insecure jobs) be able to pay household-based income • Not portable: depends testing on service with each • Numerous other barriers employer

Non-discriminatory • Disadvantages young • Those in insecure work • Depends on design (e.g. • Household-based income people, Mäori, Pasifika, or shorter tenure receive minimum and maximum tests discriminate women less; they are more likely payment rate) against women • Could cover self- to be young or female • Could cover self- • Currently focuses on low- employed • Does not assist self- employed skilled workers employed • Covers self-employed

Effectiveness • Income available will • Not means-tested • Depends on income • Welfare Expert Advisory be very low for some • Most pay-outs are replacement rate and Group proposals would people, including some limited to a few weeks other features create income adequacy with most need pay, regardless of need • Funding design for basic living standard • Transfers full cost • If employer pays, it: determines cost sharing • Otherwise most to workers unless – takes on some of the • Conditional on job beneficiaries will remain subsidised or costs of its actions to search or training in poverty contribution negotiated others • Falls back to benefit • Even the advisory from employer – may increase system when payment group’s proposals leave • No pooling of risk preference for period expires many people unable to casual, fixed- service commitments term or contractor such as mortgages, rent employment • Necessary for broader social purposes needing social assistance but all workers, For workers to find a job that matches selection by those most likely to need because most workers experience major their skills and experience, they must have it, affordability, and insurers refusing involuntary change in employment some the time to consider options, search and to cover higher-risk workers. time in their working lives, and that may retrain. Card, Kluve and Weber (2010, • Non-discriminatory. It should not in happen more often. Programmes should 2015) find that giving workers more time practice disadvantage groups such as help workers into good jobs that match to do this can have better longer-term young people, Mäori, Pasifika and their skills and experience rather than the employment outcomes. Yet many cannot women because of their income or present priority of getting them off benefits. afford to spend the time needed. Effective work patterns. That will require higher quality, more income replacement is essential. • Effectiveness. It must be effective in personalised career advice, assistance with I suggest the criteria for the design of maintaining the wellbeing of workers job searching, relocation assistance and, an income replacement scheme should and their dependants, and enable perhaps most importantly, support for include: reasonable time for job search and retraining if career change or updating of • Availability to all workers. For example, training. It should protect them from existing skills is required. There is an it must be useful and accessible for unfair costs of adverse events. increasing need for education and training vulnerable and low-income workers, Conditions should respect workers’ throughout people’s working lives. Other and to both income earners in a dignity and needs, and society’s countries, particularly in northern Europe, household. Universality overcomes expectations. have well-developed active labour market problems such as discrimination on the policies we can learn from. basis of scheme membership, self-

Page 70 – Policy Quarterly – Volume 16, Issue 3 – August 2020 Three general types of scheme have compensation payments in its levy- and be progressive. A state contribution would been proposed. Table 1 summarises some government-funded system. Typically be appropriate for disadvantaged groups features compared to the status quo.2 social insurance schemes pay a proportion and during crises like the present. Personal provision would set up of previous earnings (ACC pays 80%) to Provisions for ‘short-time work’, government-regulated accounts (or use some maximum, but pay-outs are not becoming common in Europe, could KiwiSaver) for individuals to save or insure directly related to levy contributions. A maintain employer–employee connections. against redundancy. They could be state- voluntary scheme risks cost escalation if In periods when, for prescribed reasons, an subsidised or a contribution could be joined mainly by those with a high risk of employer is temporarily unable to maintain negotiated with an employer. Even if job loss. ACC has shown that a mandatory staff numbers, its employees would have subsidised, personal provision puts the scheme can be cost-effective and world- their pay topped up to normal levels. main burden of redundancy on the worker. leading (see PricewaterhouseCoopers, The problems of the status quo benefit Workers with low incomes have less 2008), and politically sustainable despite system have already been described. The discretionary income to save or pay frequent modifications (for international Welfare Expert Advisory Group’s insurance premiums. Insurers will charge experience, see Boston, 2019, p.36ff). enhancements would raise benefits and higher premiums or refuse to cover workers in insecure employment, who may face recurring redundancies. There is little A well-designed social insurance ability to share social costs and benefits more equitably. In most aspects, this is scheme for unemployment, inferior to enhancing the status quo. accompanied by sound active labour A mandatory redundancy payment scheme would mandate a tenure-based market policies, would be a major step severance payment on a minimum formula (e.g. four weeks’ pay for the first year plus towards a much more resilient society, two weeks for each additional year up to a equipped both for emergencies such as limit). It would be funded by employers (as at present), a levy or government. a pandemic and the small and large Advantages include simplicity and lack of means testing. However, payment size disruptions that will continue in the depends on tenure rather than need. In future of work. 2019 the median time in a job was under five years.3 Median payments are, therefore, likely to be under 10–12 weeks’ pay (depending on the formula), inadequate when it is difficult to find a suitable job. Availability, non-discrimination and increase availability but still provide low Some would typically have even lower pay- effectiveness depend on scheme design. An replacement rates for many. For example, outs: women’s median tenure is less than 80% rate (which is not out of line the net income after raised jobseeker men’s, particularly in middle age; young internationally) provides a reasonable benefits, tax credits and accommodation people inescapably have short tenure. assurance of maintenance of living supplements would still provide only Requiring employers to pay internalises standards and commitments such as between 52% and 70% of net income for some costs of their actions to the workers, mortgages and rent. Payments would be parents, both in paid work on the average their families, whänau and the state. conditional on participation in job search, and median wage, and between 52% and However, employers may try to avoid the active labour market programmes or 57% for full-time single people.4 Many cost by hiring more temporary workers or training, for a period, typically one–to–two households on modest wages would still using contractors. Payment may be years, after which social welfare benefits have difficulty servicing mortgages or rents. problematic if the business has failed. would apply. Capping payment rates and Nonetheless, the system remains important Entitlements are not portable between providing an adequate minimum improve to underpin other income replacement and employers. Availability therefore is equity in gender, income distribution and for broader social needs. Its reform is problematic. Even if funded by levy or the ethnicity terms (Leschke, 2007 provides a essential to eliminate poverty. government, other issues remain. gender analysis) permanent, dependent. The options are not mutually exclusive: Whether mandated or not, workers and Other features should be designed with for example, a sound social welfare system employers undoubtedly will still negotiate equity in mind. An employer levy would underpins social insurance; redundancy such arrangements. recognise that in general lay-offs are pay will still be negotiated and co-exist Social insurance for unemployment is employer decisions and experience rating with other options. common in the non-Anglo OECD and would incentivise use of more secure forms The advantages of social insurance are conceptually similar to ACC’s weekly of employment. Any employee levy could clear in this comparison, with the proviso

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that sound design is critical. Like ACC and towards a much more resilient society, on its own. 3 Statistics New Zealand’s Household Labour Force Survey: KiwiSaver, it would create another layer of equipped both for emergencies such as a Infoshare series HLF265AA. 4 Cases are those used in the Welfare Expert Advisory Group social support, but one more connected to pandemic and the small and large report (2019, p.96). Wages from the June 2019 income the social welfare system than ACC, and disruptions that will continue in the future survey of Statistics New Zealand’s Household Labour Force Survey. The higher replacement rate for parents is when one without KiwiSaver’s dependence on of work. works half time. personal provision. It may, of course, 1 In the UK a furlough scheme paid workers 80% of their reopen debate about the use of social wage up to £2,500 per month (approximately 2019 median Acknowledgements insurance in other areas of health and full-time employee earnings: Office for National Statistics, Thanks to Andrea Black, Jonathan Boston Employee earnings in the UK, 2019). Australia’s ‘JobKeeper’ welfare. wage subsidy was A$1,500 per fortnight per employee and Richard Wagstaff for their comments (58% of a 40-hour week on the August 2019 median The government has announced that hourly wage for employees: Australian Bureau of Statistics, on drafts. The views in this article do not work has started. A well-designed social Characteristics of Employment, Series 6333.0, 9 December necessarily reflect theirs nor those of the 2019). New Zealand wages are from the June 2019 income insurance scheme for unemployment, survey collected with Statistics New Zealand’s Household NZCTU. accompanied by sound active labour Labour Force Survey. 2 A universal basic income is not included because to be market policies, would be a major step affordable it would be too low to maintain living standards

References Boston, J. (2019) Transforming the Welfare State: towards a new social AHC%20income%20for%20representative%20households%20 contract, Wellington: Bridget Williams Books receiving%20benefits-final.pdf Card, D., J. Kluve and A. Weber (2010) ‘Active labour market policy OECD (2017) Back to Work, New Zealand: improving the re-employment evaluations: a meta-analysis’, Economic Journal, 120 (548), F452–77, prospects of displaced workers, Paris: OECD Publishing, http://dx.doi. https://doi.org/10.1111/j.1468-0297.2010.02387.x org/10.1787/9789264264434-en Card, D., J. Kluve and A. Weber (2015) What Works? A meta analysis of PricewaterhouseCoopers (2008) Accident Compensation Corporation New recent active labor market program evaluations, IZA discussion paper Zealand: scheme review, March 2008, https://accfutures.org.nz/uploads/ 9236, Bonn: Institute for the Study of Labor, http://ftp.iza.org/dp9236. sites/accfutures/files/images/pricewaterhousecoopersaccreport.pdf pdf RNZ (2020) ‘Thousands of wage subsidy complaints evaluated’, RNZ, 24 Hyslop, D. and W. Townsend (2017) The Longer Term Impacts of Job May, https://www.rnz.co.nz/news/business/417409/thousands-of- Displacement on Labour Market Outcomes, working paper 17–12, wage-subsidy-complaints-evaluated Wellington: Motu Economic and Public Policy Research, http://motu. Robertson, G. and C. Sepuloni (2020) ‘New payment to support Kiwis nz/our-work/population-and-labour/individual-and-group-outcomes/ through COVID’, media release, 25 May, https://www.beehive.govt.nz/ the-longer-term-impacts-of-job-displacement-on-labour-market- release/new-payment-support-kiwis-through-covid outcomes/ Welfare Expert Advisory Group (2019) Whakamana Tängata: restoring Leschke, J. (2007) Gender Differences in Unemployment Insurance dignity to social security in New Zealand, Wellington: Welfare Expert Coverage: a comparative analysis, WZB discussion paper SP I 2007- Advisory Group, http://www.weag.govt.nz/weag-report/whakamana- 106, Berlin: Berlin Social Science Center, https://EconPapers.repec. tangata/ org/RePEc:zbw:wzblpe:spi2007106 Young, C. (2020) ‘Wage subsidy complaints soar, including employer fraud McAllister, J. (2020) ‘The effects of 2020/21 income support changes on – labour inspectorate’, RNZ, 17 April, https://www.rnz.co.nz/news/ after housing costs (AHC) incomes for representative households national/414453/wage-subsidy-complaints-soar-including-employer- receiving benefits’, : Child Poverty Action Group, https://www. fraud-labour-inspectorate cpag.org.nz/assets/Backgrounders/13052020_The%20effects%20 of%202020_21%20income%20support%20changes%20on%20 Public issues, Party solutions in 2020: Economic issues

ith the 2020 general election Speakers: MC: Susie Ferguson Walmost upon us, Covid-19 Paul Goldsmith, National; infections reaching record highs across Fletcher Tabuteau, Date: Monday 24 August the globe, and the world economy New Zealand First; Time: 12.30 pm - 1.30 pm nose-diving towards once-in-a- , Greens; Venue: Old Government Building century lows, we invite spokespeople Deborah Russell, Labour. lecture theatre 2 from parties in the current parliament to put forward their economic plans for the future.

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