The law of unintended consequences.

One of the first things you learn when you take economics is the law of unintended consequences particularly when it comes to policies enacted by government – tax loopholes implemented with the best of intentions, such as not taxing an uncompleted home, so what happens? a sea of half finished houses and the government left wondering, “why aren’t we collecting as much revenue as expected?”.

There has been a quick to and fro on Twitter regarding this very issue and one of the biggest problems has been that the labour shortages have been in areas with unpredictable or seasonal work. Due to the way in which the welfare system is setup, if you apply for the unemployment benefit they calculate a stand down period based on what you were earning and then extrapolate from there the theoretical basis on which one could support oneself on the assumption that one would have saved a certain amount of money. In other words, a means tested system to sift through those who need help immediately vs. those who can wait based on their individual circumstances.

The problem with such a system is that there are a lot of baked in assumptions. The first assumption is one of the person being able to save money from a job with an unpredictable schedule such as a seasonal worker or even if they a fair amount of hours the assumption that they went into the job on a strong financial footing. Let’s assume the person had been unemployed for 6 months, building up debt and bills are in arrears so what is the first thing you do when you get a job? you start throwing as much of your money onto the bills and debt to get yourself in a good financial situation. Lefts assume after 6 months of seasonal work is it unreasonable to expect that maybe the person has saved no money?

The second assumption is modelling a cost of living on anything but what the client is actually spending to support themselves. As someone who has gone into WINZ, they never asked me what my rent or mortgagee is, what my power, telephone, internet or any other obligations. If you’re going to means test a system to calculate a stand down period then wouldn’t it make sense to find out what their outgoings are? sounds kind of strange if you’re trying to work out when and what kind of help a person needs given their circumstances when you disregard the most poignant questions that need answering.

The third assumption is the abatement system where a person can earn up to a certain amount before they start losing part of their welfare payment. Right now it is sitting at NZ$83 before tax but seriously, who is going to hire someone to work 4 1/2 hours per week? when the cost of getting to work and getting back home (assuming that day care isn’t required) pretty much wipes out any benefit gained from the job. So you’ve got a situation where employers aren’t going to hire someone who is restricted to 4 1/2 hours per week and someone desperate to get experience along with getting some extra money to make life a little easier. Given that situation does the abatement system as it current stage encourage of discourage people on welfare to seek job opportunities when they arise?

The forth assumption is when it comes to emergency assistance where assistance is only provided when you’re about to get evicted from ones house or when they’re about to turn off the power. The problem with that? there are many jobs these days where a credit check is part of the employment background check and when WINZ allows people to get to that state then it limits ones options when it comes employment. So when one is faced with a destroyed credit record and dealing with WINZ or taking ones chances with a loan shark then is it surprising that many find themselves into financial dire straits?

So in conclusion we have a situation where assumptions are made which don’t fit reality, parts of the economy with unstable jobs cannot find employees because the welfare system hasn’t adjusted to that new reality in the job market and those who do depend on the welfare system are stuck in a ‘catch 22’ between receiving assistance, trying to get experience plus some extra money on one hand then balancing it up with the cost of that experience such as reduced welfare and the additional cost of getting to and from work each day (not to mention organising day care if one has children).

The solution is to firstly get rid of the stand down period and where possible automate the payment system to avoid needless visits and utilise the existing online services that WINZ currently has when it comes to reporting income. What I mean by automated system is this, I worked as a seasonal worker which tracked the university year so why not plug the dates in when the universities holidays are then send me on my merry way where unemployment kicks in when I don’t have work and when I do pick up extra work I can report it via the website? People will be more willing to take on seasonal or contract work if they know that when there is down time that they can receive assistance without the hassle and drama associated with the current situation. There is am army of willing and able employees but the question is whether WINZ is going to be there to support or punish.

When it comes to abatement, triple or quadruple the amount one can earn before abatement kicks in – it is a quick financial stimulus into the economy because low income workers spend all their money (as was seen back in the 1990s in the US where the majority of the tax relief went to the low end up which kick started the economy) as well as giving individuals opportunity whilst ensuring that there is a safety net if the job doesn’t follow through which is particularly important given the unstable nature of employment these days. If employers are worried that employees might limit themselves then be better employers – offer stable hours with better conditions and pay as an inducement to move from being on welfare to working full time. The motivation to move off welfare needs to be provided by the employer not WINZ trying, through making life as difficult as possible, to get people to take up full time employment.

When it comes to emergency assistance – the focus should be on ensuring that assistance is provided before it turns from a manageable situation into a full on crisis. It is like finding cancer early – the earlier you find cancer the higher the likelihood of survival because the disease is manageable in its early stages where as if you leave it until too late then it would pretty much require a miracle. Same situation when a person falls behind on rent or power – the time to deal with financial hardship is when it is manageable. Also, they need to stop with this nonsense that someone who is asking for a grocery assistance is doing so because they’re bad with money – all the ‘budgeting advice’ in the world isn’t going to change the reality that if someone has next to no money they cannot magically make more money appear out of nowhere no matter how much the policy wonks at WINZ try to make it out be so.