July 10, 2024

Unemployment targets a difficult challenge to meet

When shifting 50,000 people off a benefit, where will they go?

Unemployment is forecast to increase. The Government, however, has a goal to shift a significant number of people off the Jobseeker Support benefit. This demonstrates a conflict of expectations and reality. How do you shift 50,000 people into employment while unemployment is simultaneously expected to increase?

The Government has set itself a target to reduce the number of people who are on the Jobseeker Support register by 50,000 by 2030. When it set that target in December 2023, 190,000 people were receiving Jobseeker Support. As of late June 2024, there were over 193,480 people on Jobseeker Support. At the same time, the Treasury is forecasting that the number of Jobseeker Support recipients (including those on emergency benefits) will rise to 204,000 by June 2025. This would be close to the peak seen in 2020, when COVID-19 temporarily spiked the number of Jobseeker Support recipients to 212,000.

While the Government has given itself six years to achieve its target, the numbers are currently heading in the wrong direction. Some of the private banks have also forecast that unemployment will rise higher than the Treasury’s forecast. Historically, in New Zealand, as inflation has fallen, unemployment has risen, which is the famous Philips Curve in action. However, unemployment doesn’t fall evenly across the country or society. For example, the number of people receiving Jobseeker Support is three times higher in Northland than it is in Southland.

Source: Ministry of Social Development (MSD)

It is evident from the data that young people are adversely impacted. The number of people aged 18–24 in receipt of Jobseeker Support has increased by more than 50 percent since 2019, while the number of recipients aged 40–54 has increased by just 30 percent. Māori are a young population, and this is also reflected in the numbers, with 40 percent of all of those on Jobseeker Support being Māori.

Since 2019, male Jobseeker Support recipients have increased by 48 percent, while female Jobseeker Support recipients have increased by 35 percent. However, in contrast, women experienced the largest increase in unemployment numbers.

All of this suggests that the Government has a big job to do if it is to achieve its goal within the next six years. Getting the number of benefit recipients down to the target of 140,000 would mean finding work – or alternative outcomes – for up to 64,000 people, which is more than the growth in Jobseeker Support since March 2019. Starting with alternative outcomes, it could include people leaving the labour force for reasons such as poor health or the government changing the eligibility requirements. Both outcomes would reduce the number of people in receipt of the Jobseeker Support benefit, but not the number of people in need of the benefit safety net. Those who left the labour force due to sickness would simply shift from the Jobseeker Support benefit to the Supported Living Payment. Additionally, New Zealand’s population is rapidly growing, which will increase the number of people receiving Jobseeker Support.

New Zealand has an enviable labour force participation rate, well ahead of countries such as the USA. If New Zealand is to achieve its new Jobseeker Support target, we should also be clear that getting there should be delivered by increased employment rather than simply moving people onto other forms of ‘non-employment’ benefit. In Britain, researchers have long documented the increased use of sickness benefits as a means of reducing unemployment registers. Evidence from Australia suggests that more people were on zero-hours jobs than on an unemployment benefit, despite having no guarantee of any work.

Getting there will require a range of interventions that both support people at work and help retrain them for new roles. International research regards active labour market programmes as essential to delivering sustainable reductions in unemployment, particularly for those groups who might otherwise face discrimination in the labour market. Support for retraining should also help tackle New Zealand’s long-held issues with labour productivity.

The May 2024 Budget did not include any new resources for those who may soon find themselves on Jobseeker Support. While the Government has signalled a desire to take a “social investment approach” to welfare, it has also indicated that it will use more sanctions in the future to incentivise those on welfare to look for work. However, the evidence of the effectiveness of benefit sactions is very mixed. This is an area of work in which much more targeted support, with higher levels of resources, will be required.