Non-financial Incentives

This post is by PaulL, a regular commentor and occasional contributor. It is the fifteenth post in a series on the financial incentives to work and the impacts of our tax and transfer system on household formation, and the eighth post on the “what could we do” subsection. The index to all posts in the series can be found here.

We’ve established that the gap between welfare and work is relatively small in financial terms. We’re asking people to go out to work instead of staying at home, and the increase in household income associated with that is low. 

We’ve also established that it can be expensive to change the financial arrangements to address the effective marginal tax rates.

In the eighth post I canvassed our options, and noted that there are a set of non-financial changes that we can make to encourage people into work.  This post will cover those in more detail.

Firstly, time limiting of benefits. This is common in the USA, with benefits time limited in any particular instance, and with a lifetime limit. The intention is to create incentive for someone to actively move off a benefit and into work, whilst preserving the benefit system as a safety net for those who lose their job.

The question is what happens when you reach the limit. Will the benefit end? Will the benefit continue but at a lower level? 

Ending the benefit would be a problem in a household with children – are we saying those children will now go without food because their parents are incapable of getting a job? Would we be willing to move those children into foster care?

If the benefit continues but at a lower level, what would that level be? If we think that benefits are currently set at the minimum for someone to live on (which they should be), then what happens to people who get a benefit that is less than the minimum to live on?

In my opinion time limiting benefits would lead to a strong push for people to move from the JobSeeker benefit (which would presumably be time limited) onto the supported living benefit – i.e. disabled benefit. In theory this isn’t possible because you need a medical assessment, in reality I believe it’s susceptible to manipulation. Again, when you create an incentive to do something people will find a way to do it.

I also think it would cause a lot of problems with people not having enough money to live on. Yes, it’s arguably their own fault, but that doesn’t typically help when the media start running stories about families living in cars. It contributes to a perception that a government is unfeeling, which is often followed by being voted out.

Having said that, I also think it would work to pressure a number of people to move into work. Some (the Greens) would argue that they have to accept a job they might not want, but not everyone who’s paying taxes has a job they want either. Life isn’t always the way you want it to be.

Work tests have a reasonable history in NZ. Effectively we create a requirement that someone be in training or in work, and we expect them to job seek. There are plenty of ways to avoid actually doing this, but it involves working at it, so for some people it may be less work to actually find a job. It would be reasonably simple to bring back the pre-existing work tests and obligations.

These work tests do come with a sanction – if you don’t job seek then there is a consequence, again usually a reduction in benefit amount.

Another option is requiring attendance. The logic is that if you had a job you’d need to be there 40 hours a week, if the benefit is replacing that income, then perhaps you need to turn up somewhere (community work, to a benefit office, to training) for at least 20 hours a week. This reduces the gap between welfare and work – in the sense that if you have to leave the house every day anyway, perhaps you might get a job.

I think there are problems around those with young children – does it make sense to make them go to community work if we then have to pay for childcare to enable that? In terms of encouraging work though, I would expect it to work. I also recall anecdotally from a Canadian example that welfare rolls dropped substantially when an attendance requirement was added – people who were doing cash jobs or other under the table work weren’t able to attend, and so moved off the benefit.

There is some argument that people have difficulty with transport or health, and may not be able to attend, and so will unfairly be denied a benefit when they don’t attend. I suspect this would be very few people impacted, and could be managed by a competent administrator (I know, assuming government competence in delivery is usually a bad idea).

Case managers and other encouragement based measures are an option. Some people who aren’t moving into work may not be doing so because it’s hard to find a suitable job. Providing assistance to find the job, to become job ready, and support to help you stay in work once you have a job could assist people to move off a benefit.

There are also some administrative changes that could help. If you get a job, then subsequently lose it, you have a standdown period. If we could provide a mechanism to “pause” your benefit, and quickly reinstate it if you leave the job, then that may reduce the risk of taking a job. I’ve heard suggestion that the standdown period is a reason that some people don’t take a job that they’re not sure will work out – because if it doesn’t work out they’ll have a period with no income.

I think some of these measures have a place. I don’t think time limiting is likely to work well, and I don’t think it would be politically palatable. Attendance requirements for at least some subsets of the population I would expect to work, particularly if you can satisfy your attendance requirement with training. This does require a consequence if you don’t attend. I could definitely imagine that we could create an attendance/training requirement for unemployed between 15 and 25 years old who have no dependent children without significant political push back.

Making the standdown period easier to navigate seems to have little downside, it may make someone more inclined to give up on a job, but my estimate is the benefits in people being more comfortable to start a job would outweigh that loss.