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More on benefit levels

Written By: - Date published: 1:20 pm, May 12th, 2008 - 60 comments
Categories: labour - Tags:

It was disappointing to hear National Radio this morning summarise the recent debate over benefit levels as ‘benefits are not keeping up with the cost of living’. Benefits are keeping up with the cost of living they are adjusted every year to keep them in line with the cost of living (that’s what the Consumer Price Index or ‘inflation’ is). What benefits are not keeping up with is incomes, because wages are rising faster than the cost of living. In fact, real incomes are up 15% since Labour came to power. Beneficiaries are not worse off, but everyone else is better off.

That’s not an argument against raising benefits though. Benefit levels are shockingly low, $184 a week on the unemployment benefit is simply not enough to support a decent life for yourself, let alone a family, in most of New Zealand. The Government could and should increase benefits to a more decent level, say, the 28% of the average wage they were before the 1991 benefit cuts (they’re 21% now), and should be indexed to the average wage like superannuation is, rather than inflation. That would carry a cost but a relatively small one because so many people have come off benefits under Labour. The cost of the benefit system has fallen 36% under Labour because fewer people are using it, some of those savings should be directed towards remaining beneficiaries.

There is some basis to the idea that benefits can’t be too close to wage levels otherwise they will act as a disincentive to work but there’s a simple solution to that keep raising the minimum wage.

60 comments on “More on benefit levels”

  1. roger nome 1

    A few extracts from my thesis that should help to give a little context.

    The 1991 benefit reforms involved tighter eligibility criteria and the cutting of almost all social security benefits for adults (Easton, 1997a: 52). The cutting of unemployment benefits during this period was particularly severe. For instance, in 1987 the weekly unemployment benefit rate for a single person (25 and over) stood at 36 percent of the average wage. However, this figure fell throughout the neoliberal to be to 27 percent in 1999. To aid the efficacy of these measures a case management approach was introduced, further discouraging ‘welfare dependency’, and increasing the self-sufficiency of beneficiaries (McLaughlin, 1997). The distress caused by these reforms was further compounded by a sharp rise in unemployment (see Appendix 1) that occurred at the same time (Easton, 1997a: 52). Also contributing to the increase in poverty was a growing class of working poor who were caught by a combination of real wage reduction or stagnation associated with the ECA, and higher rents for state and private housing (McLaughlin, 2000: 36). Unfortunately the government’s only answer to these issues was an appeal to workers, urging the tightening of belts in anticipation of an economic recovery (Kelsey, 1998: 10).

    In total from 1987 to 2002 the level of assistance offered by the government in unemployment benefit as a percentage of the average wage slipped by 9.9 percentage points. Similarly the eligibility cut off point for income assistance for a single worker, living alone declined from 56.1 per cent in 1991 to be just 54.3 in 2002.

  2. AncientGeek 2

    Steve: looking at the graph you should probably stack-bar it with the major types of benefits. Only the dole really impacts on wage disincentives.

    DPB and sickness don’t in any significant way IMHO.

  3. Instead of increasing the benefit, why not keep it the same rate but also hand out food vouchers/stamps?

    By the way, Steve how much do you think someone on the unemployment benefit should get, $258 a week?

    28% of the average wage?

    Why would anyone want a part time job then?

  4. yeah, but do you know how much work that would be? and I’m ever so lazy 😛

  5. I agree Brett $258 a week would be a bloody good start. Especially when 40 hours on the minimum wage gets you $480. You’d spend a little under half of it to rent an average room in a flat though, but I guess an accommodation benefit would top that up.

  6. It didn’t stop people working when it was 28% of the average wage in 1990 (or 36% of the average wage in 1987), why would it now?

    I’m imagining 25%, indexed to average wage, would be a goer.

  7. roger nome 7

    I would also add that the Employment Contracts Act increased wage disparity between low-skilled and high-skilled workers (the average wage in the retail industry is only 64% of the average wage, whereas it used to be 75% prior to the ECA), meaning further hardship for low-skilled workers, who often experience periods of unemployment.

    In Australia most workers are still covered by a union-negotiated collective agreement (“work choices” didn’t apply to most workers because most people work in a work-place of over 100 employees).

    As a result income low-skilled work is still relitively well paid compared to high skilled work (i.e. you hear of Aus $16 and hour for regular labouring work). As a result, low-income people are better off, and they have a lower level of incomew inequality – and consequently less of the social problems that are associated with high levels of income inquality (crime/imprisonment rates, low social mobilty and poverty-related health problems.

    So if we’re not going to ensure that low income workers get a decent wage, we should at least have a decent benefit levels. Personally I would prefer the former over the latter (it’s nice to feel like you’re contributing to society), but as you never hear any calls for a return to centralised collective bargaining from any of the major parties, we’re stuck with the latter option.

  8. Billy 8

    Shouldn’t it be to provide an absolute minimum to keep it together until you can change your circumstances? How is what other people are earning relevant to that? Well done Labour. Indexing it to CPI increases was absolutely the right thing to do.

  9. roger nome 9

    “By the way, Steve how much do you think someone on the unemployment benefit should get, $258 a week?”

    Brett, we had less than one percent unemployment in the 1960s, and the unemployment benefit was available. People want to work. No one wants to be on the dole long-term, it’s bloody depressing (though I agree that if you put it up to say $300 a week it would significantly increase short-term unemployment). It’s a question of whether the work is available or not.

  10. deemac 10

    roger nome: “In Australia most workers are still covered by a union-negotiated collective agreement (‘work choices’ didn’t apply to most workers – most people work in a work-place of over 100 employees).” I’d like to see the stats on that. If it’s true, why was work choices such a big issue in the election?
    In most OECD countries, most workers work for SMEs and I’d be surprised if Oz were different

  11. There is work available, its just the work is not great, the local McDonald’s is hiring, but not many people want to work there, but isnt the benefit there for people who cant find any job at all, not people who are picky?

  12. Ben R 12

    “$184 a week on the unemployment benefit is simply not enough to support a decent life for yourself, let alone a family, in most of New Zealand.”

    But that’s not what you’d get if you had a family? A sole parent with a child get’s $263.78, and more if they have more children.

    And that’s not accounting for accomodation supplements, community service cards, Temporary Additional Support for people who can’t meet their essential costs from their income or other sources and the Special Needs Grant for urgent one-off payments.

    http://www.workandincome.govt.nz/get-assistance/rates-info.html
    http://www.workandincome.govt.nz/get-assistance/extra-help/index.html

  13. ghostwhowalks 13

    Ben R is right, the core benefit is $184 pw but nobody gets just that unless in unusual circumstances( paying no rent, no dependents ?)

  14. roger nome 14

    deemac – while it’s true that the majority of workplaces in most OECD countries employ below 100 people, it isn’t true that the majority of people work such places.

    I think you’re getting your stats confused.

    oh, and BTW work choices was an issue because it would have directly affected about 30% of the workforce. A not insignificant portion I think you’ll agree.

  15. roger nome 15

    Ghost, Ben R – I know a guy that does benefit advocacy. He says that most people don’t claim the accomadation suppliment, and plenty of beneficiaries don’t have children (it’s not like an extra $80 a week is going to make you living standards higher when you have to support a child anyway).

    Also, community services cards are available to most people. You even see dairy farmers with them (probably writing their new four wheel drive off as a business expenses, etc).

  16. Ben R 16

    “He says that most people don’t claim the accomadation suppliment”

    Yes, but that’s different from saying it isn’t available. Isn’t the point being made that benefits are too low?

    “plenty of beneficiaries don’t have children”

    I was just pointing out that the original post said $184 was tough to live on, esp if you had a family. If you have a family you’re eligible for a higher benefit.

    Also, I’m not sure most people would qualify for a community services card – the thresholds seem reasonably tight. If you receive a benefit you get one automatically according to the website.

    http://www.workandincome.govt.nz/get-assistance/csc/income-thresholds.html

  17. roger nome 17

    Billy:

    “Shouldn’t it be to provide an absolute minimum to keep it together until you can change your circumstances?”

    Unfortuantely it isn’t an “absolute minimum”. Many people have to go into debt while they’re on the benefit – and their health often suffers do to poor nutritian, etc.

  18. roger nome 18

    Ben R:

    “Yes, but that’s different from saying it isn’t available. Isn’t the point being made that benefits are too low?”

    If most people don’t know about it, and therefore don’t claim that isn’t it a rather academic point anyway?

    “I’m not sure most people would qualify for a community services card”

    Perhaps not “most people” but many working people I know have one.

  19. roger nome 19

    Billy:

    I also don’t accept that the benefit should be an “absolute subsistance-level minimum”. High wealth inequality causes many social problems (I listed them above). Now you can argue that you don’t care, and that would be logically valid, but my guess is that most New Zealanders would care about them.

    If you think high wealth inequality doesn’t cause those social problems of corse I’d be happy to debate you.

  20. roger nome 20

    “There is work available, its just the work is not great, the local McDonald’s is hiring, but not many people want to work there, but isnt the benefit there for people who cant find any job at all, not people who are picky?”

    Bret: I’d be surprised if McDs loses any business due to being understaffed.

    The main reason they’re always hiring is because they can never have too-much staff. i.e. the more staff they have the more labour flexibilty they have – i.e. they can call peopel to come in for a shift with two hours notice, and the more people they have on-call the more likely it is they can get the people in when they need them.

  21. roger nome 21

    BTW appologies for the poor grammar. To hasty.

  22. Billy 22

    RN:

    1. Do not purport to quote me and mendaciously get the quote wrong. I said nothing about “subsistence.”

    2. Similarly, I am not arguing that “I do not care”. Typically, that is an attempt to paint anyone who is against welfare as a lifestyle as uncaring.

    3. The purpose of welfare should not be to reduce income disparity. It should be to provide those who are unable to help themselves with the basics to sustain themselves until they are able to improve their position.

    4. Anyone on welfare is being subsidised by everyone else. This is not a right. It is a priviledge. To pretend it is is unfair on the rest of us who struggle doing jobs we hate to provide for ourselves, our dependents and to pay our tax.

  23. I quite like my work. Perhaps you should change careers Billy. It might make you less cranky.

  24. Billy 24

    What career do you suggest, ‘sod?

  25. Ben R 25

    “If most people don’t know about it, and therefore don’t claim that isn’t it a rather academic point anyway?”

    I think it’s an important distinction if you’re talking about raising benefit rates. It needs to be clear what is actually avaiable under the current scheme. Of course if people don’t know it’s available then you can target that separately.

    I think more people would support increased benefit levels if there were stricter criteria on returning to work, and using contraception while on the benefit?

    “Britain and New Zealand are the only other countries in the Organisation for Economic Co-operation and Development with entitlements this generous. Like Australia, they too have high numbers of children growing up in jobless households. In all three countries the lesson is that if you pay parents welfare to stay out of the labour market, that is exactly what they’ll do.

    In most of continental Europe and Scandinavia, by contrast, parents on welfare are expected to find work by the time their children start school. This is why Sweden, for example, has only 2.7 per cent of children in jobless households, even though it has as many single-parent and blended families as we do. The value of welfare benefits in Sweden may be higher than here but Sweden’s eligibility rules are much stricter.” http://www.cis.org.nz/executive_highlights/EH2007/eh44607.html

  26. roger nome 26

    Billy:

    “I said nothing about “subsistence.'”

    Forgive e for thinking that “absolute minimum” equates to subsistence. It’s that language thing again.

    “Typically, that is an attempt to paint anyone who is against welfare as a lifestyle as uncaring.”

    I didn’t say that. I said that you have the possibility of two logically valid lines of argument available. That you don’t care about the social problems that high wealth inequality causes, or that it doesn’t cause them.

    “The purpose of welfare should not be to reduce income disparity.”

    Why not? It’s pretty weak to not back up your position with an argument.

    “Anyone on welfare is being subsidised by everyone else. This is not a right. It is a priviledge”

    It’s a right if a government gets voted in on that platform. It’s called democracy.

  27. Ben R 27

    “stricter criteria on returning to work”

    I’d acknowledge though that this is dependent on there being jobs available! For instance part of the reason the Clinton welfare reforms were successful was linked to the economy doing so well at the time.

  28. roger nome 29

    Ben R-

    “I think it’s an important distinction if you’re talking about raising benefit rates. It needs to be clear what is actually available under the current scheme. Of course if people don’t know it’s available then you can target that separately.”

    Fair point. If it was WINZ policy to ask every beneficiary if they want to apply for an accommodation supplement (it isn’t – in fact they’re often told to not mention it), it would be fine to take it into account. As it isn’t, and as a result, most people don’t know about it’s a rather academic point that you make.

    “”Britain and New Zealand are the only other countries in the Organisation for Economic Co-operation and Development with entitlements this generous.”

    Firstly – I don’t trust a word that comes from the very partisan, corporate funded “CIS”. Secondly, as I said above:

    low-skilled work is still relatively well paid compared to high skilled work (i.e. you hear of Aus $16 and hour for regular labouring work). As a result, low-income people are better off, and they have a lower level of income inequality – and consequently less of the social problems that are associated with high levels of income inequality (crime/imprisonment rates, low social mobility and poverty-related health problems.

    So if we’re not going to ensure that low income workers get a decent wage, we should at least have a decent benefit levels. Personally I would prefer the former over the latter (it’s nice to feel like you’re contributing to society), but as you never hear any calls for a return to centralised collective bargaining from any of the major parties, we’re stuck with the latter option.

    I’ll also add that like NZ, Britain has a decentralised labour market – so needs higher benefit levels. Sweden, and all other countries in continental europe have centralised collective bargaining – which as I said favours low-income people.

    “This is why Sweden, for example, has only 2.7 per cent of children in jobless households”

    See this is an example of CSI’s unreliable partisan spin. Sweden has amazing gender equality legislation which makes it easy for mothers to re-enter the workforce. i.e. completely free child care – of course CIS would do away with this policy in a flash if they had the choice.

  29. Billy 30

    RN,

    “Why not?”

    Because you have to be fair to the people providing the largesse as well.

    ‘sod, I could never do real estate. I hate the overuse of exclamation marks and those pretend quotes: “Stroll to the cafes!” indeed.

  30. roger nome 31

    Ben R

    “part of the reason the Clinton welfare reforms were successful was linked to the economy doing so well at the time.”

    They weren’t succsesful. They just meant that people were kicked off welfare wthout having work available. (i.e. the employment rate was the same in 2005 as was when they were implimented)

    Result – more people without any form of income.

    Click to access 38335554.pdf

  31. Billy 32

    RN said: “It’s a right if a government gets voted in on that platform. It’s called democracy.”

    There are limits, RN. Laws passed to exterminate all gingas might enjoy widespread support. It would not make them right.

  32. roger nome 33

    ” Laws passed to exterminate all gingas might enjoy widespread support.”

    That’s why we have a liberal, pluralist democracy. A humane benefit system doesn’t run contrary to that.

  33. But you could keep it real – the first real estate agent to understand irony. I’d buy a house from you on that basis alone…

  34. Billy 35

    I’m all for humane RN. Providing enough to get by is humane. Making sure you can keep up with the neighbours is taking the piss.

  35. roger nome 36

    “Because you have to be fair to the people providing the largesse as well.”

    The majority of tax is paid by the minority of individuals earning over $40,000. It wouldn’t kill them to dish out an extra $10 a week in tax to provide a just society with low crime and relatively equal opportunities for rich and poor children alike. I thoroughly reject the notion that it’s a grave injustice for well-off people to be a little less well-off so that we can have a just society.

  36. roger nome 37

    Billy:

    Humane = just. Creating a poverty trap isn’t justice. Wealth inequality negatively correlates with social mobility, meaning that lack of wealth redistribution creates a poverty trap. That isn’t a just society. Your destiny shouldn’t be determined primarly by the situation that you’re accidentally borne into. Justice requires that people be treated equally/given relitively equal opportunities.

    See the graph on page 46

    http://www.oecd.org/dataoecd/27/28/38335410.pdf

  37. Billy 38

    RN:

    I am just catching up with this:

    “Forgive e for thinking that “absolute minimum’ equates to subsistence. It’s that language thing again.”

    That would have been fine, RN, but for the quotes. Since you haughtily played the “language” card, allow me to explain that, when using quotation marks, it is considered good manners (at the very least) language that the words within quotation marks were actually said by the person you are purporting to quote. As you might say, it is a language thing.

    “I thoroughly reject the notion that it’s a grave injustice for well-off people to be a little less well-off so that we can have a just society.”

    If your view of a just society is that everyone has a similar level of income no matter how hard they work or how talented they are, then your suggestion is the way to go. I am just not sure that that would really be just.

  38. Lyn 39

    Ben R – “In most of continental Europe and Scandinavia, by contrast, parents on welfare are expected to find work by the time their children start school. This is why Sweden, for example, has only 2.7 per cent of children in jobless households, even though it has as many single-parent and blended families as we do. The value of welfare benefits in Sweden may be higher than here but Sweden’s eligibility rules are much stricter.”

    The reason this is workable is because Sweden has a highly comprehensive state-provided childcare system. Working parents are more common in Sweden because when children start school, welfare kicks in in a different way, a way that pays parents to go to work. New Zealand refuses to deal with the issue of childcare in a way that makes sense, and until we do we’ll face the issue of children grwoing up in jobless households.

  39. roger nome 40

    Billy:

    “If your view of a just society is that everyone has a similar level of income no matter how hard they work ”

    Strawman argument. I never said anything of the sort. Australia has something close to an acceptable level of wealth inequality, and good social mobility levels as a result. We however have a much higher inequality level than Australia. It’s because they have centralised collective bargainig and we don’t compensate for our lack of this with decent benefit levels.

  40. roger nome 41

    Oh and Billy on the topic of quotations – fair enough, I should have used single commas to indicate that I wasn’t quoting your exact words.

  41. Billy 42

    “I never said anything of the sort.”

    Well that’s rich. I suppose I should have pretended you said it by putting it in quotation marks.

    “Australia has something close to an acceptable level of wealth inequality…”

    Says you. Acceptability is in the eye of the beholder.

  42. Billy 43

    My last post was in ignorance of yours of 7:50. Apology (if that’s what it was) accepted. This is the only ignorance to which I will admit.

  43. Don’t you have some real estate to sell or something billy?

  44. Billy 45

    Yes. I have something near the Mt Eden border that may interest you, ‘sod. It is an “entertainer’s delight!” and you should “bring your paint brush!”.

  45. If it’s the same place I’m thinking off I had to sharpen the end of my paint brush the last time I stayed there…

  46. roger nome 47

    “Says you. Acceptability is in the eye of the beholder”

    Yeah, well I should have said, if you care about social mobility/equality of opportunity it’s acceptable.

  47. Billy 48

    “I had to sharpen the end of my paint brush…”

    What is this, a euphemism? For what? Only, exercise your judgement: there are some things I do not want to know.

  48. Ari 49

    Roger nome- Australia’s income inequality is acceptable?! Only if you’re not aboriginal!

  49. roger nome 50

    Ari – good point.

  50. Asher 51

    For what its worth, the Unemployment Benefit is only $184 for those 25 and over. For a 20 – 24 year old (or an under 20 living away from home), it is just $153.46 / week. Last time I checked, under 25s don’t get discounted rent, petrol, food etc, so quite why the benefit drops by 16% is beyond me. These pay rates are also the same as on the Sickness Benefit

    As someone who has lived in both Wellington and Christchurch, this is not enough. Rent within walking/biking distance of central city Wellington frequently tops $120 – $140 (and I’m not talking about a particularly flash house or big room), and living further away for cheaper rent (and I’m talking Lower Hutt, Kilbirnie/Lyall Bay sort of distance to notice any real difference in price) simply adds expensive public transport costs on top. While Christchurch is slightly better, the same problems remain.

    WINZ case managers, as a policy, do not tell beneficiaries what they are entitled to. Even when applying for additional support they are entitled to, beneficiaries are often declined. Case managers are frequently rude, cruel, patronising and unhelpful, creating (seemingly on purpose) a situation whereby beneficiaries are less and less likely to seek any help they require.

    Oh, and stop stigmatising beneficiaries. There’s nothing wrong with being on a benefit, short or long term.

  51. Asher 52

    Oh, I forgot to mention. Accommodation supplement, if you get it, certainly helps, but its no miracle fix.

    If you have rent of $115 (as I used to in 2005) in Wellington, and are on the unemployment benefit while under 25, your benefit + accomm supplement will total (from memory) $207, leaving just $92 for phone, power, potentially gas and food. If you’re lucky, you might have something left over for transport and/or internet, but you’ll be pushing it.

  52. randal 53

    well after I pay my rent phone and power I have $90 left to feed myself and enjoy this life…I want a job but somehow all the little manques on their computers going tap tap tap sneak creep peek and the creeps I use to know 30 years ago are in control at winz and I am being starved to death by creeps who think it is funny to watch someone struggling…I am not just some abstract argument on a messageboard….howzat for a brave new world?

  53. Phil 54

    “I want a job”

    If you took a writing course, it might improve the look of your CV…

  54. Phil 55

    On second thought, you’d be perfect for the Real Estate position Billy and Sod were on about.

  55. Ben R 56

    “As someone who has lived in both Wellington and Christchurch, this is not enough.”

    What about provincial centres? Why should the rate have to guarantee that a person can live in the centre of a major city? Rents in provincial areas like Palmerston North, Hawkes Bay & Bay of Plenty are significantly lower. Also horticultural centres like Hawkes Bay, Nelson etc have to bring in people from overseas to work on the orchards.

    “Wellington frequently tops $120 – $140 (and I’m not talking about a particularly flash house or big room), and living further away for cheaper rent (and I’m talking Lower Hutt, Kilbirnie/Lyall Bay sort of distance to notice any real difference in price) simply adds expensive public transport costs on top.”

    What public transport expenses is someone in Kilbirnie on a sickness benefit going to be incurring though? There is the Pak N Save (which I normally go to), Dr’s clinics etc.

    “There’s nothing wrong with being on a benefit, short or long term.”

    What about going on it long term and having several children? Isn’t that undermining the purpose of the benefit?

  56. Phil 57

    “WINZ case managers, as a policy, do not tell beneficiaries what they are entitled to. Even when applying for additional support they are entitled to, beneficiaries are often declined. Case managers are frequently rude, cruel, patronising and unhelpful, creating (seemingly on purpose) a situation whereby beneficiaries are less and less likely to seek any help they require.”

    I couldn’t disagree more. Granted, their call centre is shit.

    Going into the office, talking to the case managers and listening to what they said, being polite, reading the information packs and brochures, taking a few seconds to make sure I’d completed the forms correctly, they then bent over backwards to help when I was on the unemployment benefit while looking for work.

    I had a pre-concieved notion of WINZ before dealing with them, but was pleasantly suprised to have it blown out of the water.

  57. Draco TB 58

    There is work available, its just the work is not great, the local McDonald’s is hiring, but not many people want to work there, but isnt the benefit there for people who cant find any job at all, not people who are picky?

    What’s wrong with people being picky about where they work? I would argue that being able to be picky about where you worked would be part and parcel of a free labour market (people are actually free to make a choice).

    I would have thought people would far prefer to hire people who actually want to be there rather than being there because they have to be so they can have bread on the table. But it seems that businesses much prefer being able to force people to work for starvation wages so that they can increase profits.

  58. Draco TB 59

    I had a pre-concieved notion of WINZ before dealing with them, but was pleasantly suprised to have it blown out of the water.

    Some are good, some are bad. I’m pretty sure you’ll find this is true of almost any place.

  59. Ben R 60

    “What’s wrong with people being picky about where they work?”

    Nothing, but they shouldn’t expect to be paid more than available jobs while they’re biding their time (taking into account we have minimum wage laws).

    “I would have thought people would far prefer to hire people who actually want to be there rather than being there because they have to be so they can have bread on the table”

    Isn’t this a little idealistic? Most people work because they need the money don’t they?

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