It strikes me that the coming welfare reform is less a welfare policy and more another industrial relations policy in drag. That’s because it won’t just be beneficiaries that suffer under this new regime but the majority of Kiwi workers too.
Basic supply and demand theory indicates forcing beneficiaries into an already tight job market will increase labour supply and thus lower labour price.
But don’t think that’s just for new jobs. In a two-sided market such as labour and capital power asymmetry results in asymmetrical bargaining outcomes.
It can be expressed as:
BPA(Bargaining Power of A) = (Benefits and Costs that can be inflicted upon B)/(A’s cost of not agreeing)
BPB(Bargaining Power of B) = (Benefits and Costs that can be inflicted upon A)/(B’s cost of not agreeing)
If BPA is greater than BPB, then A has greater Bargaining Power than B, and the resulting agreement will tend to favour A. The reverse is expected if B has greater bargaining power instead.
The key phrase here is “Benefits and Costs that can be inflicted” – when the benefit system is tightened the costs that can be inflicted on labour (job loss) becomes greater and with it the bargaining power of capital.
Back in the 90’s this increase of bargaining power was frequently made manifest at the bargaining table with the phrase “if you don’t like the offer there’s plenty of people happy to do the job for less.” and its many variations. Unsurprisingly the same decade saw a widespread collapse of wages and conditions.
It is equally unsurprising that employer organisations were particularly supportive of the working group more draconian options with the Employers and Manufacturers Association supporting forcing people into unpaid work after six months on the dole, making parents on the DBP work once their child turned one (and transferring them to the unemployment benefit when the child turns six) and cutting benefits the longer people are on them.
You can almost hear them smacking their lips at the prospect of all those desperate souls lining up to sell their labour cheap.
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