Ditch job saving schemes as soon as crisis passes, says report

Government job-saving schemes such as the nine-day fortnight and the "ReStart" plan should be ditched as soon as the current economic crisis has passed, says new research.

Unemployment stats due to be released this week are expected to show the March unemployment rate jump from 4.7 per cent to a seven-year high of 5.3 per cent.

Analysis of what kind of steps Government should take in addressing the problem has been done by the New Zealand Institute of Economic Research in a report released this morning called "The unemployment challenge - Labour market policies for the recession".

Over the next year another 50,000 people will become unemployed, say report authors Grant Andrews and Jean-Pierre de Raad - surpassing the last recession of 1997-98.

This comes after a decade of economic growth when unemployment hit
a low of 3.4 per cent in 2007.

"Some even suggest that unemployment may reach 1991 levels when
unemployment peaked at 185,000 or 11 per cent."

The report's authors do not think things will get this bad, saying circumstances were vastly different.

Today's research says that job search assistance "has to be central to the mix" of Government policies.

"This is very cost-effective at the early stages of unemployment - it can even avoid people going on the unemployment benefit."

"But it will need to be reinforced by training where there are barriers to employment, such as poor skills. Training programmes have the potential to deliver long-term benefits, if they help speed up structural mismatches between existing skills and those that will be demanded once the economy picks up again."

The 9 day fortnight policy introduced by Government, which helped subsidise businesses who put staff onto nine-day fortnights, had "missed the opportunity to link support to training".

One thing that should be avoided is any move towards paying subsidies to "prop up jobs and firms", said the report.

"With the peak in unemployment approaching, attention needs to shift now to the chllange of getting the unemployed to work," it says.

"The temptation will be to artificially protect jobs. But this is short-sighted. The economic imperative should be to ensure New Zealand has the right human capital to prosper when the economy picks up."

Recent initiatives such as the 9 day fortnight and temporary top up support for those made redundant "appear sensible."
"But they have downsides and should be removed after the crisis has passed."

Because such schemes were so tightly targeted, they would have little impact, said the report, and did not cater well for many of the 50,000 or so extra unemployed - mostly new entrants to the labour market or those employed by small firms."

"Job subsidies should be avoided. They are a very expensive way of getting only a small reduction in unemployment."

This, says the report, is because it is hard to accurately work out which jobs are genuinely created, and which would have been filled or created anyway.

Its conclusions say that the following principles should guide proposed employment initiatives:

• use the opportunity to position New Zealand to benefit from the
inevitable upturn.
• target initiatives to raise their effectiveness and minimise the negatives.
• don't attempt to slow structural change.

The most cost-effective of initiatives, says the report's authors is job search assistance.

They say New Zealand may not be able to "passively rely on economic growth to soak up unemployment as quickly as it is now being created".

This is due to two things, first - the outlook is for a long period of subdued growth after we come out of this recession and secondly that growth might come in those sectors requiring different skills and experience than unemployed labour has.

Job search assistance was usually most effective for people with short durations of unemployment who were work-ready. Training or other interventions could help where unemployment duration was already lengthening and there were barriers to employment, such as poor skills or health.

At this juncture in New Zealand, an emphasis on training seemed warranted, said the report.

"Unemployment is usually most concentrated among people with limited
human capital. But this time around, even skilled people may need
assistance, if they have specialist skills that are ill-suited to those that are going to be in demand in the recovery."

- HERALD ONLINE