Job training, not subsidies in recession

A group of independent economic consultants is warning against introducing job subsidies, although some merit is seen in the Government's Job Support Scheme.

The working paper published yesterday by the New Zealand Institute of Economic Research (NZIER) advised that despite the cost, an emphasis on training seemed warranted at this time when there was a lack of jobs.

It said job search help was the most cost effective of initiatives and Work & Income New Zealand had a well-honed routine of getting unemployed people into work.

But the report acknowledges that approach was most efficient when job vacancies were waiting to be filled.

It also focuses on the importance of promoting business investment and suggests contentious ways the labour market could be made more flexible.

During the next year 50,000 people would become unemployed, taking the number of unemployed beyond that of the last recession of 1997-98, the NZIER report said.

There were some suggestions unemployment may reach 1991 levels, when it peaked at 185,000 or 11 per cent, but NZIER did not think it would get that bad.

The report said that at first glance, recent Government initiatives - ReStart which provides temporary top-up support for those made redundant, and the nine-day fortnight - appeared sensible. But they had downsides and should be removed after the crisis had passed, and would also have little impact, the report said.

The Job Support Scheme - which provides Government subsidies for employees who agree to reduce work hours to a nine-day fortnight - risked giving support to marginal firms in declining industries.

In practice, the effect of the scheme may be to smooth the adjustment process by facilitating downsizing through attrition rather than rapid job loss through redundancies, the report said.

In any case, it was unlikely to have any noticeable impact on economy-wide unemployment.

If the downturn was relatively short, an emphasis on job search help, reinforced by short-term training for targeted unemployed people, would be appropriate, the report said.

But if the downturn and the resulting increase in unemployment proved to be longer lasting, a larger share of training of all forms would be needed.

- NZPA