As unemployment climbs, and with it the risk of social scarring from long-term joblessness, there needs to be a focus on active labour market policies.
That is the generic term for measures to improve the functioning of the labour market which are directed towards the unemployed.
It includes such things as:
• Job brokering to match up people looking for work with firms looking for workers with the necessary skills.
• Training to upgrade job applicants' skills.
• Job creation measures, either in public sector schemes or subsidising private sector work.
New Zealand traditionally does not do a lot of this. Pre-Covid spending on active labour market policies (ALMPs) was about 0.3 per cent of gross domestic product, putting us in the bottom third of the OECD.
That was arguably defensible when unemployment was low and employers could rely on immigration to avoid the cost of training or paying New Zealanders to do the work they needed done.
Those conditions no longer apply. The border is indefinitely closed and the June quarter numbers on the labour market released this week suggest it is going to get a lot worse before it gets better.
Nearly one in four employees — just under 500,000 people — sees a medium or high chance of losing their job in the coming year.
And among employers and the self-employed, 150,000 or 30 per cent see a medium or high chance of going out of business in the next 12 months.
It is the first time Statistics NZ has asked this question, so there is no way of judging its predictive power. But it is not encouraging.
In this context, a study of ALMPs by Maxim Institute economist Julian Wood — "Back to Work: Strategies to stimulate employment now and in the future" — is timely and illuminating.
A lot of research has been done on various active labour market policies run over the years elsewhere, on their pros and cons, on whom they benefited, how much, and how long they took to do so. Meta-analysis of that research, which adjusts for the factors that make a difference between one country and another and one period and another, yields insights into what might work for us, here and now.
"The international meta-analysis findings highlight that they can be costly, and especially in the short run have a small or even negative return. But when they are designed well and focus on the long term, they certainly have their place," Wood said.
"They can also assist those on the margins of the labour market or those who are most likely to suffer from long-term unemployment into work.
"They can help firms find workers and workers find firms."
Wood found that ALMPs have better outcomes in times of high unemployment and low growth and while the outcomes vary from one programme to another, many often pay off more in the long run.
"Of particular policy interest is the finding that returns to investment in human capital (from education and training ALMPs) appear to be more sensitive to the cycle than policies aimed at placing people in employment above all else. The higher return to training programmes is particularly noticeable for the long-term unemployed."
The statisticians tell us that of the 1.3 million people aged 15 or over who were not employed in the June quarter (most of whom are classified as not in the labour force rather than officially unemployed), 490,000 said it had been between one and 10 years since they last worked (for money).
Unfortunately, ALMPs targeting the young are likely to deliver less bang for the buck, Wood found.
One reason is stigma. While youth who have been unemployed for less than six months seem rarely to encounter negative employer attitudes, participation in an ALMP is often taken as a sign of impaired employability.
Also "many youth who eventually end up in programmes have already struggled in the formal education system," Wood said. "Hence for youth vocational or on-the-job training are nearly always seen as preferable to other ALMP options, but these can be hard to obtain for long-term NEET youth." The NEET are people aged 15 to 24 not in employment, education or training. There were 81,000 of them in the June quarter, even with a 24,000 rise in those in education.
A key recommendation of the Maxim report is to attach training conditions to the billions of dollars of infrastructure spending the Government plans to undertake. It suggests about 20 per cent of each project be earmarked for training and that it be targeted at the long-term unemployed, NEET youth and women.
The report also favours targeted, time-limited hiring subsidies for newly created jobs, again with training conditions attached. The National Party has proposed something of the sort with its JobStart policy, which would pay businesses $10,000 for every additional new employee they take on, capped at 10 per business.
The May Budget included a $1.6 billion trades and skills package and in June the Government indicated that in a range of industries — to be reviewed as the recovery progresses — training courses will be fees-free for the next two-and-a-half years.
"We think this targeting needs to be aligned with pre-Covid-19 situations where employers have been seen to disproportionately use temporary work visas to supplement their workforce," Wood said.
More generally, the report argues policy should aim at phasing out the use of temporary work visas to meet ongoing labour and skill shortages.
"Instead there should be a shift towards better long-term migration solutions for workers who would wish to live here permanently. This will mean a significant change in how we welcome people into our communities and in our responsibilities as hosts."