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Full service or self-service?

Principal Advisor, Productivity Commission
27 May 2020

In normal times, New Zealand’s labour market works well. Compared to many other countries, unemployment levels are low, and the average duration of unemployment is short. Every year workers successfully change jobs at high rates (often to progress their careers). New Zealand’s workforce is relatively well educated, and workers participate in education and training at internationally high rates. These are things that should make New Zealand more resilient in a labour market crisis.

However, these are not normal times, and unemployment is rocketing. While the burden of the COVID-19 crisis is falling unevenly across sectors, it will affect most parts of the private-sector economy eventually. Recovery will be very slow in some sectors. Early signs are that the newly unemployed are likely to be younger, better educated, from better-paid jobs and to be of European descent, than in normal times. Even so, Māori and Pasifika continue to be over-represented among the unemployed.

By international standards New Zealand has most elements of an effective employment service for normal times. How will MSD’s employment services help tackle the COVID-19 economic crisis? Realism is required. MSD is expecting over 200 000 extra applications for a job-seeker benefit over the next year. It is also making more of its employment services available to people not on a main benefit.1 MSD is hiring 330 new frontline workers, deploying other staff to the front line, and providing for automated decision making on benefits where the statutory requirements have been met. Even so, most of the extra staff will likely be employed processing entitlements to benefits, rather than helping recipients find work.

MSD’s ability to help more people into work will be highly constrained over the next year.

  1. It will take time for new opportunities to emerge from the economic wreckage of COVID-19.
  2. MSD has the resources to provide intensive assistance to only a small proportion of those newly on its books.
  3. In normal times MSD relies on excellent historic data on the unemployed and their labour market experiences, and on up-to-date evaluations of interventions, to design and target its employment services. This approach is likely to be of limited help in understanding what will work best for an atypical cohort of unemployed in a once-in-100-years labour market crisis.

Like doctors in those countries worst affected by the pandemic, MSD will have to make its best judgements to “triage” access to its more intensive services. It probably makes sense to reserve these for more disadvantaged displaced workers whose prospects can be significantly improved. Given the current slump in employment opportunities, MSD might need to make more use of extended training placements for some of this group – though the evidence is that in-work training is most effective.

On the upside, experience shows that most people will be able to find their own path back to employment, as the economy mends. Many young and mid-career people will take the opportunity to rethink their careers and look to update and expand their skills. Education enrolments typically expand in an economic downturn.

On the downside, older displaced workers often take longer to find a new job that pays as well and may never do so. They might find it too late in their careers to make it worthwhile to retrain. Also evidence shows that cohorts of young people entering the labour market in a downturn tend to earn less over the longer term than those who enter a buoyant market. One reason is a worse match between skills and available jobs as they enter the labour market.

This puts a premium on policies that promote a rapid (V-shaped) economic recovery, and policies that make it easier for workers to retrain and build their skills to match future work opportunities. The Government has made a start by removing fees for trades training.

The Commission recently recommended changes to improve workers’ ongoing access to education and training. While designed for normal times, they should also help workers help themselves in today’s extraordinary circumstances. Some of these changes could be put in place quickly:

  • extending funding to providers for adult students not intending to complete full qualifications
  • allowing people undertaking part-time and short courses to access student loans
  • allowing a higher proportion of funding for providers to deliver “micro-credentials” (short courses that can be put together for adult students in flexible ways)
  • NZQA recognising “stacked” micro-credentials for qualifications purposes
  • Making it easier for students to receive credit for previous study and to transfer those credits across tertiary education providers.

Other changes would take longer to put in place. Strengthening and extending the availability of quality careers advice and information (a mandate of the Tertiary Education Commission) needs more resourcing and focus. In the COVID-19 economic crisis, good quality careers information is one of the keys to displaced workers taking steps towards their alternative futures.

Take outs

  • MSD’s Work & Income employment services work well in normal times. In normal times New Zealand has a well-functioning labour market with low and short-duration unemployment.
  • New Zealand workers generally have excellent access to education and training opportunities, and each year (in normal times), a relatively high proportion of workers changes jobs to improve their long-term career prospects
  • MSD’s employment services will struggle to provide more than basic income support services for the great majority of workers newly displaced in the COVID-19 economic crisis
  • Policies that help displaced workers to help themselves are at a premium in the crisis. These include making access to education and training more flexible; and providing more and better-quality careers information for displaced workers.

 


Notes:
1. Something the Commission recommended for normal times in its Technological change and future of work report.

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