Increased financial support for workers facing job losses has rightly been highlighted by the Government - but it's more complicated than that. Max Harris asks five questions crucial to the debate about what a social unemployment insurance scheme could look like.
There are lots of unanswered questions surrounding the Government’s intention to consult on a “social unemployment insurance” scheme.
During the election Labour said, if elected, it would be investigating some form of social unemployment insurance.
Last week’s Budget revealed that the Labour-led Government had taken some further steps towards developing its proposal. The Government announced that, alongside BusinessNZ and the Council of Trade Unions, it had committed to designing a scheme.
The Budget documents compared the scheme to ACC, with the Government saying it was “looking at a scheme” providing those who lose their jobs “with around 80 per cent of their income, with minimum and maximum caps”. The Government promised “wider public consultation later in 2021”.
But without further detail it is difficult for unions, businesses, and the media to commit to supporting a scheme. It is hard to know what relevant international benchmarks are, which might be used to consider possible consequences.
Stakeholders are entitled to reserve their position before seeing more specifics, especially since expressing wholehearted support now may reduce their bargaining power later.
What is clear is that workers losing their job need more direct financial support. As Bill Rosenberg pointed out in 2019, New Zealand has “some of the poorest support for working people when they lose their jobs”. Coming into the pandemic, New Zealand had the third lowest unemployment benefits in the OECD, ahead only of Australia and the UK.
However, is social insurance the best way to provide that support? That depends on five issues that need to be clarified if there is going to be an informed debate.
Will workers have to contribute?
There are different ways of defining ‘social insurance’, but many comparable schemes worldwide have three elements: (i) a percentage of earnings being provided when workers lose their jobs, (ii) some kind of contribution to the scheme, by workers, and/or employers, and/or governments, and (iii) a limited time period for payments.
What isn’t clear is who will be contributing in the Government’s preferred scheme. Some thoughtful supporters of the scheme have suggested the scheme should be funded only through a levy on employers. But Finance Minister Grant Robertson indicated last year that it could be funded by a combination of employee, employer, and Government contributions.
Worker contributions to the scheme are more likely to create a divide between those in social insurance and those on other benefits, embedding an idea of “deserving” and “undeserving” recipients of social support. (You can see how a policy enacted in this form could lead to one National Party member describing social insurance as “essentially about giving the individual a feeling of responsibility for themselves in the event of catastrophe”, and “really bread and butter conservative thinking”.) Workers’ contributions also make it harder to compare social insurance with a form of redundancy pay. Until the question of whether workers will contribute is answered, it seems that unions should hold off on offering support.
Who will be covered by the scheme?
Government discussions of the policies have focused on providing support in the event of “job loss”. Another question is how many situations this will cover: only redundancy (where a job is ended for business reasons), or will it cover voluntary withdrawal (which might be prompted by workplace challenges, such as bullying), people leaving to take up caring responsibilities, and other workers? And which workers will be covered – will seasonal workers be covered? What will be the position of the self-employed?
The narrower the lines are drawn around workers who will be covered, the easier it will be to see the scheme as making value judgments about which job losses are worthy or unworthy of support. That could well be damaging for the message sent about the value of care work, for example. Regardless of these distinctions, it seems possible that social insurance could be seen by people unable to be employed in full-time paid work as an additional reward for people in paid work – when society already radically under-values different forms of unpaid work.
What will be done to mitigate the incentive for employers to “shed” workers?
Lewis Holden, the National Party member advocating for National support for social insurance, has said that one of the advantages of a scheme is that “[b]usinesses would feel more comfortable shedding staff during a downturn, making them more lean.” It’s not clear that encouraging job losses is an advantage. The Government – which has done well to bring unemployment down as the rest of the world deals with significant covid-19 job losses – ought to be concerned about unnecessary unemployment precipitated by the introduction of social insurance.
Some would say this could be addressed by more strictly enforcing existing employment law. But there are already major gaps and weaknesses in the enforcement of employment law, with covid-19 exacerbating delays. Some further protections may be necessary. It would be catastrophic if a scheme designed to provide much-needed material support for workers led to greater unemployment.
Can social insurance be implemented without locking-in existing labour market injustice?
There is a real risk that social insurance locks in the injustices of the existing labour market. The gender pay gap; the gap in pay between Pākehā women, on the one hand, and Asian women, Māori women, and Pacific women on the other; the fact that certain sectors (including for gendered reasons) are systemically underpaid – all these inequalities could be amplified in an earnings-based scheme that relies on the existing labour market as its starting point. Some have claimed that social insurance would simply follow the ACC model, as the Government has been careful to point out. But ACC has this problem of amplifying (rather than restructuring) the injustices of the labour market, and isn’t necessarily a perfect model in general (in particular in its own creation of two-tier recovery that leaves disabled people behind).
The Government will have to reassure many individuals and communities that the policy will not violate undertakings in Te Tiriti o Waitangi, that it will not have human rights implications for Pasifika workers, that it will not worsen wealth inequality, and that it will not delay other necessary changes to the welfare system. A process for policy consultation should be set out to clarify how stakeholders’ views will be taken into account.
Is the Government sure the problem can’t be addressed in other ways?
There is a need for more support for workers in transition. But as Vanessa Cole highlights, increasing core benefits and restructuring the welfare system is the more obvious answer to this problem – which does not require the design of a new scheme and administration. Increasing income support does not involve drawing the same distinctions between people out of work that is required by social insurance, and there is manifestly a need for more work to improve the welfare system, as the Government itself has acknowledged.
Some have suggested that revenue for increasing benefits further is restricted by the Government’s unwillingness to increase taxes. But borrowing to invest in the welfare system is also a feasible funding route, at a time when the Government has very low debt compared to its peers and interest rates are at record-lows. Increasing income support has proven popular, according to multiple polls, and there is growing recognition that the Government’s Budget action on benefits will not be sufficient on its own to lift people out of poverty. That insufficiency has prompted some anti-poverty groups to call for the announced benefit increases to be delivered in full on 1 July rather than staggered across July 2020 and April 2021.
Increasing benefit levels (including supplementary assistance such as Disability Allowance) may not be enough on its own. Reforms to redundancy pay may be necessary: New Zealand is an outlier amongst its peers in not having mandatory redundancy pay entitlements, as the Productivity Commission has said. Further regional investment for communities that may face job losses is also important: NZ Green Investment Finance had its funding quadrupled in Budget 2021, but it could be expanded (building on the work of the Provincial Growth Fund) into a fully fledged National Investment Bank, addressing the green economy, innovation, and regional development. Building support for at-risk workers through increasing benefits, reforming redundancy, and investing in regions (all of which are connected to policy deliver mechanisms) may be quicker than developing an entirely new-fangled social insurance scheme, which the Finance Minister has admitted may not be implemented until after the next election.
The Productivity Commission’s March 2020 report on technological change and the future of work offered some initial comparison of policy options. But a proper comparison of options will only be possible with more detail.
Overall, the Government is absolutely right to identify the need for increased financial support for workers facing job losses. But what is needed is an informed debate, with union members and other stakeholders properly consulted. Answers to the five questions set out above would be a good start towards that sensible, much-needed debate.
