Published: March 10, 2011

The-welfare-working-group-and-faith-based-job-creation

by Metiria Turei

Buried at page 53 of the Welfare Working Group’s report (PDF) is this extraordinary statement:

Active job search and retraining is also likely to increase the total number of jobs available. This is partly because of the multiplier effect of higher incomes on the rest of the economy. Active job search will also lead to increased employment because of the dynamic nature of the labour market. Even during a downturn there will be some firms and industries that are expanding, and some regions will have increased numbers of new job opportunities. In this context labour mobility is an important driver of overall job growth.

More generally, the evidence suggests that if there are well functioning labour market institutions, over the medium term the total number of jobs will expand to equal the number of people who are available and actively seeking work (my emphasis).

The Welfare Working Group doesn’t state any mechanism for the number of jobs expanding to meet the number of people wanting them. It could be Adam Smith’s invisible hand (the more likely suggestion imo, given the membership of the Welfare Working Group), the Hand of God or little green humanoids from Mars creating the jobs for all we know.

Assuming it is the invisible hand of the market that supposedly creates the jobs, I accept that having more people competing for the same number of jobs has the effect of constraining wage levels, and that may in turn encourage employers to employ more people in the short term. However, in the medium term, lower wages result in less demand for goods and services and consequent reduced need and capacity for employers to create jobs.

The job creation impact of lowering wages is therefore short-lived, and the jobs created tend to be “bad” jobs (i.e. casual or temporary and paying at or around the minimum wage).

The Welfare Working Group’s assertion that “the evidence suggests” the jobs will be magically created isn’t accompanied by any reference to what that evidence is. No examples of where this has happened, no footnotes to the assertion, nothing! I can’t think of any examples, either in New Zealand or overseas, where nations’ economies have magically responded to more people wanting jobs by creating one for everyone who wants one.

Because of the curious way in which the Welfare Working Group was set up (hosted by Victoria University’s Institute of Policy Studies, rather than under the auspices of the Ministry of Social Development) they are not subject to the Official Information Act. So we can’t even ask them what their “evidence” is. My suspicion is that it is nothing more than ideology plucked from the air by some neo-con advisor to the Group.

The Welfare Working Group’s report is an extremist beneficiary-basher’s wishlist. It lacks any academic rigour, and should be promptly consigned to Paula Bennett’s rubbish bin.

Published in Economy, Work, & Welfare by Metiria Turei on Thu, March 10th, 2011
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