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  • rmacculloch

Welfare is for People not Businesses: Labour and National are both proposing weak policies

Labour has just announced a policy that would see businesses paid up to $22,000 to hire a worker who is on a benefit and at risk of long-term unemployment. The full cost is estimated to be $311 million. National has also pledged to introduce a hiring subsidy of $10,000 per worker for any business taking on a full-time employee between November and March. Its' scheme is less targeted and would cost $500 million.

However, the best recently released studies in the world that have estimated the effects of related schemes have come back with poor results. The United States implemented the "Paycheck Protection Program" (PPP) back in April this year as part of its Coronavirus relief package. It cost half a trillion dollars. The aim of the US program was similar to NZ's wage subsidy scheme which was supported by both National and Labour. The PPP consisted of loans to small businesses, which were forgiven provided the business kept its' workers employed and maintained their wages. However, estimates of the cost per job suggest it was a poor use of public funds. A co-author of one of the studies was David Autor at Massachusetts Institute of Technology and another one included Raj Chetty at Harvard.

What's the upshot? When it comes to the welfare state, the government should directly help weak and vulnerable people, not transfer funds to prop up businesses. For a summary of the Kiwi policies, see:


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