Invest in people alongside new infrastructure

By Julian Wood May 19, 2020

The euphoria we are all feeling after entering Level 2 will be tempered by the pain of pay cuts and job losses felt across our communities. The Government’s “Rebuilding Together” Budget is where the Government fights back against the hurt. Unfortunately, the truth is that even despite best efforts, including an unallocated $20 billion COVID-19 war chest, the Government can’t fix this. Whole sectors of the economy will continue to struggle, and employment figures look like they are heading for a bloodbath.

A big part of the way the Government has signalled it will fight back is through the use of Active Labour Market Policies (ALMP), where the Government moves to intervene in the economy in an attempt to lower unemployment. The wage subsidy and its proposed extension are an example of an ALMP, as is the proposed “shovel ready” infrastructure projects the Government has talked about bringing forward. Other examples include increasing the numbers of Work and Income case workers to help match job-seekers with firms that need workers and spending money to re-deploy out of work forestry workers to help clear DOC land of pine trees. Unfortunately, research shows that even in the midst of a recession, the returns on these policies are (in the short run) low and often negative.

Whole sectors of the economy will continue to struggle, and employment figures look like they are heading for a bloodbath.

More positively, looking at the analysis of around 16,000 research papers on the impacts of ALMPs around the world highlights that if the Government is going to try to reap the possible medium to long-term benefits of ALMPs there are big lessons they should heed. The first is that the Government shouldn’t try to go it alone. The positive employment and longer-term outcomes are always higher when ALMPs are run in partnership with the private sector; as close to the real economy as possible. The second is that you can make things worse by slowing people’s transitions into new jobs. It’s for this reason that I think we should spend less helping people stay in non-viable jobs, and more helping them upskill or move into areas that need skilled workers.

So, what should we be doing now? The Government needs to take these lessons to heart and create an upskilling programme through their announced infrastructure spend. Any contract to build infrastructure should come with a condition that the private company hire and train people who have been made redundant and long term unemployed in order to meet their skill gaps. This contract conditionality can be backed up by targeted hiring and training subsidies if need be. This will increase the costs of infrastructure contracts but on balance this marginal increase will be money well spent for New Zealand’s future.

The Government shouldn’t try to go it alone.

People get new viable jobs, some are mentored toward work readiness and all are upskilled in parts of the economy that for too long have been over-reliant on temporary migration. We shouldn’t be contemplating a simple return to the past post vaccine. Instead we should be prepared to build longer term resilience in not only our infrastructure but also our people.

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