The other day David Farrar highlighted MSD’s release of the number of people receiving (non NZS) welfare benefits.  MSD released data for the last five years and, while interesting, any interpretation of that data was inevitably going to be affected by the subsequent economic recovery.  2010 was the year of New Zealand’s double-dip recession, after the initial 2008/09 recession.  Anyway, I was intrigued and wanted to put the more recent data in some context.

It was easy enough to find comparable data on MSD’s website back to 2003.  These data are for the number of people 18-64 (“working age” as they describe it) receiving “main benefits”.  On Infoshare I found a series going back to the early 1990s, which is clearly similar to, but not the same as, the MSD numbers.  I think the difference is probably just that the Infoshare number capture the relatively small number of people outside 18-64 receiving (non-NZS) benefits.

The chart below shows these beneficiary numbers as a percentage of the population aged 18-64.  It is encouraging that the number of beneficiaries has dropped in recent years, although eyeball analysis suggests that much of the drop is likely to be the economic cycle.  But as the HLFS unemployment rate is still nowhere near as low as it was in 2007/08 that can’t be the full story.  Presumably the government’s welfare reforms have made some contribution.

But in many ways, the more striking bit of the picture is the decline over the 2000s, from around 16 per cent of the working age population in much of the 1990s (even as the unemployment rate had fallen away) to around 12 per cent by the mid 2000s.  Even on the MSD data around 10 per cent of the working age population is now receiving a welfare benefit.

That seems staggeringly high.  Working age population doesn’t just include beneficiaries and the employed.  It includes people like me (and plenty of new parents), happily out of the labour force for a time and supported by a spouse.  One in ten of all those people –  employed, unemployed, other beneficiaries, and those otherwise not interested in paid employment – is primarily reliant on a welfare benefit.

For a longer-term perspective, I pulled the 1984 New Zealand Official Yearbook off my shelf, and transcribed benefit numbers (ex National Superannuation and Family Benefit) for 1979 to 1983. It looks comparable to the Infoshare data.  I’m not sure if there is data on the working age population back then, but all the second chart does is graph  these series (of beneficiary numbers) as a percentage of the total population.  The proportion of the total population on working age welfare benefits is still 50% larger than it was around 1980.    (I deliberately didn’t want to skew the comparisons too far, given the relentless excess demand in New Zealand in the 1950s and 1960s, but for what it is worth, in 1970 the total number of beneficiaries was only around half the level in 1980.)

What is the “right” number?  Well, to a large extent that is a political choice, but one that should be actively debated.

I’ve sometimes pointed out that if everyone in the workforce spent one year in a 45 year working life unemployed, that would generate an unemployment rate of under 2.5 per cent.  And there will always be those who, through no fault of their own, through debilitating disease or illness, are unable to work much or support themselves at all.  And perhaps a small number of, for example, spouses/partners fleeing abusive relationships and temporarily needing society’s support.  But is there any obvious reason why society could not once again have benefit dependence ratios back where they were in, say, 1980, while treating generously (perhaps more generously) the few unable over the longer-term to provide for themselves at all?

Perhaps a (cycle-adjusted) maximum of 5 per cent of the working age population on welfare should be considered as a target.  That still allows for 1 in every 20 working age people to be primarily dependent on a welfare benefit.   A target like that can’t humanely or fairly be achieved overnight, but over 10-20 years it could be.  In fact, it might be inhumane (in a larger sense) not to.

(It isn’t my usual field, but this was never intended to a blog just about macro policy and/or the Reserve Bank.  Others will know the data, and the research, better than I do, and I welcome thoughtful comments.)