Comment

Wellbeing, employment and Covid-19

In a new series of Wellblogging columns, Arthur Grimes examines how to promote wellbeing in the context of Covid-19, noting that the Government's wellbeing focus now translates into policies that do their utmost to support businesses

Research shows one of the most important contributors to wellbeing for many people is having a job. Employment provides people with structure to the day, material benefits and – for many–meaning to their life. Accordingly, attempting to preserve people’s employment has been a central component of the public policy response to this Covid-induced recession.

One key economic response the Government instituted was the Covid-19 Wage Subsidy Scheme. Firms were eligible to receive $585.80 a week for 12 weeks to retain workers in full-time employment (with a lower rate for part-timers). Clearly, this move has had beneficial short-term employment effects for those who would otherwise have lost their livelihood.

But what of the longer-term effects?

Research conducted with Richard Fabling and Levi Timar at Motu analysed the effects of the Earthquake Support Subsidy, a similar wage subsidy scheme for at-risk jobs after the February 2011 Christchurch earthquakes. That subsidy paid firms $500 a week (for full-time employees), initially for six weeks (subsequently extended), for firms with fewer than 50 employees that were affected by the earthquakes.

We found the subsidy was effective in retaining workers in their jobs for the length of the subsidy period. Once the subsidy finished, however, the recipients of the subsidy were just as likely to lose their jobs as those who did not receive the subsidy. In other words, if their firm had no job for them following the earthquake their tenure came to an end.

Incidentally, there was one longer-term bright spot for Christchurch: recipients of the wage subsidy were more likely to stay in Christchurch once the immediate aftermath of the earthquakes had subsided than were those who did not receive support. However, that beneficial side-effect doesn’t apply to the current situation.

What can we learn for the current Covid circumstances from the Christchurch experience?

The key to retaining jobs once the subsidy comes to an end is that firms must have sufficiently strong balance sheets and future prospects that they wish to retain their workers.

A number of policy supports – from central government and from the Reserve Bank – have been introduced to boost the ongoing viability of firms. The Christchurch experience tells us it will be vital to concentrate support on maintaining firm viability in order to support the longer-term livelihoods of workers. A wage subsidy scheme when the firm no longer exists will not be effective beyond the length of the subsidy period!

The Government’s wider support to businesses is like a form of business interruption insurance (i.e. insurance for times of disaster) for firms – a point made by Alistair Milne in the UK. Most of the firms receiving support have never taken out (and hence have never paid the premiums for) this type of insurance. Perhaps the Government could institute a small but ongoing post-pandemic corporate tax surcharge on recipient firms to pay an ex post premium on (notional) insurance contracts that recipient firms could have adopted – and paid for – in pre-crisis times.   

In New Zealand, Richard Meade has suggested an intriguing variant of Milne’s approach. Meade outlines a scheme whereby eligible firms and households apply for a loan from government that is then repaid through the tax system, as is the case with student loans. This scheme would enable firms and households to borrow against their future income, which (for good reason) banks are often loath to do.  

Both the Milne and Meade proposals are based on the understanding that in order to retain employment – and hence to promote a key determinant of wellbeing – support for firm survival is critical.

A key test of the wellbeing focus of policy over coming weeks will therefore be the extent and nature of the Government’s support for firms to survive. Whoever would have thought in 2019 that a wellbeing focus now translates into policies that do their utmost to support firms?  
 

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