Bludgers!

I'd previously bemoaned the paucity of data on usage of the various welfare systems in New Zealand: the Domestic Purposes Benefit, the disability benefit, and so on. Long story short: they just don't have records sufficient for any aggregate analysis.

Today's Press has one anecdote, though: one gang-related family that's been on benefit for more than two decades and has received emergency assistance for swimming pool repairs on one of their many properties and for new tyres for their 2007 Chrysler. Farrar comments in horror. But Lindsay Mitchell sees the bigger picture: why can the Press get a full case history on one family when researchers are refused OIA requests on aggregate statistics? It feels a lot more like priming the public to accept some changes to the welfare system than honestly trying to assess the state of the system.

I'd emailed Paula Bennett's office after my last post, trying to get some of the kind of information that Lindsay has been trying to get -- I spend a week in my current policy issues class on poverty and welfare and wanted a better picture of the New Zealand stats. I suggested that if the problem were past records held in paper form, having some summer interns code the data would be pretty useful. Here's the reply I received from Hon. Ms. Bennett:

Dear Mr Crampton

Thank you for your email of 17 August 2009 regarding your recent request to the Ministry of Social Development for information about the lifetime uptake of benefits by beneficiaries.

You advise that you have been told that case records prior to 1996 are only held in paper format. I can advise that the Ministry's SWIFTI system did not exist before 1991. Because of the phased way that SWIFTI built to the functionality that it has today it does not contain full records of people who started their first spell on benefit prior to 1996.

Between the early 1980's and 1991 a much simpler electronic system was used. This system could track a person's interaction with the benefit system at an individual client file level, but could not collate duration information about all beneficiaries, and therefore could not provide 'average duration'.

Prior to the introduction of the first computer system client interactions were recorded in paper files. Most of these paper records will now have been destroyed in line with archiving legislation. For this reason interns completing a 'data entry' exercise would never be able to provide the information that you are seeking.

The Ministry can only really be certain about duration information that it holds for people aged in their early thirties or younger (i.e. those whose first interaction with the benefit system would have been after 1996 when full SWIFTT capture of information began).

I hope this clarifies the situation for you.

When I emailed MSD again asking particularly for data on recipients who entered the system since 1996, I received no reply and didn't have time to follow it up.

We really need better stats on which to base policy decisions. Anecdotes aren't enough.

Guaranteed minimum income

Nolan at TVHE notes Gareth Morgan's support for a move to a guaranteed minimum income plus a flat tax.

I don't agree with Morgan's wish to fund some of the move by the imposition of a capital tax. In an ideal world, I could go with Arthur Grimes's preferred land tax, but we're not in that world.

Interesting to note that Charles Murray proposed moving to a guaranteed minimum income in the US as well.

In Murray's proposed system, every adult American not incarcerated would get $10K, beginning at age 21, of which $3K must be used for health care. Every other welfare and aid programme would be abolished: TANF, Medicare, Medicaid, social security - everything. The system's total cost would be higher than the current welfare system but, as it would also replace social security, would be cheaper in the long run as more folks retire.

Murray notes that the current system places lots of restrictions on individuals with respect to eligibility whereas a straight cash transfer lets people make their own decisions about how to run their own lives. Moreover, since everyone would know that everyone gets the transfer, an element of personal accountability is induced: everyone knows that everyone has $10,000 a year, so someone who then requests further assistance from the private charitable sector has to answer some relatively hard questions. Other effects: fathers cannot evade child support as the judge will know the location of the bank account where the $10,000 is deposited.

In the New Zealand context, this latter point could be important: eliminating the DPB and ensuring judges have ready access to fathers' bank accounts would provide a powerful inducement for fathers to be named.

Sounds great, but I'm still worried about whether the system is an equilibrium. What happens when some poverty advocate puts out a report showing some grandmother taking care of 20 kids under the age of 18 trying to get by on her $10K entitlement. Does Labour then win on a platform that brings back much of the old system in addition to the guaranteed minimum income?

I also worry about what happens to the stringency of immigration restrictions: I like immigration, but would worry that a guaranteed minimum income would provide a powerful inducement for tighter immigration controls. Presumably benefits could be restricted to citizens rather than just permanent residents. But is that stable either?

I could probably be convinced to push the button for a scheme of this sort in preference to the current system. Not sure that I'm there yet, and I'm not there if it's funded through a capital tax, but I could be convinced.

American lessons for NZ

New Zealand's finance minister suggests they might get around to implementing some campaign promises on welfare reform.

I would expect that Treasury will be looking closely at what happened in the US post 1996. President Clinton* then signed into law the replacement of AFDC (basically the Kiwi DPB) with TANF: Transitional Assistance for Needy Families. TANF provided block grants to states agreeing to some minimal rules around how they would deliver TANF funding, including a five year maximum time limit for lifetime benefits receipt for at least 80% of their caseload. States could exempt a fifth of their caseloads from the five year lifetime cap - some folks can't easily be moved into work - or could keep a larger fraction exempt but entirely on the state's dime rather than through the block grant. Different states experimented with different ways of moving folks from welfare to work and could learn from each other.

What have been the results? Large reductions in welfare caseloads, with the vast majority of welfare leavers transitioning into work. Illegitimacy rates dropped. The poverty rate among children with single mothers dropped substantially. The Index of Child and Youth Well-Being showed marked improvement. The folks at the San Francisco Fed conclude, in respect of the current recession:

Can young single mothers survive a deep recession?

The evidence presented above suggests that welfare reform has made even the most vulnerable single mothers economically more self-sufficient and that this pattern continued during and after the 2001 recession. Welfare caseloads continued to fall throughout that downturn, possibly because industries such as retail sales and health care, which employ many low-skilled women, remained relatively strong (Blank 2006).

In the current downturn, it’s natural to worry that families headed by single mothers may suffer economically. Single mothers will undoubtedly experience higher unemployment, like other workers. But recent research (Isaacs 2005) suggests that their growing attachment to the labor market better positioned them to fall onto a different part of the social safety net—unemployment insurance—during the 2001 recession. Although recent unemployment data for low-income single mothers are not yet available, we believe trends for this group should be monitored, given their implications for the well-being of single mothers and the long-term viability of the reformed welfare system.

A short reading list, in addition to links above:

• Moffitt, R. 2008. Welfare reform: the US Experience.


• Blank, R. 2002. "U.S. welfare reform: what's relevant for Europe?"


• Blank, R. 2002. "Evaluating welfare reform in the United States"


• Haskins, R. 2006. Work over Welfare: The inside story of the 1996 Welfare Reform Law. Brookings.


• Coutts, J. 2004. “New Zealand lessons from United States welfare reform.” New Zealand Business Roundtable Policy Backgrounder.

The main lesson to draw is that it is more than possible to move single mothers from welfare to work and that their children are generally no worse off for the move.

* Clinton as President facing a decent Republic Congress -- could anything in the world be better? Can we do a full team swap, replacing the entirety of Congress with the folks there in '96 (as their past selves) and swapping Clinton back into the Presidency? Wasn't it wonderful? While we're wishing for ponies, why can't the Habs have the 1993 version of Patrick Roy back in net? And lose the goofy centennial jerseys?

In which the paucity of data is bemoaned

In my Economics and Current Policy Issues course, we spend a week on poverty and welfare. As part of that, we go through the evidence on US welfare reform. American welfare reform in 1996 set lifetime limits on how long a recipient could receive benefits - capped at 5 years for the most part. For this year's iteration, I was curious to check how binding that kind of cap would be if applied in New Zealand. In other words, what proportion of folks on benefits, in particular the Domestic Purposes Benefit, have received benefits for more than five years. The MSD provides data on the duration of the current spell of benefit receipt, but no data on the total duration of prior spells among those recipients. I can find that about a quarter of current DPB recipients hadn't received any other main benefits in the previous four years, and we can find that 10% of current recipients have been continuously on the DPB (15% on the DPB or some other benefit) for ten years or more, but I can't find any data on lifetime receipt.

In response to my emailed question, the Ministry for Social Development told me that all records prior to 1996 are held in hard copy rather than electronically. In other words, nobody knows for how many years current beneficiaries have received benefits. Figuring it out would require manually going through each beneficiary's paper records, putting them into electronic form, and then running the averages. As it stands, the data does not exist in any usable form.

I wonder how the government can make any kind of informed policy decisions when it has no clue whether current beneficiaries are experiencing transitional problems or whether their current spell on benefit is just the latest in a series of spells. Surely optimal policy varies depending on this. The best I can find is a study by Moira Wilson a few years back that took a cohort of 250,000 granted a benefit in 1993 and followed up five years later. But again, that's just a two-period snapshot.

I've asked MSD if there's any data available on the cohort that became eligible for the DPB since 1996: their lifetime records will be available electronically. We'll see what comes back.

It would be awfully nice if Wellington could devote a few resources to getting the data in order. A few summer interns doing data entry could make a decent start. Some of the kinds of questions to which we cannot know the answer for lack of data:

• How many total years have current beneficiaries received benefits, in how many spells, with breaks of how long between spells and with what reasons for transitioning between types of benefit or on and off of benefit?


• Is there a blip upwards in the birth rate among women on the DPB as work entry requirements come close to binding? In other words, is the timing and number of births elastic to the duration of benefits? It would be a perverse result for the child-poverty campaigners if the DPB were encouraging more within-poverty births; we haven't sufficient data to tell.


• If we were to move to US-style lifetime caps, how many people would be subject to them? The optimal lifetime cap surely depends on the distribution of lifetime receipt. Length of current spell gives a lower bound estimate; what's a more reasonable estimate?


• What are the longer term trends in movement between the unemployment benefit and other benefits? If the recession drags on and we see folks flip from unemployment benefit to the main benefit, what's their expected duration on main benefit before rejoining the workforce?

I'm not about to take on these projects even if the data were to exist; busy enough already. But it's more than a bit worrying that nobody can take them on for lack of data in usable form.

Welfare reform for New Zealand

I'm greatly looking forward to reading Lindsay Mitchell's forthcoming report for the New Zealand Business Roundtable. One interesting suggestion, as reported in the National Business Review:

It also suggests the Work and Income Department could be privatised, loans could replace benefits, and that people could opt out of the public health and welfare systems in return for tax relief and accepting responsibility to fund their own needs.

I'll be interested to see how Lindsay proposes the last option work. It's well neigh impossible for the median voter to bind herself against the argument from pathos, so anyone opting out of the welfare or health system has an implicit option to jump back in should hard times eventuate. Consequently, any proposed system needs some pretty robust mechanisms to ensure that isn't necessary for folks to jump back.

As a first cut, I'd expect strong requirements for evidence of sufficient ongoing private health insurance as condition for exit from the public system; I'd also expect similar requirements for income protection insurance or ongoing evidence of substantial liquid reserves for exit from the welfare system. I wish these sorts of things weren't required, but time consistency isn't the median voter's strong suit. It'll be interesting to see what Lindsay here suggests.