Making work

The wage subsidy scheme in 2020 made a lot of sense. It kept workers attached to firms through lockdown, so everything could restart quickly in May. 

When we'd talked with officials about it around that time, we'd noted that while it seemed great as temporary response to lockdown, it shouldn't be extended to prop up tourism/hospitality over the longer term. The sector would have to adjust, and propping-up would otherwise create zombies.

RNZ reported this week on the Jobs for Nature programme still being used to prop up tourism firms in South Westland. 

South Westland businesses involved in a Jobs for Nature programme where the government pays their staff to work on conservation projects, are determined to find a way to keep it going after the funding runs out. As well as helping to keep the businesses afloat during the Covid disruptions, more than 70,000 hours have been spent trapping, weeding, maintaining tracks - and even finding an endangered bat species. The government has committed $3.78 million to the scheme and that'll end in June next year. At a recent hui at Fox Glacier many of the more than forty business who've signed up for the progamme agreed that it's done much more than simply keeping them afloat until tourism in the region rallies.  Kathryn speaks with Rob Stewart from Skydive Skydive Franz Josef and Fox Glacier, Dale Burrows from Franz Josef Wilderness Tours and Wayne Costello from DoC.

You can listen to the whole interview to hear Kathryn Ryan very impressed by the government's helping to keep these companies afloat. I'm sure Nine-to-Noon has run interviews with employers unable to find staff. I find it weird that nobody connects these things. 

If unemployment were really high, maybe the case would be different.

But the effect of the programme currently is to prop up firms that are no longer viable and that cannot attract capital or credit to tide them through until tourism numbers might increase again while putting scarce workers onto Jobs for Nature projects. 

Those projects may well deliver environmental benefits. But if any cost-benefit assessment was ever done on those, and I'm not sure any were, it would have been in the context of labour being in surplus, rather than desperately scarce. Nobody thought this was a good idea before the pandemic brought expectations of high unemployment, right?

Running job creation schemes, at current unemployment rates, and at current measures of the output gap, is a mistake. 

I was curious what the output gap from the latest Monetary Policy Statement looked like in historical context so I threw this together to get a longer time series. Each line is the output gap provided by a different MPS. In some cases, the MPS provides a forecast, so neat to see how the measure panned out relative to the forecast. In other cases, revisions to GDP or to the output gap forecasting measure makes for differences between the lines.

Current levels of the output gap aren't unprecedented. And gaps on the lower side are worth avoiding. But it certainly doesn't look like a time for running make-work schemes.