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New Zealand has high levels of labour market participation and low unemployment. The New Zealand labour market is highly flexible, with substantial movement between jobs and between industries. This enables many people who become unemployed to regain employment relatively quickly, with the result that New Zealand has a very low proportion of long-term unemployed. This does not mean there is no impact on people from loss of employment.

The economy creates and destroys a large number of jobs each year. In the year ending June 2016, on average, each quarter 142,400 jobs were created and 129,200 jobs were lost (MBIE & MSD, 2017). Since 2000, growth in the New Zealand labour force has been more than twice the OECD average, driven by much faster growth in the working-age population and a greater increase in labour force participation (Culling and Skilling, 2018).

Not everyone has benefited from a highly flexible labour market. Many commentators are concerned that precarious employment is increasing along with the incidence of working poverty, particularly among low-skilled households (Hodgetts et al, 2017; NZCTU, 2013; Wilson, 2014). One in 10 workers is in a temporary job (similar to the OECD average). Half of these workers say they would like permanent work. Job growth since 2000 has favoured high-skilled workers and relatively productive firms.

Skills are increasingly important to labour market participation in New Zealand as in other OECD countries. Most people transition successfully from the education and training system to employment, and low cost or free education and training support is available, especially for young people. Compared with other OECD countries, our workforce is, on average, highly skilled (MBIE & MSD, 2017). Levels of up-skilling and retraining by those already in work are among the highest in the OECD, and New Zealand has an extensive and subsidised further education system that caters for people at all levels, including those who need to gain the equivalent of school-level qualifications. This highlights the importance of an effective education and training system for all, and the risks to people who do not succeed in education and training (Cleland et al, 2016).

Educational achievement has been a strong predictor of future pathways. A significant proportion of those on working-age benefits have obtained no or few educational qualifications. Compared with other OECD countries, New Zealand has a large proportion of young people who leave school early and who do not achieve basic secondary school level qualifications (Agasisti et al, 2018). Youth, especially those without qualifications, are some of the most vulnerable to economic shocks. New Zealand is seen as having a high-quality, low-equity education system and the impact of that is felt most severely by Māori and Pacific youth (McKinley & Hoskins, 2013).

Aspects of the New Zealand labour market are poor compared with other countries. Concerns have been raised about the level of wages especially among the low skilled. Wages are often linked to productivity, and New Zealand’s productivity performance has been weak over many years (Conway, 2018). Lifting productivity has proven difficult. The issue may lie in the inability of some domestic firms to take advantage of new knowledge and productivity-enhancing technologies and a relatively low movement of capital resources from relatively unproductive firms to relatively productive firms. Skilled workers adopt innovations earlier and are associated with greater firm investment in knowledge-based assets, which is why skills are increasingly important in New Zealand. However, New Zealand has a high incidence of skills mismatch and, consistent with this, among the lowest returns to education in the OECD (Conway, 2018). 

High-quality employment support and removing barriers to re-employment are required to address the skills mismatch and lift productivity and wages. Employment assistance through the welfare system is inadequate, and employment support has taken second place to administration of the complex income support system. Spending on active labour market programmes is very low by OECD standards and has been declining steadily for many years. Moreover, in recent years, the emphasis has been on general case management interventions ahead of training or retraining assistance or other forms of labour market programmes. Case management is important if it helps find a person the best possible job match, but many unemployed people need additional assistance to become more employable.

Over the long term, the nature of work will likely change substantially as a result of rapid technological change, globalisation, climate change and demographic change. In the most dramatic scenario, adverse impacts arising from such changes could include substantial displacement and structural unemployment, precarity[27] and income inequality. While these impacts are highly uncertain, some are more likely than others. For example, partial changes in job content are more likely to occur than the mass automation of jobs and consequent structural unemployment.

A welfare system suited to the labour market of the future, which supports productivity and wage growth, needs a substantially greater employment support function than the current system has.

Contracting models between the state and voluntary sector have helped create a stressed community sector

Community organisations, along with families and whānau, are necessary to provide the structures for communities to operate. Strong, capable, community-based, not-for-profit organisations provide the resources, facilities and people that give effect to a community vision. These organisations support people and their families and whānau when they need help, along with the infrastructure that allows communities to respond to their self-identified needs in the ways that best suit them.

Since the 1980s, individual and community support has been increasingly delivered by community organisations contracted by government departments. “Contracts not only mediate relationships between the state and the community and voluntary sector; they determine the structure and outcomes of the relationships” (Grey & Sedgwick, 2013: 5).

Many in the community and voluntary sector have expressed concerns about the contract environment, including:

  • uncertainty about ongoing funding
  • difficulties in maintaining independence while taking government contract funding
  • restrictions on what services they can provide to whom, and how these will be provided (Grey & Sedgwick, 2013).

Feedback from community organisation representatives in our focus groups and at community forums showed those in community-based social services and social support organisations are highly stressed. This stress is caused by financial constraints, competitive operating contexts and the complexity and depth of community need. Community organisations consulted with said they were operating in highly competitive funding environments, with government funding usually allocated through market-based tendering models and philanthropic funding provided through competitive funding rounds. Contracts were often for short periods or were rolled over from year to year, giving no certainty of funding or ability to plan for the long term. Service providers noted some government funding had been frozen for up to 10 years and this was producing a difficult operating environment where cost savings had moved from being made through improved efficiency to a reduction in services.

Community organisation representatives reported that the community infrastructure, the ability of organisations to successfully work in a place-based, community-responsive manner, has been compromised. Funding levels and contracting arrangements leave little scope for community organisations to address community needs beyond what is specified in contracts. This type of ‘added value’ from community organisations was once common and was how these organisations deliberately contributed to community development. “This loss in contracting and funding saw the useful and productive practices of achieving both the government funded outcomes and community identified results diminishing and in some cases being lost” (Neilson et al, 2015: 4).

Many representatives of community organisations commented on the ‘pilot’ and ‘trial’ approaches used by funding agencies. These approaches consist of organisations being properly funded to implement highly effective local strategies. These strategies would result in the delivery of the required outcomes and make significant contributions to the participants’ and the wider community’s wellbeing. Unfortunately, even given this success, these initiatives did not go on to receive funding, were funded on only a year-by-year basis or were not rolled out on a wider regional or national basis. We also saw this when we visited service providers during the consultation process. Where such pilots and trials are instigated and evaluation demonstrates their worth, they should move from pilot status to programme status, receive appropriate length contracts and funding, and be implemented on a regional and national basis where appropriate.

Summary – fundamental change is needed

The facts outlined in this chapter lead us to the clear and unequivocal conclusion that fundamental change is needed. We cannot solve the existing problems, let alone create a system that will serve future needs, through further ad hoc amendments or marginal changes. Substantial changes and a fundamentally different societal approach to welfare are needed, if we are to address the inadequacy of existing payments and the complexities resulting from excessive reliance on tightly targeted supplementary and hardship assistance.

Similarly, we need to address the lack of adequate employment support that fails to meet the diverse needs of people using the system, the needs of the community sector, and the needs of those groups who are most negatively affected by the current system. Any efforts to improve the wellbeing of New Zealand children are likely to be compromised unless there is a substantial effort to make the welfare system fit for purpose.


27 The state of having insecure employment or income.

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