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To minimise human and social costs and to have a better chance of success, early intervention is preferable, before people enter the welfare system. Early intervention includes ensuring people stay in good and appropriate work or in worthwhile education or training. As the OECD's Jobs Strategy notes, the best way of promoting an inclusive labour market is by addressing problems before they arise (OECD, 2018a).

Early intervention reduces the loss of income, disruption, the loss of productivity and worsening of health conditions that can result from long periods on benefit. Early intervention is also more likely to be effective, since the longer a person is out of education, training or employment, the more difficult it is to support them back to these pathways.

"I love their [MSD's] in work support line. Been there since 2016 and it could really have helped me when I unfortunately had to go back on a benefit. I didn’t know about it till a month ago. It has been invaluable and makes me feel worthwhile and not a bludger."

The best opportunities for preventative interventions lie outside the formal welfare system. These interventions include effective education (so young people leave school with skills and a plan), early health support for emerging conditions (regardless of cause), and prompt support for workers at risk of displacement. This is why we recommend a wider active labour market approach, with MSD as a key stakeholder in the labour market 'ecosystem'. MSD is not, and cannot be, responsible for all the interventions that influence labour market outcomes. Many of those interventions – especially education and training, and health care – are led by other agencies. But MSD needs to partner closely with those agencies to reduce the flow of people into the benefit system and to ensure high-quality and sustainable outcomes for people leaving the system.

Access to affordable and suitable housing – while not a labour market intervention in itself – is a critical precondition for a person to find and remain in work. Affordable transport between home and work is also crucial.

For working-age parents, especially sole parents, access to affordable, good quality childcare is also a prerequisite for participation in education, training or work. The welfare system provides some financial assistance to those on lower incomes to access childcare, but cost and lack of services are still barriers to many mothers’ participation in education, training or work (Ministry for Women, 2018). Overseas estimates indicate that childcare subsidies and expanded early childhood education supply increase maternal employment by 7–14% (Mitchell et al, 2008). Effects are larger for low-income groups and those disadvantaged in the labour market (OECD, 2011).

The education and training system is a particularly critical interface for welfare. Education and training provide people with the skills to be more attractive to employers and to participate effectively in the labour market. Poor school outcomes and gaps in the support to transition often lead to young people not connecting with employment or tertiary education and increase the likelihood of their entering the welfare system. Increasing functional literacy (including digital and technological literacy) would create many advantages for not just the individual and their family but the employer and the economy.

The government provides a broad range of free or highly subsidised education and training services, especially for young people, and, overall, New Zealand has a good-quality state education system. However, compared with other OECD countries, New Zealand also 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). Those with no school qualifications are likely to spend considerably more time on benefit than those who achieve at least National Certificate of Educational Achievement (NCEA) Level 3. For example, work-ready job seekers in the benefit system who have not attained NCEA Level 1 at school are estimated to have more than twice the expected future years on main benefits than those with NCEA Level 3 or Level 4 – half of this impact is directly attributable to education (Taylor Fry, 2017). This highlights the importance of improving secondary education outcomes and having better school-to-work transition programmes. We are encouraged in this regard by many of the recommendations of Tomorrow’s Schools Independent Taskforce (2018), especially its focus on achieving better outcomes for those students currently being failed by the school system (Tomorrow’s Schools Independent Taskforce, 2018).

Given the young age structure of the Māori and Pacific populations, there are significant demographic dividends to be gained for the nation, as well as individuals, from improving outcomes for young Māori and Pacific People. A much greater commitment to long-term, high value education and training programmes for people on benefit is required. Again, this is an example of expenditure that is not only beneficial for the individuals directly concerned but is also important economically as part of moving New Zealand to a high-wage, high-skill and highly productive economy.

We recognise the, appropriately, major emphasis across government and within MSD on young people, especially those Not in Employment, Education or Training (NEETs). However, youth employment initiatives are uncoordinated, scattered across many agencies and patchy throughout the country. Although major resources are allocated to this area, we heard numerous examples of initiatives not achieving desired results. Over 11% of young people (15–24 years) are NEET, and this figure has remained more or less constant for many years (Statistics New Zealand, 2018). We heard mixed views on MSD’s Youth Service and supports provided to recipients of Youth Payment and Young Parent Payment. The contracted service providers should become advocates and support people for Youth Service clients and not have conflicting ‘gate-keeper’ and sanctioning aspects in their role. Youth Service clients should have direct access to MSD for income support, just like any other person on benefit. We are also persuaded by the recent review of compulsory income management in the Youth Service system that this aspect of it serves no useful purpose and should be discontinued (Humpage, 2018).

Rebuilding a core employment service

Achieving better employment outcomes will not be easy, especially for those people facing many disadvantages. The thrust of our recommendations is to rebuild the core employment service functions and ALMPs within MSD that have been allowed to weaken over many years and to place greater emphasis on early intervention, provision of specialist employment support, and ongoing pastoral and mentoring support where needed.

From our consultation, especially with those who have been working for some time in the welfare system, we found that a weakening of labour market policy and delivery occurred following the 1998 merger of the Employment Service of the Department of Labour with the Income Support Service of the Department of Social Welfare to form the one-stop Work and Income New Zealand (WINZ) and, subsequently, the Ministry of Social Development. We have been told that, over time, the public employment service function became the poor cousin of the income support role. MSD no longer has a specialist employment support profession, and the existing work-broker role has become too 'employer-facing', providing recruitment services for employers rather than the best quality placement for jobseekers. Case managers perform both employment and income support roles. These are very different activities that call for different skills and knowledge. The merging of functions is also reflected in MSD’s leadership arrangements, in that no senior leader is solely responsible for employment outcomes. Instead, responsibility for the entire service delivery function (including MSD's other services apart from Work and Income) lies with the Deputy Chief Executive for Service Delivery. We do not wish to lose the advantages of the 'one-stop-shop' model, but we do want to see a specialist employment case management service, with strong leadership restored within MSD.

In reality, the income support function has crowded out the employment function. This is due to the understandable priority of ensuring income and housing support, in an environment of stretched departmental resources and a lack of government-level commitment to public employment services and programmes. MSD's analysis shows that, while staff numbers have been falling, demand for income support services (such as Hardship Grants) has risen rapidly (reflecting inadequate payment levels). Administration of Hardship Grants and Supplementary Assistance now comprises over 40% of total case management time, making it the single greatest demand on case managers' time. The result is a substantial decrease in the amount of time able to be devoted to employment support. In June 2014, employment-focused case managers engaged proactively with 50% of their clients every month to support them into employment. This has fallen to an all-time low of 19%, and, over the past year, has continued to drop by an average of one percentage point per month.

During consultation, we heard that accessing financial assistance to support the transition into work (Transition to Work Grant) was difficult. There was no ability to complete this online. To access the assistance, those who have moved off benefit into work are required to attend a face-to-face meeting with a case manager, usually requiring time off work. Such assistance needs to be more accessible, to support sustaining work in the early days.

Other aspects of the current system are not working for either employers or potential workers (being benefit recipients from within the benefit system). Employers complain that MSD often offers them a large number of unsuitable candidates for positions and note that they would much rather have workers who are genuinely interested in their positions. MSD clients complain that their employment aspirations are often ignored,
and, in recent years, there has been too little focus on efficient job matching. MSD staff and their union (the Public Service Association) told us that MSD key performance indicators emphasise moving a client off the benefit rather than ensuring a skilled and motivated client is placed into a good job. This is also leading to poor employment outcomes and people returning to welfare support.

Furthermore, New Zealand’s spending on ALMPs is far below the level needed to provide the bridge between benefit and paid work that many people need. ALMPs comprise:

  • services that improve the matching of people to jobs (that is, job brokering)
  • training, skill development and work readiness programmes
  • job subsidy and job creation programmes.

ALMPs need to be carefully evaluated because some are more effective than others, and some are more appropriate for different labour market conditions or different groups.

New Zealand is among the countries with the lowest spending on ALMPs in the OECD, and this spending has been falling for a long time. Figure 5 shows the fall in employment assistance spending administered by MSD. Employment assistance is a broader category than ALMPs.

Figure 6, produced by the OECD, shows a steady decline in New Zealand’s active labour market spending over 25 years, reflecting a lack of commitment to investment in support for using ALMPs to provide better pathways out of unemployment (OECD, 2018b).

Figure 5: Total expenditure on discrete employment assistance interventions (millions), 2010/11 – 2016/17 financial years

A line chart shows yearly expenditure from 2010 to 2017 on discrete employment assistance interventions, measured in millions.

Values are in millions of dollars, expressed as nominal values (not CPI adjusted).
Source: (de Boer & Ku, 2019).

Text alternative for figure 5

A line chart shows yearly expenditure from 2010 to 2017 on discrete employment assistance interventions, measured in millions.


Figure 6: Active labour market spending in New Zealand, 1991–2014

A line chart shows yearly market spending in New Zealand from 1991 to 2014, with public expenditure as a percentage of gross domestic product. The chart also shows participant stocks as a percentage of the labour force from 2002 to 2014.

Source: OECD/Eurostat Labour Market Programme Database ( link))
Note: GDP = Gross domestic product. Data covers categories 2 to 7 of active labour market measures and does not include data on public employment services and administration.

Text alternative for figure 6

A line chart shows yearly market spending in New Zealand from 1991 to 2014, with public expenditure as a percentage of gross domestic product. The chart also shows participant stocks as a percentage of the labour force from 2002 to 2014.


ALMPs should support people at risk of poor labour market outcomes such as unemployment, recurrent periods on welfare support or being trapped in low-paid work. They should also support the growing number of people likely to lose their jobs due to rapid technological change and climate change. People in these circumstances will often, but not always, be receiving income support from the welfare system. Both the OECD and International Labour Organization stress the importance of effective ALMPs to support disadvantaged workers (Avila, 2018; OECD, 2018b).

Support for displaced workers is particularly weak. Compared with OECD best practice, New Zealand has an inadequate system of dealing with job loss, redundancies and labour market shocks (OECD, 2017). Redundancy pay is not required by law, the stand-down provisions between work and benefit entitlement see many workers and families plunged into poverty. In addition, eligibility for income support is based on family income, and workers may be ineligible for income support following job loss and redundancy if they have employed partners. This means a household can find itself losing more than half its income due to one partner losing their job but having no income support available through the benefit system. For many low-wage families, two incomes are required to get by and cover rent and other living costs. To alleviate this problem, the Welfare Expert Advisory Group recommends that workers made redundant or who lose their jobs should be entitled to welfare support for 6 months without regard to their partner's income (up to some cap, so that, for example, the first $48,000 of a partner’s income is disregarded)[46]. This would help families affected by redundancy where they have no (or too little) redundancy entitlement.

The OECD and others highlight the need for active labour market programmes at the time of redundancy or job loss to ensure the smoothest possible transition to new employment (OECD, 2017). This can be achieved through better income support and ALMPs such as retraining. Some of the best practice ALMPs come from countries that operate a social insurance model of unemployment support with strong and entrenched social partnership employment relations. Although we do not recommend changing our social welfare system to a social insurance model, New Zealand can learn much from the ALMP component of such models.

We are also struck by the poor coherence across government active labour market, labour market, employment and training policies. There is little joining up of the work of MSD, MBIE, Tertiary Education Commission, Careers New Zealand, polytechnics and industry training organisations, and regional development and local government strategies. The responsibility for labour market policy and analysis is with MBIE, which also runs a handful of small ALMPs, but there is little alignment between the ALMPs of MBIE and MSD. This must be rectified as a first step.

The point was made to us in many consultations that labour markets are regional (or even local), but the statistics, analysis and development of programmes are mostly undertaken nationally. Many labour market statistics are produced nationally; their usefulness at a local level was often questioned. Greater flexibility in the system would enable ALMPs to respond to regional or local needs.

Relatedly, the current 'remote location policy' that restricts people from moving to, or being granted a benefit if they live in, rural locations considered to have limited employment opportunities needs review. We heard it limits the opportunities for regional economic growth and development because a pool of labour is not available in these areas to enable businesses to establish, expand and grow. This policy also affects people being able to return to their communities of origin at times when they need support, and it can fragment families and rural communities.

Finally, the current lack of government or community job creation programmes was mentioned in some consultations. Participants pointed to the old Project Employment Programme as being a major contributor to personal wellbeing at the time, as well as teaching skills, keeping a work ethic intact, undertaking socially useful work and being a pathway to a permanent job in the labour market. Participants commented on the pride they still feel in having rebuilt a wharenui or constructed a Department of Conservation track.

Some forms of government and community sector employment programmes need to be restored and modernised. Internationally, use is growing of 'social enterprises' that bring together business, social, employment, cultural and environmental goals (Blundell, 2017). We note that the Department of Internal Affairs [47] provides some support for social enterprise. This needs to become part of the overall active labour market ecosystem.

While we are critical of the lack of a coherent active labour market policy, we are heartened by changes we saw during our review, including:

  • the He Poutama Rangatahi [48] and Mana in Mahi [49] programmes, with emphasis on young Māori and combining work, training, mentoring and pastoral care
  • work being developed in MSD, including the new ALMP focus of the Auckland region of MSD and new ALMP strategies being developed in the Industry Partnership section of MSD
  • city, district and regional councils undertaking their own labour market analysis and developing labour market strategies, many in combination with their regional growth strategies
  • the work of Auckland Council’s Southern Initiative using council procurement policies to ensure positive labour market outcomes.

An effective employment service

Our view of what an effective employment service would look like is fundamentally different from the current approach that focuses principally on the 'on-benefit' phase, seeks to deter entry on to benefit and to encourage exits irrespective of the outcome. Our approach starts before that and continues after it. The welfare system employment support needs to include:

  • partnering with other stakeholders, to support people who have been displaced from work or who are at risk of becoming unemployed or entering the welfare system
  • supporting people in the welfare system to enter good jobs using a variety of retraining and other ALMPs
  • supporting people through mentoring and coaching after they have moved into work, to help them maintain employment.

This model is illustrated in figure 7.

Figure 7: Effective employment service support model

At risk  On a main benefit  In work, education or training  
Welfare system partners with other government agencies, employers, unions and other stakeholders to support people at risk of entering the benefit system to remain in work. Welfare system supports people into suitable employment, education and training. Welfare system provides ongoing post-placement and training support in conjunction with the employer.

Within this framework, we consider a more effective employment service would:

  • be proactive (for example, early engagement with active, agile and timely services) with a focus on those most at risk of poor employment outcomes
  • focus on long-term employment outcomes (good and appropriate work matched to a person’s aptitudes and interests) with pastoral and mentoring support where needed
  • be led by a dedicated deputy chief executive at MSD
  • be client-focused and personalised (for example, work expectations linked to wellbeing and family needs)
  • involve expert employment case management
  • increase substantially expenditure on a portfolio of evidence-based ALMPs and services informed by all relevant outcomes data
  • be driven by local labour market conditions and informed by local labour market data
  • be well placed for a future labour market in which more people might transition more often in and out of work and the need is greater to support workers to re-skill or up-skill (for example, due to displacement or to move out of casual work)
  • be embedded in a coordinated government-business-union social partner approach to active labour market policy that aims to keep people in employment or in relevant and effective education and training
  • involve local government, iwi, and employer and union social partners, as well as central government, in the design and implementation of ALMPs to ensure they relate to local and regional labour market conditions
  • be attractive – a service that all New Zealanders needing employment support feel welcomed by and are happy to engage with.

The focus of the service should be on supporting people into good and sustainable work that matches their aptitudes and interests.

"There is a need for increased focus by MSD and Work and Income on employment assistance, training, and the acquisition of new skills to respond to the changing world of work."


46 Refer to the detailed eligibility recommendations in chapter 7, Achieving security requires adequate income.
47 Refer to link).
48 Refer to link).
49 Refer to link).

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