Making Work Pay: Social Justice and the renewed welfare state

  • Steve Maharey
Social Development and Employment

Presentation to the Institute of Policy Studies, Victoria University of Wellington.


We live in a world defined by change.

There is greater geographical mobility, both within New Zealand and internationally. The landscape of once familiar communities is changing as we become more cosmopolitan in outlook and practice.

Globalisation brings with it both opportunities and problems.

Many jobs are no longer for life; the economy requires entirely new skills -- predominantly knowledge-driven skills, not just once in a lifetime but many times over. New technology changes the manner in which many people work. Patterns of work and living for both men and women are changing.

To progress and grow, this country and its people must be equipped and capable to be part of the knowledge society that is the hallmark of the early 21st Century.

That means our social security system needs to be revitalised and renewed. It must not only continue to support those in need, but also and most essentially provide people with the opportunity to benefit from the knowledge society.

Having a job that pays when you need it is the surest road I know to social justice. Our welfare state must be focused toward that end for those of working age, whilst ensuring that those who for good reason cannot work get the support they require.

The debate on social welfare should not endlessly rotate around the ¡§more versus less¡¨ argument, but concentrate instead on the renewal of the welfare state to ensure New Zealanders are equipped for and have the capability to prosper in this new century.

Towards that, in our discussion today I would like us to take some time to explore what I see as some of the key linkages in welfare.

How through a refurbished welfare state, one that through investment in housing, health, and education coupled with sound employment and economic policies, can provide the springboard of opportunity for New Zealanders.

My talk will traverse what I see as the renewed relevance of the welfare state in the 21st century, particularly in relation to getting people into paid employment as we confront the challenges of globalisation and of social and economic change.

As a start, I want to confront the critical question of the effect of the welfare state on economic growth in the coming decades.

Critics have argued that the welfare state has been ¡V and will be in the future - one of the major impediments to economic growth. It is argued that in attempting to provide security for individuals and families, the welfare state has restricted or muffled economic growth ¡V and thereby undermined economic security and prosperity.

It is easy in being critical to overlook what the welfare state has achieved. It has avoided much real poverty in this country. It has provided basic income security, health and education systems for our people.

There are gaps, but the key question now is how the welfare state can be used to cope with ongoing social and economic change into the future.

My thesis is that the increasing pace of economic, technological and social change is making the welfare state more rather than less important.

A key argument in support of this proposition is that social and economic change poses a greater number of risks for individuals and our society. The welfare state will be increasingly needed to provide a sense of security in the face of these heightened risks.

Moreover, crucially, this sense of security will enhance rather than hinder the prospects for economic growth.

For example, to successfully compete in the global economy, there will be a greater need to take risks ¡V be these in the form of entrepreneurship or simply investing in workplace skills in a dynamic labour market. The background structures of the welfare state can be a support for this risk-taking, and simultaneously provide the basis of opportunity.

I would not want to argue that the welfare state should resist change. Indeed the opposite. Instead of being snap-frozen in time as some would have it, it is my view that the welfare state must evolve and adapt to meet changing social and economic needs.

For example, increasingly our new economy will require a talented and highly skilled workforce. This places an imperative on the state to support the up-skilling of individuals.


The welfare state of the 1930s was developed to ensure the basic needs of all individuals were met ¡V both through income, as well as the provision of ¡¥in-kind¡¦ support such as education, health or housing.

The rationale for the welfare state was that collectively we could provide basic social necessities such as health, education and housing, as well as insure individuals against adverse circumstances such as family poverty, unemployment, sickness, ill health or old age.

Underpinning the development of the welfare state were notions of collective responsibility and egalitarianism.

In recent decades, the welfare state has become an object of criticism. Importantly, the policy debate has focussed on the welfare state as one of the major barriers to economic growth.

We have seen the reduction in benefit levels(but not benefit expenditure), introduction of student loans, increased user pays in education, and increased targeting of health spending as attempts were made to reduce the costs of the welfare state and/or improve its efficiency.

The central underlying ideas behind these changes would seem to be that:

„h the welfare state was an impediment to economic prosperity; and
„h that social goals were a luxury that our society could ill afford.

Apart from down-playing the importance of social goals, there has been a view that equity and efficiency were always in opposition to each other ¡V and that we were using ¡V in the words of the economist Arthur Okun - a ¡¥leaky bucket¡¦ to transfer resources from the wealthy to the least well off. The leakiness of the bucket, it was argued, involved economic waste and inefficiency in the achievement of social goals.

This approach to the welfare state has also emphasised reducing the extent of Government intervention in a variety of areas. This has been based on:

„h an optimistic view of the efficacy of markets to deliver services such as health, education, insurance; and
„h a pessimistic view of the state¡¦s ability to deliver effective services.

The counter-argument

It is my contention that this criticism of the welfare state is flawed. There are two important reasons.

First, achieving social goals is not only a luxury that already prosperous societies can afford. Instead, achieving social goals is a necessity.

For example, let us look for a moment at some of the key drivers in social policy.

The proportion of the working-aged population on benefit has been around 15% and 18% during the last decade, having risen sharply from around 7% in the mid-1980s. At the end of June this year, we estimate that 17 % of the working age population, or 430,000 individuals, were receiving a benefit, with 10 % having been in receipt of benefits for at least two years continuously.

Maori and Pacific peoples are over-represented amongst those working-aged people receiving a benefit and in the coming decades, increasing numbers of younger Maori and Pacific peoples will show in benefit numbers.

Women are under-represented on some benefits, especially unemployment benefit, but comprise over 90% of the 109,000 domestic purposes benefit recipients at 30 June.

Spending on social assistance will continue to represent a sizeable proportion of government expenditure for the foreseeable future. Estimated expenditure on benefits for people of working age, family tax credits, employment programmes and benefit delivery is currently at around 6 % of GDP. Superannuation payments represent another 5 % GDP.

Current expenditure totals around $5.7 billion on working age benefits and tax credits. In addition DWI spent $350m in 1999/2000 to provide programmes to move people into employment. It also spent $244.6m on the delivery of benefit payments to people of working age.

The general overall growth in the numbers receiving benefits is of concern for a number of reasons:

„h It corresponds with higher numbers of people experiencing economic, family or health difficulties as evidenced by those indicators we look to.

„h It has continued despite the economic growth that took place through the 1990s. A significant proportion of beneficiaries are stuck in a cycle of short-term, low-wage employment, and repeatedly churn back into the benefit system.

„h Anecdotal information tells us the longer a person is on a benefit, the greater the risk of social isolation.

„h And the demands of higher benefit numbers translate into higher government fiscal costs.

Second, achieving social goals, including such aspects as improving education and skills levels, is a precondition for achieving prosperity. Many of the services delivered by the modern welfare state are as much about supporting our economic goals as they are about achieving social goals.

I think these points are clearly illustrated by looking at unemployment.

Equity goals require that we attempt to ensure that all individuals who have the capacity to work do so ¡V to gain the income, esteem and social contact provided by employment.

However, we are not just interested in reducing unemployment because we think it is unfair. There is a crucial economic issue involved as unemployment imposes enormous costs on our society.

Calculations by the Ministry of Social Policy indicate that unemployment of a level of 6% of the labour force lowers GDP by about 3-5%. In other words, if we could eliminate long-term unemployment, the economy would expand, and much of the increased prosperity would be captured by those who are currently most disadvantaged.

It is interesting to think about the nature of these economic and social costs.

There are costs associated with the opportunity costs of not working and gaining skills.

There are also costs associated with the fiscal costs of the unemployment benefit and active employment programmes.

Lastly, there are a variety of difficult to estimate social and economic costs. There is an increasing acknowledgement that unemployment has a negative impact on health, criminal victimisation, educational failure and suicide. Many of these effects are intergenerational ¡V meaning that children of unemployed parents are less likely to reach their potential.

Returning to my main point, the criticism of the economic inefficiency of the welfare state is flawed because it downplays the importance of equity and social cohesion, but also because it fails to acknowledge the important economic benefits of addressing the pressing social issues of our time.

To see this more clearly, imagine a world without a strong and effective welfare state. We would see:

„h significant levels of material deprivation and poverty, especially amongst children

„h significant sectors of the community receiving inadequate levels of education

„h higher levels of sickness and poorer levels of health in the community

„h higher levels of criminal victimisation.

Such outcomes are of course socially distasteful and inequitable. However, it easy to see that they also impose a large economic burden on the country.

Economic growth is severely restricted where children are too hungry to learn, where poor health forces individuals from the labour market.

In other words, I believe that an effective welfare state that takes into account these wider inter-linked social concerns can not only deliver a fairer society, but also provide the preconditions of economic prosperity.

The welfare state in modern times

The pressures of globalisation and social change present two important challenges for the welfare state:

„h the economy is increasingly demanding new skills and knowledge ¡V along with ¡¥work¡¦ itself being redefined and jobs no longer lasting for a lifetime; and

„h the existence of groups of individuals who are not included in wider society because of poverty, unemployment, literacy, educational failure, ill health, criminal victimisation, discrimination, and social isolation.

The key question is how we respond to these challenges. It is my view that there are three important principles that should frame our response.

First, the welfare state needs to focus on enabling and developing the skills and capabilities of individuals to meet the challenges of the global economy. This means focusing on children and the environment in which they grow up - schools, tertiary education providers, and the apprenticeship system.

Second, the welfare state needs to focus on opportunity creation.

Third, we must continue throughout to ensure that we provide an appropriate level of security for individuals who suffer the adverse circumstances of unemployment, sickness, health or childhood poverty. Social security is an important underpinning to enable individuals to meet the challenges of the global economy.

Much of this can be summed up within the idea of ¡¥social investment¡¦. Social investment means pro-actively addressing social concerns. We no longer want to wait passively at the bottom of the cliff. We want to actively tackle the causes of poor social and economic outcomes.

We can do this because research provides us with increasing knowledge and evaluation of how best to tackle the causes of future problems.

For example, we know that children affected by poverty is an important cause of poor social and economic outcomes in the future. Addressing child poverty will mean healthier individuals, better educational success, less crime, and more employment.

Another example is the role of literacy, skills and education. We are increasingly aware of the central importance of skills and education for good social and economic outcomes.

On that note, and I will come back again to this area, you may have seen recently that the 1997 adult literacy survey found that approximately one million adult New Zealanders had literacy levels below that needed to cope effectively with life.

We as a government are currently working on how to remove the obstacles to adult literacy being addressed. It will require strategic vision, funding and overcoming the fragmented nature of the literacy sector.

My colleague associate Education Minister Lianne Dalziel announced a start, with an extra $2 million going into adult literacy next year, of which $760,000 would focus on Maori and Pacific literary programmes and on initiatives for people for whom English is a second language.

New ways of organising the modern welfare state

I have argued that change and globalisation is defining a new and increasingly important role for the welfare state.

The changes provide new opportunities for how we organise it and directions in which the welfare state must evolve. For instance:

„h utilising new technology to deliver services in a more effective an equitable manner. E-government and the potential of internet technology provides enormous opportunities and challenges in this regard;

„h designing cross sectoral solutions ¡V e.g. tackling child poverty as a means of solving health issues;

„h supporting stronger communities for the shaping and local co-ordination of the delivery of services;

„h greater community say in the design and delivery of policy and services;

„h public debate and discussion about social policy.

The future direction for social assistance within the Welfare State

I have dealt so far in this presentation with the broader issue of what I see as the inseparability of good social and economic policy.

I would now like to turn in greater detail to more specific areas. In particular where we are heading or I believe we should be heading in terms of social assistance.

Firstly, what do we mean by social assistance?

Social assistance can be defined as all the support through the tax and benefit systems that is aimed at preventing or alleviating poverty, along with a range of assistance, financial or otherwise, that helps people get from benefit to work, or to generally take a more socially productive place in their community.

As earlier indicated, over the last decade or so the political landscape was largely dominated by a concern with economic policy. The mantra of 'individual success and personal responsibility' saw some people grow very rich indeed, while many stood still or went backwards.

The language of the day suggested 'level playing fields' ¡V where everyone was supposed to start with the same opportunities and the outcome was up to the individual. This was fine in theory, except that it didn¡¦t work because too many were left behind or left out.

Unemployment, poor literacy, ill health and criminal offending dragged us back from achieving our full potential as people and as a nation.

When a third of children leave school with less than the 6th form certificate, that is not only a personal loss for those young people, but is also a huge waste of public investment.

When a sizeable proportion of the adult population has poor literacy skills, we all lose out.

When roughly 1.2 million people ¡V a third of the working age population -- individually experience unemployment within a decade, that is appalling social and economic waste.

And improving social outcomes is especially important for those groups who disproportionately make up the indices of disadvantage, such as sections of Maori and Pacific people.

Relative to the rest of the New Zealand, the Maori and Pacific people populations are growing at a faster rate and have a younger profile, bringing an added urgency to efforts to address their particular needs if we are to have a cohesive and prosperous society into the future.

It is our stated policy to tackle inequality across the board; our goals are inclusive of all New Zealanders. That is why we have raised the level of super for our older people, why we have acted on state house rentals, and why we¡¦ve poured money into low decile schools and into the health system.

But we have also been clear that those policies and programmes can be adapted to the needs of different communities.

It is government, through the public sector, which defines the limits and objectives of the welfare state.

In the 1930¡¦s, the first Labour Government began the development of the comprehensive modern welfare state.

Along with substantial investment in public housing, in education and in health, its central achievement was the Social Security Act of 1938 which set out a new system which described the categories of people who were entitled to benefits (for example widows, orphans, the sick) and significantly enlarged it to embrace universal health and superannuation schemes.

Thirty years on, the first comprehensive inquiry into social security since the passage of the Social Security Act was undertaken. The Royal Commission of Inquiry into Social Security in New Zealand reported in 1972 and was followed by a rise in benefit levels, the introduction of the Domestic Purposes Benefit and later National Superannuation.

In looking at the level of state support, the Commission saw the need to be guided by a person¡¦s right ¡§to belong and participate¡¨ in the community.

The Commission reported:

¡§Our social security system is not something apart from the mainstream of national life, any more than the people who benefit from it are people apart from the community at large.

A social security system cannot be put on or off as the weather or the mood changes. It grows with the nation and must develop with the nation.¡¨

Since then, successive governments have changed and adapted the welfare system, buffeted along the way by the winds of change and circumstance. At times for beneficiaries, those winds had the destructive power and feeling of a Wellington southerly blast.

There has been more questioning of direction and purpose of welfare, particularly as unemployment escalated, along with numbers on the DPB, and the overall cost of social security burgeoned.

In this 21st century the Labour/Alliance Government is beginning a fresh approach, one as I have said which proactively invests in opportunity.

It means lifting the capacity of people to participate, to provide opportunity, and by doing so, ensuring they have the capability to get on with their lives and make their individual positive contribution to the economic and social well-being of this country.

Five Inter-linked Strands

The model we are working to has five key inter-linked strands which I will briefly outline before going into somewhat greater detail.

First, we are changing social assistance. It is clear the benefit system needs to be simpler and fairer, one that people can understand, is well administered and recognises today¡¦s social, economic and employment realities.

It should support people to gain the new skills they need for the modern internationally competitive economy. In other words, a benefit system that is part of overall economic policy.

Second, we are changing the delivery system. In essence, we want to see decision making about employment assistance taking place out at the local level. The centrally driven model of employment services that has developed over the last few years has failed to recognise the regional nature of labour markets.

Regional managers in the Department of Work and Income are being given much greater authority to decide what will work best for people in their area. Devolution through regionalisation is at the heart of this, as are changes in delivery technology.

Just last week I launched with DWI chief executive Christine Rankin the regional plans for each of DWI¡¦s 13 regions. These plans summarise the alternate employment approaches to be used to get more beneficiaries off benefits and into real jobs and independence.

Third, we are introducing a wide range of policies linked to income support which are designed to help people to take on sustainable paid employment ¡V this is the crucial area of ¡¥making work pay¡¦, finding a better mechanism for those outside the economy to become part of it.

Fourth, we are involving communities. We want communities more involved in social welfare issues, to lead and motivate and to ensure that what we do matches community aspiration.

As the Southern area manager for the Department of Work and Income said recently at the launch of the Dunedin ¡¥Moving South Taskforce

¡§we¡¦re looking at communities taking ownership of the employment ¡V or unemployment ¡V problem and working together towards shared goals.¡¨

Hence initiatives such as the 'Mayors Taskforce for Jobs', working with Maori and Pacific organisations and communities, and developing an agreement with the community and voluntary sector.

Fifth, importantly we are seeking to create a more inclusive society. Our policies aim to promote inclusion, not conflict. Serious inequality has developed in New Zealand with some groups faring worse than others have.

The first of these inter-linked strands is about changing the social assistance system. We are in the first stages of change, but it has been clear for some time there is a need for a simpler and fairer benefit system, one that is comprehensible to the recipients and to the general public. It needs to be well administered and recognise the social, economic and employment realities of today.

There is of course no point in simplification and change for its own sake. Any change must promote better outcomes. It is a complex area and one that has close links with other work underway in such areas as sole parent issues, financial encouragement for people as they move from benefit to paid employment, and issues for sickness and invalids beneficiaries.

The initial change begins with the Social Security Amendment Bill soon to be passed by Parliament.

The underlying premise of the bill is that the social security and employment system should provide opportunity and not to waste precious resources on ineffectual make-work schemes like Community Work.

From 1 July 2001, the community wage is replaced with a separate unemployment benefit and a separate non-work tested sickness benefit. The current work-test is refocused and a revised and simplified sanction regime for work-tested beneficiaries comes into effect.

In summary, the bill promotes broader goals of encouraging people to participate in the economic and social life of their communities through voluntary community activity.

In addition we are changing the delivery system so the centrally driven model of employment services moves out into the regions and takes account of the realities and needs of local labour markets.

The social assistance system should clearly signal a strong focus on participation in paid work, while acknowledging that for some the option of employment may not be viable, because of their health or lack of real opportunities.

Policies designed to lift peoples' capacity to take on sustainable paid employment are being looked into. They may have a need for training or other skill-development programmes to increase employment prospects.

Modern apprenticeships are one such area of difference. It is about encouraging young people to take up and complete work-based mentoring training. It is positioned to link school education and second chance learning programmes.

Equally, the availability and cost of childcare, the nature of financial incentives and the provision of in-work support are all-important factors. We want to see how we can ¡¥make work pay¡¦; review the system to see how we can overcome the barriers to work.

Work underway in this area includes the Exit Management pilot approved in the last Budget round, which aims to trial case management for those taking a job, to support them to apply for and receive in-work assistance to which they are entitled. This should help improve the take up of low-income assistance for newly-employed job seekers, and improve the chances of a job opportunity being viable.

In terms of sole parent families, we believe sole parents should be encouraged to be active in preparing for or engaging in paid employment, but in a manner that is consistent with family responsibilities. The role of specialised case management, post placement support and different forms of employment facilitation will be part of this work.

The lack of access to affordable childcare is one of a number of possible barriers to employment.

In light of international and New Zealand experience, it is proposed to assess how childcare assistance impacts on participation in the labour market and whether current, enhanced or alternative childcare arrangements are the most cost effective means of meeting the Government¡¦s employment goals.

Making Work Pay

The reason we are looking at these areas comes from concerns about how effective the current system is at supporting people into sustainable work.

In particular, there is concern the social assistance system itself may create barriers through the complex interaction of eligibility criteria, benefit abatement ¡V or the amount and speed at which benefit reduces as income increases -- the tax/benefit interface, and in-work support such as child-care assistance.

To put it simply, we want to ensure that those who move from benefit to work are not penalised as they do so.

Policy work in a number of areas ¡V financial encouragement into work, sole parent families, lack of access to affordable childcare, improving opportunities for sickness and invalids beneficiaries, benefit design issues ¡V is all underway.

Overall, our goals are to be able to identify and develop a range of cost-effective options for changes to the social assistance system that will enable people and their families to meet their basic needs, and improve the movement of beneficiaries into sustained paid employment, avoiding the classic ¡¥poverty trap.¡¦

Alongside, they would encourage recipients of social assistance to participate in their community, still recognising that for most the primary focus will be activity through paid and worthwhile work.

We are not the only ones working on these issues. Many other countries are also looking at reforms to provide that right balance of social security and financial encouragement to take up jobs, and to stay in them.

There is evidence that programmes aimed at ¡¥making work pay¡¦ have had some success in both poverty reduction and employment simultaneously. By increasing the financial reward for working, employment has increased along with beneficiary incomes.

Key factors in the success of these programmes internationally have been the size of the incentive, awareness of and clarity about the programme, and the speed at which the receipt of the incentive follows closely on the uptake of work.

What they also illustrate, even the most successful such as the Canadian Self Sufficiency Programme, is that financial incentives alone will not provide a comprehensive solution to moving people into jobs and that they need to be part of a more comprehensive solution.

A comprehensive programme that involves strategies for growing the economy and increasing the supply of sustainable employment, which means strong linkages with industrial development, economic, employment and educational investment.

As an aside, that is at its core the essential rationale for my cluster of portfolios.

Ensuring for instance that learning, training and updating of skills and competence are carried out through life, the reorganisation of tertiary education, and training systems to bridge the gap between school and work such as the exciting Gateway programme.

This is a new initiative that allows senior secondary students to take part in structured work-place learning. It helps schools make learning relevant, and broadens students¡¦ options by offering them traditional and work-place learning.

Twenty-one lower decile schools are participating nationally, with three schools working in partnership in Manakau.

Community Involvement

Many of the changes I have spoken of will not of course succeed unless they involve and have the clear support of the communities, and with recognition that the interconnected nature of social problems requires greater collaboration between government departments. It means joined-up solutions to joined-up problems.

It means looking at how we can give communities greater control over the nature and means of delivery of government services.

In that vein, as part of community policy work, we have underway a working group chaired by Dorothy Wilson, the former deputy Mayor of Waitakere City which has been established to make concrete recommendations on how the relationship between Government and the community and voluntary sector can be improved.

The group has had a number of community consultation meetings and is now formulating a report to government which will itself be subject to consultation with the sector.

In many ways we are witnessing a sea change in the delivery of social services which this Government supports.

People don't want big government any longer. They want to be much more involved designing and delivering tailored solutions to meet their needs and that of their communities with the active support of the Government.

This is a key area of the new welfare state. The old system offered a centralised solution. But that is too clumsy, not nimble enough to adapt and respond to changes and the pace of change in people¡¦s social and economic circumstances.

We want to move past the narrow focus on what is in the contract and develop strong relationships that ensure the provision of effective programmes meeting the real needs of people.

We accept for instance that growing jobs is something that central government cannot do on its own and are prepared to involve other key partners ¡V business, labour and central and local government in job creation.

Horowhenua¡¦s successful One More Worker scheme exemplifies the type of grass-roots employment initiative this Government wants to promote. This local scheme created 126 new positions over a nine-month period, and is now being replicated in other towns and cities.

We are also working with organisations and communities as we seek to close the particular gaps that have developed for sections of disadvantaged Maori and Pacific people.

This means looking at the way mainstream policies and institutions can make a better contribution to their wellbeing, and examining how these communities can be involved in delivering resources and services to their members.

For our actions today are going to determine our future tomorrow. As a nation we will never achieve our full potential if a significant proportion of our people is not included, gets left behind, trapped in poverty, long-term unemployment, poor educational achievement, ill health and rotten housing.


The key point I would like to leave with you today is that technological, social and economic change is requiring us to rethink and renew the role of the welfare state.

It is my view that in these increasingly uncertain times, the welfare state is becoming more and not less relevant; a renewed welfare state is a necessity to meeting the challenges of a global knowledge economy.

The welfare state must adapt and change.

Preoccupation with the balance sheet over the last decade demonstrated conclusively that economic policy alone will not solve social issues.

Only by linking social and economic policy and taking an investment approach, one that allows a more nimble and flexible design and delivery response to changing circumstance, will we ensure that New Zealanders have the opportunities for paid employment and so to benefit from the knowledge society.

It is becoming increasing obvious that our equity and efficiency goals do not stand in opposition to each other.

Ensuring social justice through a renewed welfare state and closely linked social and economic policy is an important foundation for a growing and prosperous New Zealand.