Welfare Reform for Low-wage Worker in New Zealand: Will Working For Families Work?

Abstract

In May 2004 the New Zealand Government announced a number of welfare reforms (the Working for Families reforms) that will account for an increase in welfare expenditure of approximately $1.1 billion per-annum when fully implemented. Two objectives of these reforms are to reduce child poverty and to improve financial incentives for work at low wages. This paper evaluates the effectiveness of these reforms in achieving these objectives. Research is cited that shows that Working for Families should significantly reduce child poverty. This research, however, contains no estimates of the labour market behavioural effects of the reforms. This paper therefore estimates the likely labour market behavioural effects of the reforms and the impact of these effects on poverty reduction effectiveness and targeting efficiency. The improvement in financial incentives for work facing sole parents will be likely to improve the poverty reduction effectiveness of the reforms. The increase in disincentive facing secondary earners will be likely to encourage partnered families to reduce their hours of work and market incomes. These responses will be likely to improve the targeting efficiency of the reforms but at a cost of increasing the excess burden of the welfare system.