Regional Labour Market Adjustment and Social Security Benefit Uptake

Abstract

In many countries there is significant hidden unemployment among low-skilled older workers receiving long-term social security benefits. International research has shown that there is an important regional dimension to this phenomenon. Particularly in peripheral regions, the types of jobs that are being created may not offer opportunities for older, less skilled, and less mobile workers. In this paper we analyze the determinants of regional variation in social security benefit uptake in New Zealand by category (viz. unemployment, sickness, invalids and domestic purposes) during the period 1996-2006 using a panel of data drawn from the five-yearly Census o f Population and Dwellings aggregated to functionally-defined local labour market areas (LMAsJ. We find that across LMAs there is geographical clustering in benefit uptake. Ignoring this spatial correlation may lead to erroneous conclusions regarding the role of local conditions in explaining the regional variation in benefit uptake. We also account for spatial and temporal correlations in uptake across different types of benefits. However, there is little evidence of spatial heterogeneity. Hence national regression coefficients are informative for all LMAs. Benefit uptake generally increases with rising unemployment, but the post-2000 economic boom did not offset the secular trend of increasing numbers of invalids and sickness beneficiaries. The uptake of sickness and invalids benefits is greater, but quantitatively similar, in LMAs where the labour force is relatively older. Several other features of LMAs affect benefit uptake also, but their impact varies across benefit types.