A Time Limit for the Dole?

Julian King

Changes to New Zealand’s income support system during the last decade have focused on reducing benefit dependency and curbing growth in government expenditure. New incentives and active assistance have been introduced to encourage greater independence from the benefit system.

One suggestion, from the Business Roundtable, has been a time limit on the Unemployment Benefit, on the basis that it is widely applied in other countries and the present open-ended Unemployment Benefit generates a significant work disincentive effect.

This paper starts with a brief description of recent unemployment trends in New Zealand, before considering overseas experience with time-limited unemployment insurance, which shows a positive impact on job-search behaviour and duration of unemployment. Three time-limit options for New Zealand are presented, along with a description of the role of active assistance in reinforcing a time-limit policy. It is argued that a “hard time limit” is unacceptable, but that a “soft time limit” (whereby the benefit rate is reduced over time) may achieve better work incentives while maintaining an acceptable degree of poverty alleviation.

The paper finishes by identifying key factors that policy makers should think about if a time limit is considered for New Zealand.