The Covid-19 wage subsidy was a cost effective way to keep workers employed and sole traders from going under, according to Motu Economic and Public Policy Research.
The independent research firm was commissioned by the Ministry of Social Development to assess whether the wage subsidy scheme had achieved its intended outcomes.
Approximately $18.8 billion was paid out to protect more than 1.8 million jobs between March 2020 and December 2021.
Motu only looked at the first four iterations of the wage subsidy, since not enough time had passed to properly assess the impact of the August 2021 wage subsidy.
The March 2020 subsidy was the largest by far, accounting for over 77% of all payments in the first four iterations of the scheme.
It had one of the better cost-to-benefit ratios in Motu’s analysis at 1.45, meaning it had a net benefit of about $5 billion.
The first extension had a ratio of 1.14 ($396m), the resurgence subsidy had a ratio of 0.83 (meaning a net loss of $63m), and the March 2021 wave had a ratio of 1.61 (a $163m benefit).
Motu measured the benefit based on the number of employees and sole traders that received the subsidy and were still around after 12-months.
The subsidised firms were compared to unsubsidised firms that were a similar size, had a similar growth rate, and similar number of employees.
This analysis did not consider macroeconomic effects of the subsidy, making a more conservative estimate of the total benefits of the scheme.
“The wage subsidy provided a fiscal stimulus to the NZ economy as a whole, that reached beyond subsidised firms and their workers. This would have benefited workers and firms that did not receive the wage subsidy as well as those that did,” the paper said.
Not looking at macroeconomic impacts also means the analysis doesn’t attempt to measure whether it had any impact on inflation, which emerged about a year after the scheme ended.
Few zombies
Between late August and early September 2020, the Government offered a Resurgence Wage Subsidy. This one had a negative cost-to-benefit ratio.
Motu said it was because firms that did not receive this subsidy had better employment retention and sole trader survival, even factoring in differences between the two groups.
“Although we find no evidence that it supported non-viable 'zombie' firms, it is possible that the wage subsidy scheme may have supported firms with poorer growth prospects on average, cushioning the impact of lockdowns and the pandemic by keeping afloat firms that were surviving but not thriving,” the paper said.
Wage subsidies were used in many countries but New Zealand had one of the highest take-up rates, with 66% of all jobs estimated to have been supported by it.
A similar programme was run after the Christchurch Earthquakes in the 2010s. Analysis of those payments found they protected jobs in the short term, but had no effect after five months.
In Ireland, a covid subsidy scheme protected about 25% of jobs in the country for a cost of €2.8 billion or €4214 (NZ$7,494) each.
Motu said despite the scale of the wage scheme, it couldn’t prevent negative employment and earnings impacts arising from the pandemic and associated public health measures.
“Nevertheless, it appears to have been effective at offsetting the impacts on subsidised firms and workers, and did not result in widespread adverse consequences,” it wrote.
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