The Impact of COVID-19 on Benefit Numbers in an Historic Context

Comparing New Zealand’s current and historic benefit numbers helps contextualise the relative scale and pace of the social and economic impacts of COVID-19.

But drawing such historic comparisons is not an exact science. Changes in the benefit system and policy settings, as well as the wider social context, can affect the comparability of these numbers over time and this needs to be kept in mind, especially for rates observed prior to 1990. Although the forecasts included in this paper are a best estimate, they are subject to significant uncertainty.

Major events have long impacted both benefit numbers and benefit system settings. In 1918, for example, New Zealand introduced an Epidemic Pension to relieve distress arising out of the Spanish influenza pandemic.

The present review focuses on the following major economic downturns in New Zealand’s history:

1. The Depression – 1930s
2. The Wool Bust – mid-1960s
3. The First Oil Shock – mid 1970s
4. The Second Oil Shock – 1979 to early-1980s
5. Black Monday and the restructuring events of the 1980s and early 1990s – 1987-1992
6. The Asian Crises – late 1990s/early 2000s
7. The Global Financial Crises – 2008 and arguably ongoing
8. COVID-19

Key Findings

• The proportion of the working age population aged 18-64 years receiving a main benefit in June 2020 was 11.8%, and is forecast to peak at about 16.2% in January 2021. This compares with peak annualised rates observed in earlier shocks, including the Global Financial Crisis (12.4%), the Asian Crisis (15.8%), and the early 1990’s downturn (16.1%).
• The proportion of the working age population aged 18-64 years receiving an unemployment-related benefit in June 2020 was 4.1% and is expected to peak at about 8.1%. This compares with peak annualised rates of unemployment-related benefits observed in earlier shocks, such as the Global Financial Crisis (2.6%), the Asian crises (6.6%), and the early 90s downturn (7.9%).
• The peak of the Depression, in the early 1930s, occurred prior to the introduction of the Unemployment Benefit in 1938. However, around 6.6% of the working age population were unemployed but recruited into government subsidised work programmes or received a government allowance without participating in these programmes (mostly because sufficient schemes could not be implemented, due to cost). It is important to note that women were not included in these figures and this figure does not take account of the high rates of underemployment (estimated to be about 20.7% of the working age population in 1933).
• It is too soon to say with any certainty what the peak rate of main benefit receipt will be post-COVID-19, but the rate of change in benefit numbers observed in April 2020 (11.7% increase) is unprecedented in modern history. This increase corresponded with the strict Alert Level 4 restrictions and significant reductions in global demand. During this period there was the highest percentage change in main benefit numbers, month-on-month, in the twenty-four years for which monthly benefit data is available, noting that this period includes the GFC and the Asian crisis. This rate slowed significantly in May (1.7% increase) and June (0.4% increase) 2020.
• Changes in benefit receipt rates vary significantly by demographic characteristics, including ethnicity and age. In the current downturn, the percentage increase in unemployment-related benefit receipt was higher for New Zealand Europeans than Māori or Pacific people - likely reflecting how Māori and Pacific people are over-represented in benefit numbers to begin with.