Part 2: Background

Ministry of Social Development: Using a case management approach to service delivery.

In this Part, we discuss the context for the Ministry’s Work and Income services covered by our audit, and what the Ministry is trying to achieve. We discuss:

  • the Ministry’s role in labour markets;
  • the labour market context;
  • the most recent government reforms of the welfare system, which the Ministry’s new service delivery model is designed to deliver; and
  • the role of Work and Income within the Ministry.

Many developed countries have active labour market policies. Economists disagree about their effectiveness, broadly based on whether they think there is a role for government in the economy or whether they think economic markets are self-regulating. In New Zealand, the Government’s recent welfare reforms set clear expectations for the Ministry on active labour market policy.

We set out the labour market context in this Part because it is relevant to how successful the Ministry’s work-focused case management approach can be. The intended effect of work-focused case management is to reduce long-term benefit dependency by increasing labour market participation. High participation rates are desirable, but benefit dependency can still exist if the number of jobs available does not rise. This means the Ministry might have less opportunity to reduce the number of people receiving a benefit unless there are other structural changes to the labour market that increase the demand for workers.

The Ministry’s role in labour markets

Labour market economics is complex. The Ministry is just one of many government and private sector organisations with influence.

The Ministry can influence labour markets by increasing supply and matching supply and demand. It does this in a number of ways:

  • The Ministry increases the supply of people ready for employment by increasing the numbers of people ready for employment. This might not always add to the gross number of jobs available, but it could give employers confidence to expand their business if they are more confident that they will have a steady stream of suitable employees.
  • The Ministry improves the capacity of individuals, particularly those at risk of long-term benefit dependence. This does not necessarily lead to increases in overall employment rates, but it enables people to compete more equitably.
  • The Ministry co-ordinates, by matching labour supply (capacity and numbers) to labour demand (opportunities).

Our audit of case management covers the Ministry’s services that influence the supply side of the labour market.

The labour market context

Figure 1 shows that, in June 2004, the labour force participation rate of working-age adults was 66.2%. This is calculated by adding the employment rate (those who are working) and the unemployment rate (those who are not working, but who are ready and available for work). By June 2014, the participation rate had risen to 68.5%.

Figure 1
Labour force participation rates, June 2004 to June 2014

Figure 1 Labour force participation rates, June 2004 to June 2014 .

Source: Statistics New Zealand

Note: These figures differ from those in Appendix 2 because Statistics New Zealand and the Organisation for Economic Co-operation and Development (OECD) present the data on working-age adults differently. Statistics New Zealand reports the usually resident, non-institutionalised, civilian population of New Zealand aged 15 and over. The OECD aggregates the figures for 15-64 year-olds, and then reports separate figures for over 65-year-olds. This is because the participating countries do not have a standard retirement age.

Figure 1 also shows the effect of the economic downturn. Although the overall participation rate has remained between about 68% and 70% since 2006, the unemployment rate increased from 4.4% in March 2009 to 7.1% in March 2012. We briefly discuss the Ministry’s service response to this in paragraph 3.8. By June 2014, the unemployment rate had fallen to 5.4%.

New Zealand has high levels of labour force participation compared to other OECD countries. Appendix 2 shows the participation rates for OECD countries for 2013.

Previous efforts to raise employment levels in New Zealand mainly focused on getting people claiming an unemployment benefit into work. Although that focus should lead to positive changes in the balance between employed and unemployed people, it does not increase participation rates. This is because many people are not actively seeking work and do not claim an unemployment benefit.

Working-age people might not actively seek work for several reasons, including:

  • they have an illness or disability that prevents them from working;
  • they stay at home to raise children;
  • they have an independent income – for example, a pension from early retirement;
  • they are studying; or
  • they are working, but for “cash in hand”.

Although people in these categories might not claim an unemployment benefit, it is likely that many might claim other social welfare benefits, allowances, or subsidies.

Key fact
1.1 million working-age people are not registered as unemployed, but are not available for work. This is almost one-third of the working-age population

Appendix 3 shows our analysis of changes to the labour market for the period between June 2004 and June 2014. During this period, the working-age population grew by 434,300. The number of people participating in the labour market also increased by 370,200.

There are significantly more people not participating in the labour market than there are claiming unemployment benefits. Between June 2004 and June 2014, the number of people not available for work increased by almost 64,100 to just more than 1.1 million. This represents almost a third of the working-age population. Comparatively, 132,000 people claimed an unemployment benefit in June 2014.

Welfare reforms from 2011 to 2013

The welfare reforms are an important context for our audit, because welfare payments total about $8 billion each year. The most recent actuarial valuation (the valuation) of the welfare system in 2013 estimated that the total future liability6 was $76.5 billion.7

In seeking to reduce future welfare liabilities, the Government focused its most recent reforms and policy on people not participating in the labour market. In a Cabinet paper, the Government said that it aimed to:

fundamentally shift the welfare system to one that encourages independence and personal responsibility, primarily through paid employment, and which contributes to better social and economic results for individuals, families and the country. They deliver the policy levers we (the Government) will need to support the investment approach and to achieve the reductions in long-term dependency we are seeking.
Key facts
Total welfare payments each year – $8 billion.
Future liability of the welfare system – $76.5 billion.

The welfare reforms were implemented in three main stages:

  • In August 2012, support for young people changed. The emphasis was changed to encourage young people back into education and training to reduce the likelihood of them needing a benefit.
  • Changes in October 2012 focused on people who had not traditionally been a target for employment support. They included sole parents and also widows and other women alone.
  • In July 2013, the biggest changes took place. This included:
    • “collapsing” all the previous main benefits into three new categories;
    • extending work-focused interventions to a wider range of people; and
    • introducing additional obligations for some people to meet to be paid a benefit.

In February 2014, the Ministry introduced “Work Ability” assessment tools to support the case management approach. The policy intent is to support people with health conditions, injuries, or a disability so they can participate in the labour market. In other OECD countries, introducing similar assessments has been contentious, and implementation of the New Zealand scheme has progressed slowly.

The assessments focus on the kinds of work people can do, rather than what they cannot do. Clients guide the process by completing a self-assessment. At the time of our audit, few work ability assessments were complete, but trials involving specialist case management were being carried out.

There are three new main benefit categories and obligations:

  • Jobseeker Support. A benefit for people who are looking for employment. Full-time work obligations generally apply for people with no children or people whose youngest child is aged 14 years or older. Part-time work or work preparation obligations can apply for people with a reduced ability to work.
  • Sole Parent Support. A benefit for sole parents whose youngest child is younger than 14 years. Work preparation obligations apply where their youngest child is under five years old. Part-time work obligations apply where their youngest child is aged between five and 14 years.
  • Supported Living Payment. A benefit for people with limited, or no, ability to work because of serious illness, injury, or disability. This benefit is also available to full-time carers (not partners or spouses) who are looking after people who would otherwise need hospital (or equivalent) care. Work obligations do not apply.

The investment approach referred to in paragraph 1.14 is used in the insurance industry. The Ministry told us that its application to a social welfare system is thought to be a world first.

In the New Zealand welfare setting, the investment approach:

  • predicts the likely long-term benefit costs of a person based on what has happened in the past to other people with similar backgrounds and circumstances;
  • works out what interventions and services work best, and for whom, based on results for others;
  • uses that information to set priorities for investment in (and disinvestment from) services; and
  • directs those services towards those people most amenable8 to achieving a positive change, thereby reducing long-term costs.

Also, external actuaries carry out an annual valuation of the welfare system’s predicted future costs. This includes economic trends, policy changes, and the financial effect of interventions and services.

The Ministry and the Treasury will be using the annual valuation as evidence to decide whether the approach is working. We discuss valuations further in Part 5.

The role of Work and Income within the Ministry

Work and Income provides financial support and employment-related services to working-age adults throughout New Zealand.9 Some of those services include:

  • helping people to boost their skills and providing other support that increases their work readiness;
  • supporting people in their search for work;
  • assisting people with practical matters that increase their chances of sustaining employment;
  • brokering job placements with employers; and
  • helping people secure childcare.

Work and Income also manages payments to superannuitants, loans and allowances for students, and other benefits to those unable to support themselves fully.

Work and Income delivers its services through a network of more than 160 service centres10 and 2508 staff. This includes the equivalent of 1780 full-time case managers providing services to working-age adults.11 Staffing costs in 2013/14 were $186 million. Contact centres are often the first point of client contact with Work and Income. As well as other activities, the staff in the contact centres can book appointments and deal with changes in clients’ circumstances. Some tasks are processed off-site.

Key facts
Over 160 Work and Income Service Centres.
2508 staff.
Staff costs in 2013/14 – $186 million.

Work and Income’s primary objective for working-age adults is to get people who can work into work, while providing financial assistance for those who cannot work. It also aims to get people involved in the labour market by dealing with the barriers that have led to their non-participation in the workforce. The approach is based on the Ministry’s research into international practice, which indicates that, for most people, working produces favourable results beyond providing an income.

Most working-age adults who need support because they are out of work will have face-to-face contact with a Work and Income case manager. Work and Income books about 1.7 million appointments with people each year. Work and Income is often one of only a few government agencies present in many towns.

In July 2013,12 Work and Income introduced a new service delivery model to support the government’s welfare reform changes.

At the time of our audit, there were (in full-time equivalents) 736 work-focused case managers, 874 general case managers, and 170 work-search support case managers.

Key facts
1780 full-time equivalent case managers:
736 work-focused;
874 general; and
170 work-search support.

General and work-focused case managers:

  • check and process clients’ benefit entitlements and make referrals for other types of support, including childcare and housing; and
  • apply sanctions if clients fail to meet their work, work preparation, or social obligations.13

Work-focused and work-search support case managers also proactively:

  • review clients’ job search progress, give advice, and refer clients to training providers when required; and
  • work with clients to find solutions to matters that are preventing them from working.

Work-search support case managers also deliver seminars and provide other training to groups of job seekers.

Work and Income’s work-focused case management model includes engagement, problem-solving, and supporting clients to be ready for employment. Work-focused case management staff have ongoing relationships with clients. Figure 2 shows the features of the model. We discuss this model in more detail in Part 4.

Figure 2
Work and Income case management model

Figure 2 Work and Income case management model .

Source: Redrawn from a figure provided by the Ministry of Social Development.

6: This “liability” is not included in the financial statements of the Ministry or the Government, because it relates to future costs and does not meet the definition of a liability under generally accepted accounting practice. For the purposes of this report, we use the term future liability.

7: This includes all the future lifetime costs of benefit payments, and associated expenses, for people receiving benefits in the 12 months up to, and including, the effective date of the valuation.

8: In the context of this report, amenability means being open to influence, persuasion, or advice, and being able and willing to act on it.

9: For the purposes of this report, “working-age” adults are aged 16 to 64. However, Work and Income does offer some services to people older than 64 who are still seeking employment. Statistics New Zealand and the OECD use a different definition. Statistics New Zealand defines “working-age” as being all those over 15 years old. The OECD uses 15 to 64 years old.

10: There are also StudyLink outreach centres and contact centres.

11: Excluding housing case managers.

12: Pilot projects were run in some areas from October 2012.

13: Sanctions are reductions in benefits, based on a sliding scale relative to the number of obligation failures.

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