COVID-19 Wage Subsidy: Outcome Evaluation - Value for Money

COVID hit us hard
Wage subsidies helped secure
Time in employment

We evaluated the value for money of the COVID-19 Wage Subsidy Support programme (WSS) using cost-benefit analysis from a societal perspective, encompassing the New Zealand economy as a whole. The subsidy was treated as a transfer (from the government into the wider NZ economy) and negative transfers (government money repaid or not spent, i.e.– subsidy repayments and unemployment support avoided) were subtracted from this. As our analysis was done from a societal perspective, transfers were included as both a cost and a benefit, but with a 20% deadweight burden of raising tax revenue added to the cost side. We also included the cost of administering the wage subsidy.

The quantified benefits of the wage subsidy were increased output associated with people remaining in employment, and the value of the wellbeing they experienced from avoiding unemployment. Outcomes were calculated by employment months gained over the short (6 month) and medium (12 month) term. The March 2020 wave had a favourable benefit-to-cost ratio of 1.20 after 6 months and 1.45 after 12 months. The 12-month ratio was 1.14 for the Extension wave, 0.83 for the Resurgence wave, and 1.63 for the March 2021 wave.

We concluded that, overall, the COVID-19 wage subsidy represented value for money. It allowed more workers to remain in employment and more sole traders to remain in business, than was predicted would occur without a wage subsidy. To understand if the effectiveness of the wage subsidy as an intervention remained stable over time, it is recommended an evaluation is done on the August 2021 wage subsidy.

The value for money analysis could only identify direct benefits of the wage subsidy and so was limited to examining microeconomic outcomes. We recommend an investigation is done of fiscal interventions to mitigate the impact of the COVID-19 pandemic on the New Zealand economy, to determine their effectiveness at a macroeconomic level.

Citation

Caroline Fyfe, Maré, D, Taptiklis, P. 2023. “COVID-19 Wage Subsidy: Outcome evaluation - Value for money". Motu Working Paper 23-04. Motu Economic and Public Policy Research. Wellington, New Zealand.

DOI: 10.29310/WP.2023.04