Waikato Law Review
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That a recipient of unemployment benefit must be unemployed might be thought to be one of the most self-evident of truisms. Equally as obvious is the proposition that an unemployed person should not be discouraged from taking on work and becoming less dependent on welfare. However an analysis of New Zealand social security law, highlighting the treatment of those engaged in part-time and casual work, reveals that unemployment benefit not only inhibits participation in the workforce and fails to provide income support for those on the margins between work and unemployment, but also fails to treat those people on the margins consistently, honestly and equitably.
In this article I shall argue that, while it is possible to improve the situation by tinkering, the system has been so overtaken by economic and social restructuring, and is so entangled in its own exceptions and inconsistencies, that the only comprehensive solution to these difficulties is to abolish unemployment benefit in its present form. I am not suggesting that we adopt the ideas of Adam Smith and leave the fate of the unemployed to charity; nor am I putting forward a millennial manifesto proclaiming that tomorrow will bring a return to full employment. Rather, what I am suggesting is that the benefit provision for the unemployed, which frequently excludes the under-employed and those with marginal, atypical or peripheral work,[1] should be replaced by a form of income support with eligibility criteria more consistent with its policy objectives, and, ultimately, one which transcends the false dichotomy between work and unemployment. Of the alternatives identified, the one with least problems appears to be a guaranteed basic income system.
Historically (even though the workhouse regime was left behind in Britain) one of the objectives of state intervention was to ensure that those receiving unemployment benefit were not idle but were instead earning their keep through participation in public works schemes.[2] Thus the idea of working while being in receipt of unemployment benefit is not new. What is paradoxical is that now a recipient of unemployment benefit who attempts to avoid idleness while unemployed puts in jeopardy his or her continued support from the state. This is especially paradoxical if
the fundamental objective of income support is to provide individuals with the capacity to participate adequately as members of their family or community.[3]
In New Zealand an unemployment benefit is not (as in some countries) a guaranteed insurance-based compensation for lost employment, but a conditional income-tested benefit to keep the recipient from poverty. The conditions which must be met are that the recipient is unemployed, capable of undertaking and willing to undertake suitable work, has taken reasonable steps to find such work, and has resided continuously in New Zealand for at least twelve months at some point.[4] Excluded from unemployment benefit is anyone who qualifies for New Zealand superannuation, who is a full-time student, or who is not employed because of a strike by himself or herself or by other members of his or her trade union at the same place of work.[5] Applicants who are 55 years or over and do not qualify for New Zealand superannuation are eligible for benefit on less rigorous conditions.[6] The benefit of a recipient who has an income, or whose spouse has an income, is reduced or “abated” in proportion to that income.[7]
Although the first statutory requirement for eligibility for an unemployment benefit in New Zealand is that the applicant is unemployed, no definition of “unemployed” is provided in the Social Security Act 1964.[8] No doubt, in many cases, it will be obvious whether an applicant is unemployed or not. In practice, however, a number of situations have emerged where it is unclear whether the applicant is “unemployed”, particularly when he or she might be described as self-employed in some way. The applicant may be occupied, for example, carrying out maintenance on his or her own property, keeping an eye on the neighbour's children, engaged in a (potentially) remunerative hobby such as painting or beekeeping, or doing voluntary work. Others may be engaged in a consultancy or an enterprise (such as freelance book-keeping, running a smallholding or taking in “homestay” guests should any appear), but through (in some cases, seasonal) lack of business or clients may not be actively occupied or bringing in an income from this undertaking.
A certain amount of case law, arising out of such situations, has been built up both by the administrative tribunal which was set up to hear appeals under the Act, the Social Security Appeal Authority, and, less commonly, by the courts. Unfortunately, “unemployed” has not been interpreted clearly and consistently in the case law. However, two main approaches to the “unemployed” criterion can be discerned in the cases: a formalist approach which concentrates on whether the applicant is occupied; and a purposive approach focusing on whether he or she has an income as a consequence of such occupation.
The formalist position is that the mere fact that an applicant is working, either for someone else or as self-employed, is sufficient in itself to disentitle him or her:
One of the first conditions of entitlement to an unemployment benefit is that the applicant or beneficiary is unemployed. This condition takes no account of the level of remuneration for employment, it simply indicates that if an applicant is employed there will be no entitlement to an unemployment benefit.[9]
This interpretation has been applied even where the applicant has been merely “helping out” as a stop-gap measure.[10] Nor does an applicant qualify as unemployed, even for periods when that person is not actually working or when pay is not received, if he or she remains under a continuing full-time contract of employment.[11] Furthermore, where the applicant is doing the kind of work for another person for which payment might normally be expected to be made, even though no contract exists and no direct payment is made, he or she does not qualify as unemployed.[12] However, surprisingly, the Appeal Authority has also held in a case involving a man who undertook casual decorating work, bringing in a total of $3779 gross, that “[h]e was not employed in the formal sense”.[13]
This formalist approach has been applied to the self-employed, despite added complications arising out of the nature of self-employment:
As far as an employee is concerned, the hours worked are the paid hours - work is the time paid for by employers. But it is often difficult to decide if what a self-employed person is doing can count as “work”. In addition to the hours when they are paid for services or are directly performing the functions of their trade or profession, they may also have to allocate time to activities such as seeking business, record keeping, maintaining equipment or even merely holding themselves available for business. Some self-employed people such as authors or artists need “thinking time” which can appropriately be combined with domestic or “non-work” activities for example, gardening or household chores.[14]
A lack of customers or a paucity of work does not of itself convert a self-employed person to the status of unemployed.[15] Similarly, if an applicant is engaged in business, there is no eligibility whether or not the business is making a profit or a loss:
The question of whether the business was operating at a profit is not relevant to the question whether the appellant can be regarded as unemployed for the purposes of section 58. Unprofitability may entitle an applicant to an emergency unemployment benefit but it does not entitle an applicant to an unemployment benefit pursuant to section 58.[16]
An attempt has been made to distinguish applicants who are self-employed from those who are merely starting out in self-employment. Again, the cases are not consistent, though most have held the applicant to be not unemployed. Where a business was fairly new and experiencing a seasonal downturn, it was suggested that “the appellant had to make a choice between retaining his business and providing for his needs as best he could, or disposing (or suspending the operation) of his business and seeking other employment”.[17] Where an applicant agreed to purchase a business but the purchase was not concluded for a further six months, he was declared not to be unemployed during that six months because he was occupied in operating the business and responsible for rent and other outgoings.[18] However, some cases, according to the Appeal Authority, do involve
a determination whether ... the appellant was in fact self employed or whether he was in the process of becoming self employed. The process of becoming self employed might more accurately be described as taking reasonable steps to obtain suitable work within the meaning of s 58(1) Social Security Act 1964 and may be a useful distinction between employment and unemployment.[19]
An Enterprise Allowance may be granted by the New Zealand Employment Service to assist with the establishment of a business, but a condition of the Enterprise Allowance agreement prohibits the recipient from also claiming an unemployment benefit.[20] It has been suggested in one case that the period immediately before an Enterprise Allowance is granted should be treated as one of unemployment, even where “a considerable amount of work on the business idea” is expended by way of preparation (though eligibility for unemployment benefit during this period may depend on the beneficiary's openness to alternative offers of work).[21]
Thus, there is a line of decisions (not always consistent in itself) in which the Appeal Authority has taken a formalist line which looks only to the beneficiary's involvement in, or commitment to, an occupation and disregards the level of income derived from that occupation.
There has been a move away from the formalist approach by both the judiciary and the Appeal Authority. For example, Doogue J has held, in a case of criminal prosecution for failing to declare partial employment, that the accused was reasonable in assuming that work or employment which was unpaid was not included as work to be entered on a benefit renewal form.[22] The Social Security Appeal Authority itself in one case, having referred to a dictionary definition of “unemployed” as “temporarily out of work”, went on to consider what is meant by “work”:
In the context of the Social Security Act 1964 it seems to us that the “work” must be of such a nature that it carries rewards sufficient to provide a basic standard of living. Even so, of course, there is still room for considerable argument concerning what is and what is not a basic standard of living.[23]
In a series of cases, the Social Security Appeal Authority has departed to a remarkable degree from the literal wording of the statute in order to enable appellants to satisfy the “unemployed” criterion. It distinguishes
work which is capable of providing (and does in fact in some form or other provide) an income and work which is performed as an alternative to sitting idle and which is not capable of providing (or does not in fact provide in some form or other) income.[24]
According to this formulation, particularly the clauses in parentheses, the test is an income test not an employment test. Then in the same case the Appeal Authority turned to the definition of “full employment” in section 3 of the Act for assistance in defining “unemployed” and, flying in the face of the laws of logic (and precedent!), restricted “employment” to what would be full employment if done for 30 hours per week or if done full time for a contract. Having improperly restricted “employment” in this way, it was easy to find the appellant “unemployed”. In a second case decided the same day the test shifted to whether the business which the appellant had set up was or would ever be viable.[25]
In an earlier departure from the formalist way of treating the “unemployed” test, the Appeal Authority noted:
The Commission took the view that the appellant (and his wife) were employed because they were fully engaged - indeed for ten hours per day seven days a week - in work on their farmlet. We feel however that their actions in this regard are clearly open to the construction that they were engaged in a desperate effort to make ends meet and that they should not be penalised because they chose to work around the farmlet rather than do nothing.[26]
Yet in the same case the Appeal Authority agreed that unemployment benefit is not
to effectively be a means of financing a business by providing a measure of income maintenance during a period when the business is not returning a profit.
This latter approach applies also where a person is self-employed in an occupation with seasonal patterns: the business (unless it is only recently established) is expected to generate adequate revenue during the productive periods of the year to meet seasonal contingencies.[27] On the other hand, an employee who loses paid employment as a result of a seasonal downturn in that type of employment is entitled to an unemployment benefit if the other eligibility requirements are satisfied, but not if he or she leaves before the seasonal work has ceased.[28]
If a self-employed person can obtain only intermittent work, particularly during the establishment stages of a business, it may be possible either to average income over the period of receipt of benefit or to separate weeks of work from weeks during which no work is done, and for unemployment benefit to be granted for only the weeks of no work:
Intermittent self employment poses a particular problem for those in receipt of unemployment benefit and those administering the Social Security Act 1964 because it does not fit neatly into any of the provisions of the legislation. This is particularly so when the income which results from the self employment is low and often barely sufficient to cover associated expenses. In the past when we have been faced with this difficulty we have looked to s 64 of the Act to lengthen the period over which income can be averaged out and we have taken an income based approach to whether an overpayment should be established.[29]
The Social Security Appeal Authority has recently held that the Director-General has an option in a case where a beneficiary worked only one week:
[of] averaging the appellant's income over four weeks in order to establish an overpayment for that period or, as occurred in this case, simply establishing an overpayment on the basis that the appellant was not entitled to unemployment benefit for one week. The results are different in that the overpayment established by the former method is lower than that established by the latter.[30]
Thus a growing number of cases eschew the strict wording of section 58 of the Social Security Act 1964, ignoring the requirement that the beneficiary be “unemployed” at all times to qualify for benefit. A further such concession is that, as a matter of Departmental policy, voluntary community work is disregarded, if the other conditions for benefit entitlement are met.[31]
Even the Social Security Act itself is not consistent. By fixing an income threshold above which an unemployment beneficiary's benefit rate abates, Parliament has allowed beneficiaries to receive income (currently, up to $50 per week) apart from the benefit itself, while in receipt of a full benefit.[32] This was doubtless intended to cover unearned income such as bank interest, but that distinction between earned and unearned is no longer maintained by the Income Support Service.[33]
The contradiction within the statute is compounded by the provisions under which only those on unemployment benefit who are working for less than eight hours per week can be brought into the Community Task Force scheme. These provisions clearly envisage the possibility of other unemployment beneficiaries having employment of over eight hours per week.[34]
There are therefore several problems with the use of the “unemployed” test as a criterion of eligibility for unemployment benefit. It is applied inconsistently - often it seems capriciously - and is open to potential abuse by Income Support Service officials. Consequently and additionally, applicants for benefit cannot predict what work, if any, will be disregarded. It has two other far-reaching effects: it runs counter to public policy insofar as it acts as a disincentive to self-help for those in receipt of benefit;[35] and, secondly, for many in marginal work, it prevents unemployment benefit from operating as income support.
The most obvious way to attempt to solve a least some of the problems resulting from the inconsistent use of the term “unemployed” in the case law is to define the term more precisely. This aspect of eligibility for unemployment benefit is more tightly regulated in United Kingdom (UK) social security law and that approach might be of assistance comparatively. Without defining “unemployed” directly, the UK system has, through legislation and regulations, narrowed its scope by identifying its parameters and has specified those situations where people who might be thought of as unemployed count as employed and vice versa.
Section 25 of the Social Security Contributions and Benefits Act 1992 (which in this area is merely a consolidation of previous legislation) entitles an otherwise qualified person to unemployment benefit “in respect of any day of unemployment which forms part of a period of interruption of employment” after the first three days of an interruption of employment. A person is excluded from unemployment benefit if he or she is in gainful employment (including self-employment).[36] The test for whether employment is gainful is whether the claimant had the hope, desire or intention of obtaining remuneration or deriving profit from it.[37] “Day of unemployment” is not defined in the statute nor specifically in the Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983.[38] But “period of interruption of employment” is defined as any two days of unemployment, whether consecutive or not, within a period of six consecutive days.[39]
A preliminary point of significance is that generally only those who have made sufficient National Insurance contributions as employed earners are eligible for unemployment benefit in the UK.[40] The consequent exclusion of the self-employed from the scheme means that many of the marginal cases, such as those involving the intermittently self-employed considered in New Zealand, do not arise.
Eligibility is further restricted in scope by very complex rules excluding certain workless days from counting as days of unemployment. First, Sunday or any other day substituted as a day of rest is not treated as a day of unemployment and must be disregarded in computing any period of consecutive days.[41] Secondly, holidays and days for which the claimant receives compensation arising from the termination of employment are not days of unemployment.[42] Thirdly, those workless days on which a worker who is still under a contract of employment would not be working anyway do not count as days of unemployment.[43] Fourthly, a day is not a day of unemployment if on that day a person does no work but is employed in that week to the full extent normal for him or her.[44]
Conversely, there are situations where an applicant may be working during a day but that day does nevertheless count as one of unemployment. The first example is where a person's shiftwork goes on past midnight: that shift causes only one day to be treated as one of employment (that is, the day in which the greater part of the shift falls).[45] Secondly, a day is treated as one of unemployment if the claimant is working but earning less than £2 per day, and if either the work is not his or her usual main occupation or it is done as a recognised charitable service.[46] In any event, the claimant must remain available for full-time employed earner's employment.
Because the legislation and regulations attempt to specify not only the standard case but the exceptions as well, the test of unemployment in the UK has become a particularly complex one with a correspondingly high number of cases going to appeal. Clearly some of the intricacy arises because the unit for calculation is a day rather than a week. However the general approach could be applied in New Zealand to a weekly calculated entitlement. A week would need to be defined, presumably as any continuous seven day period or as running from a particular day (for example, Monday) to the next such day. Although it may seem rather foolish to increase the administrative complexity of the benefit system, it would be technically possible, it appears, to define more precisely when the “unemployed” requirement is applicable, with a view to reducing the present inconsistencies. Granted that it is feasible to identify the parameters of “unemployment”, the next issue is a policy one of deciding where those parameters are to be set. This is determined in large part by the nature and function of the New Zealand social security system.[47]
Where benefit is viewed as an insurance-provided cushion against a sharp fall in income, as in the UK, attention focuses on the contingent event (such as unemployment, sickness or widowhood) which gives rise to a claim, rather than whether the actual financial circumstances of the claimant reveal need.[48] The event in itself activates a contractual entitlement. Thus, being “unemployed”, as the operative criterion activating benefit payment in a social insurance system, is as precisely defined as practicable.
In contrast, in a benefit system which is a residual or needs-based one, an applicant has to land on the poverty floor before consideration is given to his or her plight. The basis of a claim for income support is actual need, while the contingent event which may have brought about the need is thus correspondingly less significant. It is quite appropriate in such a system for the contingent event to be described fairly loosely since the operative criterion activating benefit payment is not the contingent event but rather the applicant's degree of need.
Ever since the path-breaking Old-Age Pensions Act of 1898, the dominant philosophy in New Zealand has been that only those who fall into a category (such as the unemployed and widows) and are poor (often as a result) qualify for the main benefits. New Zealand's unemployment benefit system is a residual one, partly, it has to be admitted, because the state traditionally tried to obviate the need for the system through intervention in the economy (with the aim of ensuring full employment and an adequate social wage).[49]
The residual nature of the New Zealand system is evidenced by the income-testing of main benefits such as unemployment benefit. It is not sufficient that the applicant be unemployed to trigger an automatic entitlement to benefit; and the joint income of the applicant and his or her spouse must be low, otherwise a benefit abatement regime comes into play in such a way that at a relatively modest family income the entitlement to benefit disappears. Further evidence is provided by the nature of the New Zealand stand down (waiting) periods: a beneficiary has to wait two weeks before benefit is payable, because, it is assumed, no one leaving employment is sufficiently needy as to be without resources to cover that period. There is provision for that stand down period to be reduced if need is shown. The unemployed who have been in employment at a higher income immediately before claiming have to wait up to ten weeks during which time they are to use up their accumulated resources. This is not the sign of an insurance type system under which the insured has a right to cover as soon as the particular event (unemployment) occurs.
The case law discussed earlier adds to the argument that benefits in New Zealand serve a residual rather than an insurance function. In the increasingly numerous cases where the Social Security Appeal Authority has based its decisions on income issues, there seems to be an unarticulated acknowledgement that the function of unemployment benefit is to meet need and that the statutory provisions have to be interpreted so as to allow it to perform that function.
It is my contention that if detailed regulation of the requirement that a beneficiary be unemployed is to be consistent with the New Zealand income support system, it should be worded explicitly to permit the beneficiary to receive benefit unless he or she is both employed and earning a basic standard of living.
A significant part of the objection to the inconsistent use of the term “unemployed” in New Zealand is that the beneficiary is unable to predict what work, if any, can be undertaken without unemployment benefit being lost. A misjudgment by a beneficiary as to what work is permissible can lead to repayment of benefit and even the imposition of a penalty.[50] Beneficiaries would be greatly assisted if they knew in advance what work was permissible. An intriguing alternative to trying to construct an all-encompassing definition of “unemployed” or set of regulations is a contractual approach whereby receipt of benefit would be conditional on the beneficiary entering into an agreement with the Income Support Service to abide by certain conditions in return for benefit. This might well include an agreement that the beneficiary could continue or take some part-time work - for instance, to maintain work skills. Any voluntary work could be included in the contract. This approach would not be alien to the New Zealand system insofar as payment of benefit is already conditional.[51]
A contractual approach underlies the Australian Job Search (for the short-term unemployed) and Newstart (for longer term unemployed) programmes. The Australian scheme allows the Department of Social Security to disregard paid work which would otherwise deprive a period of activity of its character as “unemployment”.[52] However, this discretion has been used conservatively in such a way that the only work which is disregarded is that which does not take up most of the week and is temporary and not highly remunerated.[53]
It would be quite feasible (but very time-consuming) for these conditions to be individually negotiated so that some useful part-time occupation would not disqualify the beneficiary from a (reduced rate) benefit. Staff would need to have guidelines as to the scope of their discretion in such negotiations, and they (or some specialist staff) would need to be trained in negotiation. There would be an advantage in that beneficiaries would have a greater choice available and the system would be more flexible in responding to individual circumstances. The system would be more open and hence any inconsistencies or abuse of departmental discretion would be more readily detected. However it would also be a system with a high degree of administrative discretion, and, to minimise this and maintain consistency, there would be a demand for the compilation of very detailed and no doubt contentious rules, either in the form of regulations or hidden in policy guidelines.
There would thus be little advantage over the detailed regulation of a system like the British one described above. Furthermore, if it were to achieve its present purpose of permitting certain unemployment beneficiaries to negotiate to carry out some employment, then it puts in question the necessity of the “unemployed” condition for receiving unemployment benefit. It is this last realisation which lies behind the next two options, both of which involve doing away with the requirement that a beneficiary must be unemployed.
Neither a more regulatory approach nor even the more individualised approach outlined above has provided a satisfactory solution to the full range of problems linked with the requirement that an applicant for unemployment benefit in the New Zealand system must be “unemployed”. Both would entail extensive exceptions to the requirement. I am not alone in wondering whether the problem may lie in the requirement itself. Towards the end of a recent essay on the Australian system, Tim Field and Michael Sassella identify a number of possibilities for reform including the following:
Perhaps the current “unemployed” requirement could be dispensed with. The nature of payments could then change somewhat from an unemployment payment to an “under-employment” wage supplement depending on the amount of remuneration being received for paid work. ... The Act would probably benefit from relinquishing the concept of “unemployed” in order to permit the Secretary to treat employed people as “unemployed” in certain situations. ... [T]he Act could work with fewer payment types, the emphasis being on provision of assistance to help employable people into employment regardless of the cause of their under-employment or unemployment.[54]
It would be quite feasible to remove the requirement that a beneficiary be unemployed without causing a dramatic increase in applicants. This is because an applicant must satisfy all the eligibility criteria for unemployment benefit, and, as Black, Harrop and Hughes have noted in relation to the “unemployed” criterion,
in most difficult cases the cumulative conditions for eligibility under s 58 will probably rule out entitlement. This is particularly so bearing in mind the requirements that the applicant be capable of undertaking and willing to undertake suitable work and have taken reasonable steps to obtain suitable work. For example, self-employed people who spend a substantial proportion of their time attempting to establish a business may not be regarded as satisfying such requirements.[55]
If greater reliance is to be placed on these other criteria (collectively, “the work test”) because of the removal of the “unemployed” requirement, there should be a rationalisation of these other criteria. They need to be rationalised because two tests have evolved. The first appears in the main unemployment benefit section of the Social Security Act 1964, that is section 58, which requires that the claimant
(b) is capable of undertaking and is willing to undertake suitable work; and
(c) has taken reasonable steps to obtain suitable work.
The second work test is found in section 60J, giving the Director-General power to cancel a benefit if the beneficiary fails or refuses without good reason to undergo work assessment or training or if, where the beneficiary could reasonably be expected to be in full employment, the beneficiary is making insufficient efforts to find full employment (including temporary or seasonal work), has declined two offers or interviews, or has failed to make himself or herself available for suitable employment. Since part of the rationale of removing the “unemployed” requirement is to accommodate those in low paid part-time or casual work, a reworded work test might require recipients of unemployment benefit to seek whatever suitable employment would take their income above a level entitling them to benefit.[56] This could be taken further by requiring the spouse of a recipient to be undertaking an active job search too.
The first point to note about the removal of the “unemployed” criterion of eligibility is that it endorses what is the existing practice for a number of beneficiaries who have been permitted to take on work while in receipt of benefit, and extends the same opportunity to others who either have been disqualified from benefit on the grounds of not being “unemployed” or have kept themselves qualified for benefit by deliberately not taking up peripheral work. There need be no fear that such a reform might appear to encourage beneficiaries to move into the black economy. Although it becomes legitimate to take on work while on benefit, to fail to declare it would remain an offence. While some may not be caught, the more significant contributors to the black economy are, as Hakim points out, those who are otherwise employed and are working for “extra pocket money” on the side.[57] The fiscal cost would be more than matched by the increased activity in the economy.
Any concerns about potential increased black economy participation should be balanced against the fact that more people, previously reliant on benefits for their entire income, would take on (or be forced to take on) temporary, casual or part-time work, payment for which would replace part of their benefit. Not only would this save taxpayer money but it could also reduce welfare dependency. The beneficiary would feel personally responsible for part of his or her income and indeed may be spurred into seeking fuller employment (though only if the abatement scheme were revised in a way which made worthwhile the beneficiary's increased earnings).[58] Cass' research for the Australian Social Security Review indicates that this idea of partial work as a stepping stone to full employment applies particularly to those who take on intermittent or casual work,[59] but it would hold attractions, too, for many in part-time employment.
The present requirement that the beneficiary be unemployed does nothing to further the goal of employment (full-time or otherwise) but may instead inhibit moves back into the workforce by prohibiting the stepping stone of partial employment.
Policy towards the unemployed has failed to address the fact that it is counter-productive to insist on complete inactivity as the price for continued receipt of unemployment benefits. The unemployed need to ‘keep their hand in’ in their trade or profession, to keep in touch with the realities of paid employment, to keep in touch with the social network of colleagues who can inform them of new job opportunities, in order to maintain the interest, motivation and ability to regain paid employment. Restricting social contacts to other unemployed people is far more conducive to creating a culture of welfare dependency than policies which prevent the social isolation of the unemployed. The policy of rigorously enforced inactivity is counter-productive and should be reconsidered.[60]
There may be concern that people already in low paid casual or part-time work might apply for unemployment benefit to supplement their earnings. Since it would be difficult to differentiate equitably between them and those who take on work to supplement their benefit, the additional cost involved would have to be accepted. There seems to be little good reason for denying a right to a basic income security to this particular group who are on the margins of employment and unemployment. On the contrary, income support would assist peripheral workers to remain in employment and would serve the policy objective of relieving or even preventing need. But, given the income tested nature of benefits, and the existence already of family support/guaranteed minimum family income provisions and of (means-tested) supplementary allowances, any increase in numbers of peripheral workers applying for benefits would be small, largely restricted to single people without families. More importantly, if they do so choose they will be faced with the work test requirements of unemployment benefit (and in some cases with the provisions penalising voluntary unemployment).
A difficulty does arise in the case of someone who over a number of years is running a business unprofitably or reinvesting the profits in the business: in such cases an unemployment benefit might be thought of as a subsidy towards the accumulation of capital at the expense of the taxpayer.[61] Again, the check against this is the work test.
That these reforms are not out of the question is demonstrated by the fact that something similar was introduced in Parliament in the Social Welfare (No 2) Bill 1990, but was never enacted.[62] Clause 9 of the Bill replaced the “unemployed” requirement with a requirement that an applicant “is not in full employment”.[63] Consistent with the fact that being unemployed would no longer be a requirement for obtaining the benefit, the relevant benefit came under a generic “Universal Benefit”. Perhaps the name “Job Search Allowance” would be more acceptable. This name is already in use in the New Zealand legislation to signify a benefit paid for 13 weeks to 16 and 17 year olds who have been in employment or training for six months and are seeking employment. The name could be adopted as a replacement for “unemployment benefit”, perhaps with special conditions for 16 and 17 year olds.[64]
I have attempted so far to find ways for the social security system to acknowledge peripheral employment among the “unemployed” and economic need among the peripherally employed. The type of reform outlined above does accommodate these groups within welfare provision and is consequently a very worthwhile change. However, that reform is relatively conservative in that it retains a work test. In the background, there still seems to be a set of assumptions: that full-time work is available, that beneficiaries are to a great extent at fault in not finding it, and that atypical employment is merely a transition to full employment. In fact, it may well be, as McLaughlin discovered in UK studies, that vacancies are usually filled by employed persons transferring jobs and that mainly peripheral or atypical work is left for the unemployed job seeker.[65]
Workforce restructuring over the past decade has seen a relative decline in full-time work and a corresponding increase in atypical work.[66] Further increases in the incidence of atypical work are likely. What the conservative reforms fail to recognise is the validity of atypical or peripheral employment in itself, especially for Mori, Pacific Islanders and women (all of whom, partly because of family structures, are disproportionately engaged in such work), rather than as a step to full employment. The reality of permanent atypical employment as part of a dual labour market has been greeted as a disaster by some workers who want or need to obtain the economic and statutory security of full-time employment, has been welcomed by others as an opportunity to have a more flexible working life, but seems to have little impact on policymakers, a point noted by the recent Prime Ministerial Task Force on Employment:
There was strong consensus that the income support system has not changed sufficiently in response to new patterns of work and participation in the labour market, especially the growing importance of part-time and casual work.[67]
Regulation of unemployment benefit in a way that pushes beneficiaries towards only full-time work is a failure to comprehend the economic and social changes that are taking place. There is simply not enough work available for everyone to have full-time employment; if everyone is to have an income, it cannot be linked exclusively to possession of (or a commitment to obtaining) a “standard” job.
The right to work, the right to a job and the right to an income have been confused for a long time. They cannot be confused any longer. Unemployment benefits and early retirement are an acknowledgement of this fact - but at the same they conceal it. ... Treating unemployment as if it were an accidental, temporary phenomenon and paying benefit as a charity rather than as a right avoids the fact that there cannot be full-time full employment, now or in the future.[68]
It follows that the requirement placed on an unemployed person to be actively seeking full-time work is inappropriate.[69] Already disadvantaged in terms of job security and social security,[70] those in atypical employment should not be continually harassed into seeking additional work and the unemployed should not be discouraged from accepting or creating atypical work. The proposals already outlined separate receipt of unemployment benefit from being totally unemployed. The next, more radical, development would be to separate receipt of unemployment benefit from the work test, leaving need as the main operative eligibility criterion. This would signify an acceptance of the inevitability of under-employment and an endorsement of atypical work.
Such a change comes close to more familiar ideas: negative income tax and the Family Support/Guaranteed Minimum Family Income tax credit systems in force in New Zealand and administered under the aegis of the Inland Revenue Department.[71] An alternative would be a universal (non-targeted) guaranteed basic income scheme under which all citizens receive a standard sum to which they can add income without penalty, which, despite an impact on the market economy, would be preferable insofar as it would be less likely to create poverty traps and a low paid underclass.[72] Although discussion of the relative merits of negative income tax schemes and of basic income proposals is outside the scope of this article, the plight of the atypical worker under the present social security provisions may strengthen the case for revisiting that debate.[73]
The thesis of this article is that income support provision for the unemployed must accommodate those who are not completely unemployed, such as those in peripheral or atypical work. This can be attempted surreptitiously (which is what is occurring in an inconsistent fashion in New Zealand), or it can be attempted by detailing in statute and regulation various rules and exceptions (as in the UK), or it can be attempted by individualised contracts (for which there is a framework in the Australian legislation). None of these is entirely successful. An alternative is to remove altogether the requirement that the beneficiary be unemployed. This would serve the dual function of encouraging people who are totally unemployed to take up atypical employment, and of permitting needy people in peripheral work to receive income support. However, the work test undermines the position of the peripheral worker almost as greatly as does the “unemployed” test. A benefit without either an “unemployed” test or a work test could take two forms: an income tested provision of income support or a universal basic income. Through such a benefit, the New Zealand social security system could simultaneously affirm the value of atypical employment, facilitate participation by the unemployed in society, assist marginalised workers to prevent poverty, and avoid the inconsistency and administrative difficulties experienced under the present scheme.
[*] MA, LLB (Cambridge), LLM (Aberdeen), Senior Lecturer in Law, University of Waikato. I am grateful to Jacquelin Mackinnon and to the Waikato Law Review referee for substantive and structural improvements which they suggested. Since this article was written the Government has announced changes to the benefit system some of which are foreshadowed here: the benefit abatement system is to be recalibrated; dependent spouses are to be subjected to the “work test”; and young and long-term unemployed will receive individualised assistance. The thrust of my argument is unaffected by these changes.
[1] “Atypical” or “peripheral” forms of work - also known as “non-standard” or “marginalised” - include part-time, seasonal, temporary, casual or irregular work and equivalent forms of self-employment.
[2] Unemployment Act 1930. Later in the 1930s when work could not be found for the unemployed, the idea was dropped: Oliver, “Origins and Growth of the Welfare State” in Trlin A D, Social Welfare and New Zealand Society (1977).
[3] Department of Social Welfare, A Social Impact Report on Proposed Reforms of the Social Security Benefit System (1990), reiterating the values identified in the Report of the Royal Commission on Social Security in New Zealand (1972).
[4] Social Security Act 1964, s 58(1).
[5] Ibid. See Employment Contracts Act 1991, s 61, for the definition of “strike”.
[6] The “55+ Benefit”.
[7] Social Security Act 1964, s 59 and Ninth Schedule.
[8] There is, however, a statutory definition of “full employment”, used for other purposes in the Act: Social Security Act 1964, s 3(1), definition of “full employment”.
[9] Social Security Appeal Authority Decision No 108/93, unreported, 3 November 1993.
[10] Social Security Appeal Authority Decision No 116/92, unreported, 6 October 1992 in which a beneficiary, capable of and seeking outside work, was working the family farm, albeit unprofitably. He was held not to be unemployed. Had he found outside work, he would have had to have been replaced on the farm. But this is not consistent with Social Security Appeal Authority Decisions Nos 51/87, unreported, 7 August 1987 and 88/93, unreported, 31 August 1993. In the latter case the appellant “helped out” at his partner's fast food business and admitted that if he had another job he would still work at the business at night. The Appeal Authority noted that he obtained other work from time to time and therefore that he was available for work: he was held to be eligible for unemployment benefit.
[11] Social Security Appeal Authority Decision No 77/85, unreported, 12 December 1985, where a relief teacher was held not to be unemployed during the school holidays between terms. See also Social Security Appeal Authority Decision No 24/92, unreported, 10 March 1992, where the appellant who was contracted on a “commission only” basis to sell real estate was held not to be unemployed even when she had no income. On the other hand a person suspended without pay may be eligible for unemployment benefit, despite a continued contractual relationship with an employer: New Zealand Income Support Service, Main Benefit Manual (1995) 10.1033 and 10.9041.
[12] Social Security Appeal Authority Decision No 144/92, unreported, 18 December 1992, where a woman not related by blood or marriage was housekeeping and child minding for a sole parent family.
[13] Social Security Appeal Authority Decision No 66/92, unreported, 9 July 1992. The earnings were then averaged over the 26 weeks for which benefit was paid in order to calculate whether there was an overpayment.
[14] Boden, R and Corden, A Measuring Low Incomes: Self-Employment and Family Credit (1994).
[15] Social Security Appeal Authority Decision No 11/89, unreported, 31 March 1989.
[16] Social Security Appeal Authority Decision No 36/89, unreported, 1 August 1989. See also Social Security Appeal Authority Decision No 15/94, unreported, 12 April 1994. The Director-General of Social Welfare has discretion under s 61 of the Social Security Act 1964 to grant a (means-tested) emergency unemployment benefit in cases of hardship; it is generally granted when the applicant fulfils all but one of the eligibility criteria for a main benefit.
[17] Social Security Appeal Authority Decision No 24/86, unreported, 17 June 1986. Cf Social Security Appeal Authority Decision No 91/93, unreported, 13 October 1993 where the appellant, who was able to obtain only intermittent work during the establishment stages of his business, was permitted to separate weeks of work from weeks with no work and was disqualified from benefit only for the weeks in which he had work.
[18] Social Security Appeal Authority Decision No 50/95, unreported, 19 June 1995.
[19] Social Security Appeal Authority Decision No 86/95, unreported, 8 August 1995.
[20] Social Security Appeal Authority Decision No 99/93, unreported, 14 October 1993.
[21] Social Security Appeal Authority Decision No 86/95, unreported, 8 August 1995.
[22] Campbell v DSW, unreported, High Court, Hamilton, AP 32/93, 5 April 1993.
[23] Social Security Appeal Authority Decision No 51/87, unreported, 7 August 1987.
[24] Social Security Appeal Authority Decision Nos 39/94, unreported, 31 May 1994 and 14/95, unreported, 13 March 1995. But this is in stark contrast with Social Security Appeal Authority Decision No 62/90, unreported, 21 December 1990, in which the Appeal Authority held that “The appropriate determination is whether an applicant is employed or not for the requisite time not whether a business venture for a self-employed person is capable of sustaining a profit”.
[25] Social Security Appeal Authority Decision No 15/95, unreported, 13 March 1995. The appellant was no doubt assisted in the success of his appeal by the fact that he had been refused an Enterprise Allowance because the business was not viewed as viable and by the fact that his clients were mainly voluntary agencies. Although the business was “open” on weekdays, the custom was minimal.
[26] Social Security Appeal Authority Decision No 51/87, unreported, 7 August 1987. The Appeal Authority noted that the decision was reached on the particular circumstances of the case and was not to be treated as a precedent. A factor may have been that the farmlet was viewed by the Rural Bank as an uneconomic unit and virtually unsaleable.
[27] Social Security Appeal Authority Decision No 4/90, unreported, 29 January 1990.
[28] Social Security Appeal Authority Decision No 150/92, unreported, 18 December 1992. In contrast, the national insurance system in the UK did not cover even the seasonal employee, on the grounds that the off-season was not an unforeseen loss and should have been covered by the seasonal worker's own provision: Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 21 (revoked by SI 1989 No 1324, reg 8).
[29] Social Security Appeal Authority Decision No 91/93, unreported, 13 October 1993. The Social Security Appeal Authority has, on occasion, also sanctioned an alternative approach to intermittent work, which is to treat the issue as predominantly an income one, lengthen the period over which income is to be averaged, and abate unemployment benefit accordingly: eg Social Security Appeal Authority Decision No 65/92, unreported, 9 July 1992. See also Social Security Appeal Authority Decision No 32/90 [1990] NZAR 381.
[30] Social Security Appeal Authority Decision No 22/95, unreported, 30 March 1995. The Appeal Authority directed the Director-General to average out the earnings in this particular case.
[31] New Zealand Income Support Service, Main Benefit Manual (1995) 10.1600. See also Social Security Appeal Authority Decision No 14/87, unreported, 16 March 1987. In 1988 the Australian legislation itself was amended to allow a beneficiary to undertake approved voluntary work and remain eligible for benefit: Social Security Act 1947, s 116A.
[32] Social Security Act 1964, s 59 and Ninth Schedule. In Social Security Appeal Authority Decision No 634, unreported, 17 March 1981, it was held that ss 58 and 59 must be read together. In that case it was noted as working in the appellant's favour that “[t]his is a case where a person has endeavoured to help himself (and incidentally the taxpayer) by endeavouring to earn moneys (sic) to obviate the necessity for receipt by him of the unemployment benefit”.
[33] New Zealand Income Support Service, supra note 31, at 10.1700: “Often a self-employment venture will start in a small way, eg developing a hobby, toy making or casual work. The customer is entitled to earn income and have the benefit rate adjusted where the income is over the exemption”. See also Social Security Appeal Authority Decision No 634, unreported, 17 March 1981, accepting that s 58 must be read together with the income exemption in s 59 and the Ninth Schedule.
[34] Social Security Act 1964, s 60M.
[35] Indeed with respect to the supplementing of benefits, the test discriminates against the unemployed when compared to, say, the recipients of domestic purposes benefits, since the latter do not have to be unemployed. It is quite possible for a domestic purposes beneficiary to be in receipt of wages or to start up a business, such income having the effect of merely abating the benefit and not invalidating it: Social Security Appeal Authority Decision No 24/94, unreported, 12 April 1994, where an Enterprise Allowance was simply treated as income.
[36] Social Security Contributions and Benefits Act 1992, ss 2, 122 and Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 7(1)(g).
[37] CU 30/49. However a person who has the opportunity to earn money from employment (eg on a commission basis) but chooses not to take it, is not unemployed: R(U) 11/60.
[38] SI 1983 No 1598.
[39] Social Security Contributions and Benefits Act 1992, s 57(1)(d). A further period of interruption separated by no more than 8 weeks is treated as part of the same period. “Employment” is defined as including “any trade, business, profession, office or vocation and 'employed' has a corresponding meaning”: s 122(1).
[40] Social Security Contributions and Benefits Act 1992, s 25(2)(a) and Schedule 3 Part I paragraph 1.
[41] Ibid, s 57(1)(e). See also Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 4. This has the odd effect of allowing a beneficiary to have a Sunday job.
[42] Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 7(1)(h) and (d).
[43] Social Security Contributions and Benefits Act 1992, s 57(1)(b). This is known as the “normal idle day” rule. It is qualified in Regulations by a series of detailed exceptions, eg where the employee is indefinitely suspended: Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 19.
[44] Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 7(1)(e). This is known as the “full extent normal rule”. Originally untended to prevent full-time workers from concentrating their working hours into part of the week and claiming for the rest, it does not apply where adverse industrial conditions have affected the period worked.
[45] Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 5.
[46] Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983, reg 7(1)(g).
[47] For New Zealand’s place in the classification of welfare states, see Esping-Andersen, G The Three Worlds of Welfare Capitalism (1990), Castles, F Welfare in Australia and New Zealand (1985) and Davidson, A Two Models of Welfare (1989).
[48] Indeed, a function of the payment of benefit in this type of system is to avoid need arising.
[49] Castles, supra note 47; Mabbett, “Labour Market Policy and New Zealand's Welfare State” in Royal Commission on Social Policy, April Report vol III part 1 (1988); and O'Brien, M and Wilkes, C The Tragedy of the Market (1993). In other areas of social security provision, such as family benefit and national superannuation (both now abolished), the New Zealand system has been more universalist.
[50] Such misjudgments are all the more likely if the rules are complex and arcane, while beneficiaries tend to be poorly educated and alienated from the system by culture or class.
[51] Supra note 4 and infra note 55.
[52] Social Security Act 1991, ss 516 and 595. For discussion, see Carney, T and Hanks, P Social Security in Australia (1994) 175-7.
[53] Re Waller (1985) 8 ALD 26.
[54] Field and Sassella, “The Restructured Economy, Work and the Social Security Challenge” in Disney, J Current Issues in Social Security Law (1994) 48.
[55] Black, J et al Income Support Legislation and Practice (1994) A/909. Other applicants, currently ineligible for unemployment benefit because they do not meet the “unemployed” requirement, would find, if it were removed, that they still do not receive benefit because their income (including of a spouse, if any) is too high. To allow for intermittent work, the standard assessment period for income should be several months.
[56] “Suitable employment” need not be full-time, and might be additional to or a substitute for any existing employment. It should be borne in mind that applying a work test rigorously may necessitate the expansion of government-sponsored work schemes such as the Community Task Force to test willingness to work. For the Community Task Force (sometimes regarded as New Zealand's version of “workfare”), see Social Security Act 1964, s 60M. Some minor alterations to the statutory provision could bring within its provisions those who have been unemployed for less than 26 weeks and those who have part-time employment for more than eight hours per week.
[57] Hakim, “Unemployment, Marginal Work and the Black Economy” in McLaughlin, E Understanding Unemployment (1992).
[58] On the abatement rate, see Prebble, M et al Report of the Change Team on Targeting Social Assistance (1991).
[59] Cass, B Income Support for the Unemployed in Australia: Towards a More Active System (1988) 122.
[60] Hakim, “Unemployment, Marginal Work and the Black Economy” in McLaughlin, E Understanding Unemployment (1992).
[61] For example, Social Security Appeal Authority Decision 15/94, unreported, 12 April 1994, relates to “a fully functioning farm ... albeit one which does not appear to show a taxable or otherwise healthy profit”.
[62] The Bill picked up the recommendations of A Ministerial Task Force on Income Maintenance, Benefit Reform - the Next Steps (1987).
[63] Although the Bill would avoid the payment of benefit as a subsidy to a self-employed person running a full-time business inefficiently, there would still remain some difficulties with a sufficiently clear definition of “not in full employment”. Paying benefit to all those who are not making ends meet but are seeking employment might avoid these difficulties.
[64] Social Security Act 1964, s 60D. In Australia it has since 1991 replaced the unemployment benefit for the first 12 months and it requires that a recipient be unemployed and be complying with an agreement (a “Job Search Activity Agreement”) with the Department of Social Security in respect of efforts to find work: Social Security Act 1991, Part 2.11.
[65] McLaughlin, “Work and Welfare Benefits: Social Security, Employment and Unemployment in the 1990s” 20 J Soc Pol 485, 489.
[66] For the figures in respect of atypical work, and part-time work in particular, see Department of Labour, Half Yearly Employment Survey and Quarterly Survey (1984-95).
[67] Prime Ministerial Task Force on Employment, Proposals for Action (1994).
[68] Gorz, A Paths to Paradise: On the Liberation from Work (1985).
[69] This has been partially recognised by a relaxation of the work test for those over 55 years of age - the “55+ benefit”.
[70] Fevre, “Emerging Alternatives to Full-Time and Permanent Employment” in Brown, P and Scase, R (eds) Poor Work: Disadvantage and the Division of Labour (1991).
[71] Income Tax Act 1994, Subpart D. The other social security benefits, too, would be replaced under these proposals.
[72] See Jordan, B Paupers: the Making of a New Claiming Class (1973), and Dean, “In Search of the Underclass” in Brown and Scase, supra note 70.
[73] See Dilnot, AW et al, The Reform of Social Security (1984); and van Parijs, P (ed) Arguing for Basic Income (1992).
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