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

Caroline Fyfe (), David Maré and Phoebe Taptiklis ()
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Caroline Fyfe: Motu Economic and Public Policy Research
Phoebe Taptiklis: Motu Economic and Public Policy Research

No 23_04, Working Papers from Motu Economic and Public Policy Research

Abstract: The value for money of the COVID-19 Wage Subsidy Support programme (WSS) was evaluated using cost-benefit analysis from a societal perspective, that encompassed 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 the analysis was undertaken 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. The cost of administering the wage subsidy was also included. 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. 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 whether the effectiveness of the wage subsidy as an intervention remained stable over time, it is recommended that an evaluation be undertaken 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. An investigation of fiscal interventions to mitigate the impact of the COVID-19 pandemic on the New Zealand economy is recommended to determine their effectiveness at a macroeconomic level.

Keywords: COVID-19; Wage subsidy; value for money; employment retention; sole trader survival; cost benefit analysis (search for similar items in EconPapers)
JEL-codes: J08 J20 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2023-08
New Economics Papers: this item is included in nep-inv and nep-lma
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