Abstract
In the early 1990s, New Zealand cut benefits and tightened eligibility criteria under its main social welfare programmes. These benefit changes varied substantially across both time and demographic groups. Synthetic panel data are used econometrically to isolate the effects of these reforms on several dimensions of ‘unemployment’ behaviour. A simple theoretical model suggests that cutting benefits could either increase or decrease excess labour supply. Our results indicate that these reforms increased the official unemployment rate by nearly one–quarter of a percentage point, but significantly reduced broader measures of economic inactivity or the under–utilization of labour in the New Zealand economy.
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