Fix those data pipes first

Dr Eric Crampton
11 May, 2020

Making sense of Wellington Council’s prioritisation of a new convention centre, while the city’s wastewater pipes crumble and streams fill with sewage, is a bit tough. It isn’t how you’d run a household: the new kitchen might take a back seat if the rest of the plumbing is wrecked – and especially if your partner had just been made redundant.

There is a perverse logic to it: fixing pipes is expensive, leaking pipes draw trivial fines, and, most importantly, the pipes are unseen. Nobody notices a lack of upkeep until things get rather bad. Big flashy venues provide ribbon-cutting opportunities while appropriate maintenance of wastewater pipes does not.

But if you thought this was an issue unique to local government, think again. Central Government has an identical problem in its own plumbing. Once again, it’s hard to see all the consequences of those particular pipes’ failures. But they will matter.

As the country heads into what could be the worst economic downturn since the Great Depression, knowing just what is going on will matter for the Government’s policy response. If unemployment rates hit double digits, it would be easy for the Government to conclude a lot of workers are ready to pick up shovels to help with road or rail projects.

But there have already been warnings that this downturn will be different, hitting service industry workers harder than other sectors. Consequently, there could be a pretty substantial mismatch between the skills of unemployed workers and the skills needed for the Government’s projects.

Knowing the state of play could avoid some of those mismatch problems.

But that takes us back to the Government’s plumbing problem. While it is entirely possible to have a far more accurate real-time picture of what is going on, the bureaucratic data pipes are not in particularly good shape.

Right now, the Ministry for Social Development (MSD) produces reasonable monthly indicators of uptake and new claims for the jobseeker benefit. Kiwis assisted through Jobseeker Support jumped from just under 152,000 in March to just over 184,000 in April. Its figures are usefully broken down by region and show the largest year-on-year increase in jobseeker support in Northland and the smallest in the Southern Work and Income Region. But it does not reveal which firms or industries are shedding staff, nor does it show the most recent occupations of newly unemployed workers.

The MSD could improve its data collection and reporting for new Jobseeker Support claims to provide more detail on the new applicants, perhaps with weekly or even daily updates rather than monthly summaries.

But even if MSD provided daily updates of new Jobseeker Support claims, that would still be a lagging indicator of what’s going on out there. People can take a little while to file for Jobseeker Support after being laid off or made redundant – and especially when Work and Income decides that workers taking redundancy payments are not eligible for a while. Even before that, companies may try to avoid job losses through reductions in hours or through wage cuts. Neither of those is visible to MSD. Even the most up-to-date figures would run weeks behind business reality.

More timely data is possible. But it would require unclogging the pipe running from Inland Revenue to Statistics New Zealand.

Income tax in New Zealand is delightfully simple. The Pay As You Earn (PAYE) system has firms submit income tax to IRD on workers’ behalf, rather than the workers themselves.

It has an additional advantage. Inland Revenue is receiving daily updates on the state of the economy. Every day, IRD receives PAYE from companies on behalf of workers across the country. It knows which companies are sending in payments on behalf of which workers. If a worker’s PAYE stub comes in a bit light this week, as compared to last fortnight’s pay, it either means the worker put in fewer hours or took a pay cut.

From that data, it would be simple – at least in principle – to produce daily updates on the state of the economy. How did today’s PAYE earnings compare to the same day in the pay cycle last year? How much worse is it today than it was a month ago? Or a fortnight ago? Daily data would be noisy – Covid-related pressure can make for late filing. But rolling weekly averages could smooth out some of that noise. GST data could be similarly useful.

Jobseeker benefits data is a lagging indicator of the real state of the economy. It’s like sitting out at the Basin Reserve, watching the cricket, and listening to an audio feed that’s two balls behind the play. Payroll data would be more up-to-date. Hopefully the IRD is already providing some of those updates to Cabinet. If it is, it would be very nice if the results were released more broadly.

But it could be even better. Statistics New Zealand (SNZ) maintains the Linked Employer-Employee Dataset (LEED) tying together tax data provided by IRD with company data from SNZ’s “Business Frame.” It uses that data to provide updates on average and median earnings in different industries. Unfortunately, the most recent update to LEED is from December 2018. In a few years, it might show what’s been going on at the industry level during the current pandemic – interesting for academic researchers who are not in a hurry, but useless for current policy purposes.

It surely is not beyond the wit of the boffins, with a bit of encouragement and funding, to fix the pipes so that daily data could make its way from IRD to SNZ for rapid economic updates detailing just what is going on with payroll at the industry level, and possibly even the occupational level, in each city and region.

But like Wellington Council’s neglect of the water pipes revealing itself in the murky streams, central Government’s failure to provide these kinds of statistics reveals a rather long history of prior neglect. It is always somehow more tempting to fund SNZ to take on some absurd new project, like the seemingly-doomed Indicators Aotearoa New Zealand initiative, than to fund an upgrade of back-end systems held together by No.8 wire.

Faulting councils for neglecting unseen pipes speaks to misplaced priorities from dysfunctional funding arrangements and incentive structures. But how can central Government set its own priorities in the coming Budget, and beyond, when its data systems are running several balls behind the play? Perhaps fixing those pipes should be a priority.

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