Motu News - June 2017

Jun 30, 2017

From the Director

Adam squareMotu is creating a new group of supporters to build a foundation for our mission of building New Zealand capacity for economic analysis, particularly our internship programme. The Motu Hapū was launched last month with the help of Prof. David J. Teece, Thomas W. Tusher Professor of Global Business at the Hass School of Business at the University of California, Berkeley and a Distinguished Fellow of the New Zealand Association of Economists. As Prof. Teece said in an email to scores of senior Kiwi thought leaders around the world:
"I write to you as someone who I hope shares a love for my native New Zealand, and a belief that economic evidence and analysis are key to sound public policy there (as elsewhere)... Motu’s research is supported by research grants and contracts, but its broader dissemination and capability-building occurs largely through pro bono activities of its researchers, with support from the Motu Research and Education Foundation...We envision the Hapū as a group of prominent economists and policy thinkers committed to supporting and extending Motu’s capability-building activities. I am hoping that you will join me as a member, and agree to support Motu’s annual programme of paid summer internships for Kiwi university students."

The response to David's email has been encouraging, and we look forward to building on this beginning to create a sustainable foundation for our internship programme, which is part of our overall effort to build and sustain New Zealand' economic capabilities. If you would like to make a donation in any amount to support these efforts, we would appreciate it
The launch of the Hapū comes at a bittersweet time for me personally, as I have decided to leave Motu and New Zealand to return to my native Boston, effective with the end of 2017. It has been a fabulous four years as Motu has gone from strength to strength, joining Te Pūnaha Matatini, adding a new Senior Fellow, a new Fellow, new Board members and significantly increasing our presence in the media and public debates. It has been an honour and a privilege for me to be part of this journey. Now, however, it is time for me to hand over the baton to a new Director. The Motu Board has initiated a search for my replacement, with whom I look forward to working as I remain an active member of the Motu community. If you are interested in the position or know anyone who might be able to build on Motu's tradition of excellence, please check out the job description.

Adam Jaffe
Director and Senior Fellow

Workers who lose their jobs are disadvantaged for years

Visual Abstract9Losing a job is well known to be one of the more stressful life events. What is less well-known is the impact of job-loss in the future and whether government benefits provide adequate support. A new study by Dean Hyslop and Wilbur Townsend has shown involuntary job loss found large and lasting negative impacts on workers’ subsequent employment and earnings. Government income support partially counterbalances these impacts, but total incomes of workers who lose their jobs remain substantially lower than those who don’t.
Workers who experienced an involuntary job loss have 20-25 percent lower employment rates the year after. Although employment rates improved gradually, five years later their employment rate remained around 10% lower than comparable workers.

If workers found another job after an involuntary job loss, their earnings were around 25 percent lower in the first year of their new job and still about 15 percent lower after five years. The employment effects for workers who lost their jobs in the global financial crisis was3-4 percentage points worse than for those who became displaced before then.

Government provided benefits partially counterbalanced the impact, but the total incomes of those who experienced an involuntary job loss are still substantially lower. Workers who lost their jobs in the previous year received benefits 6-11 percent more often than comparable workers, and 3-4 percent more often after five years. However, despite such income support, displaced workers’ total individual income was about 30 percent lower than comparable workers during the first year after displacement, and about 20 percent lower after five years. The larger employment impacts for workers displaced during the great recession from 2008, were also counterbalanced by 3-5 percent higher rates of benefit receipt.
Impacts are greater for older workers long-term. So, even though workers under 30 experience a sizeable employment loss in their first-year after losing their job (about 18 percent lower employment rates, and 20% lower earnings if employed), the longer term effects of displacement are negligible. In contrast, on average displaced workers over 50 have about 30 percent lower employment in the first year (and 35% lower earnings if employed), and 11 percent lower employment (and 25% lower earnings if employed)after 5 years.
The analysis uses the Survey of Family Income and Employment (SoFIE) sample of workers over the period 2001–10, which is then matched to administrative employment and earnings data from Statistics New Zealand’s Integrated Data Infrastructure (IDI) covering the period 1999–2015. Displaced workers are those who reported an involuntary job loss associated with being laid off, made redundant or dismissed. The analysis focuses on workers who had been employed for at least one year before their job displacement.
The study “The longer term impacts of job displacement on labour market outcomes” by Dean Hyslop and Wilbur Townsend was funded by the Ministry of Business, Innovation and Employment.

Motu Public Policy Seminar: New Zealand’s net foreign liabilities: what lies beneath, and ahead?

geoff bascand 2Speaker: Geoff Bascand, Deputy Governor and Head of Operations, Reserve Bank of New Zealand
12noon – 1.30pm, Monday 17 July, Royal Society of New Zealand, 11 Turnbull St, Thorndon, Wellington

What we owe the rest of the world - New Zealand's net foreign liabilities - reached nearly 85 percent of GDP in 2009. Just eight years later, New Zealand’s net foreign liabilities now sit just below 60 percent - the lowest level since the late 1980s. This speech will address the factors that have driven this stark improvement in our external account, and ask how sustainable it might be given the Bank’s current economic outlook.

Bio: Geoff Bascand is Deputy Governor and Head of Operations at the Reserve Bank of New Zealand. He has been appointed Head of Financial Stability and Deputy Chief Executive of the Reserve Bank and will take up the role on 27 September. Prior to joining the Bank in 2013, Geoff was Government Statistician and Chief Executive, Statistics New Zealand. He previously worked in senior management roles in the Department of Labour and the New Zealand Treasury, and was a staff economist at the International Monetary Fund.

Motu Public Policy Seminars are sponsored by The New Zealand Treasury and StatsNZ, and are therefore free to the public. No registration is required; you can simply turn up on the day.

Finding a value for sunshine

haiku lowresIt is a truth commonly acknowledged that a house that gets more exposure to sunlight is more attractive, especially in ‘temperate’ climates like New Zealand’s. Until now, however, the value of that sunshine has not been calculated. New research from Motu is the first anywhere in the world to specifically evaluate the value buyers place on the sunshine hours received by different property.
For houses sold in in Wellington between 2008 and 2014, each additional hour of direct sunlight exposure for a house per day, on average across the year, adds 2.4% to a dwelling’s market value. 
Wellington was chosen as the city is small and its local economy and housing market were stable over the study period. Perhaps the most important attribute of Wellington for our analysis, however, is its geographical topography and how it has intensified. It is not difficult to find houses that, while located in the same neighbourhood, have very different exposure to direct sunlight due to the effects of hills, valleys and nearby buildings. The research used REINZ data and allowed for number of bedrooms, total floor area, the decade when the house was built, access to off-street parking and the date of sale. The researchers then used fine-resolution topographical models from Wellington City Council to determine how much sun a given property received throughout each day of the year, assuming a clear sky.

At present the impact of a building that is designed in a way that will shade its neighbour is controlled by often inflexible regulations that specify building parameters. This research is designed to put a value on sunlight, so that the change can be priced, potentially enabling compensation for affected owners and better valuation of development sites.

Example: Developers are considering building a new multi-storey development that will block three hours of direct sunlight exposure per day (on average across the year) to two houses, each valued at $1,000,000. The resulting loss in value to the house owners is in the order of $144,000. Instead of regulating building heights or the site envelope for the new development, the developer could be required to reimburse each house owner $72,000. In return, the developer would be otherwise unrestricted (for sunlight purposes) in the nature of development. If the development cannot bear the $144,000 then the efficient outcome is that the development does not proceed. Conversely, if the development can bear that sum, then the socially optimal outcome is for the development to occur and, from an equity perspective, the neighbours are compensated for their loss of sunlight exposure.

For places other than Wellington, the value of sunshine hours may be higher or lower depending on factors such as climate, topography, city size and incomes. Nevertheless, our approach can be replicated in studies for other cities to help price the value of sunlight in those settings.

The study, Valuing Sunshine by David Fleming, Arthur Grimes, Laurent LeBreton, David C. Maré, and Peter Nunns received funding from funding from New Zealand’s Ministry of Business, Innovation and Employment through the Building Better Homes Towns and Cities National Science Challenge.


High World Ranking for NZ Climate Change Work

Motu is now ranked tenth in the world for climate change work internationally and second for think tanks outside of Europe and North America. Only seven staff from Motu work in the area of climate change economics and policy. However, the standardised ranking of the International Center for Climate Governance (ICCG) has recognised us as world leaders in conducting research and influencing policy.
It’s a real honour to be acknowledged with such a high ranking. We are stoked that the ICCG took into account our performance in conducting high quality research and our role in influencing climate-related and energy policy internationally. Congratulations to Suzi Kerr, Catherine Leining, David Fleming, Levente Timar, Hannah Tuahine, Sally Owen and Edmund Lou. Our thanks also to previous staff members Corey Allen, Judd Ormsby, Anna Robinson, Wilbur Townsend and Leah Murphy; and interns Sandra Cortes-Acosta and Loïc Henry whose work also contributed to this achievement.


New study examines how sunshine affects house values (NZ Herald)

Heads in the sand, houses in the water (Newsroom)

Why does New Zealand keep building such massive houses? (The Spinoff)

The long-term pain of losing a job (Newsrooom)

Brian Fallow: Never mind Trump, NZ climate effort needs work (NZ Herald)

Carbon report: Plant native trees, save cash (NZ Herald)

Freshwater reforms' emissions impact 'minimal' (NZ Herald)

Thinktank Motu puts forward new plan to tackle emissions trading (Stuff)


 "Valuing Sunshine" Working Paper 17-13 by David Fleming, Arthur Grimes, Laurent Lebreton, David C. Maré, Peter Nunns
Sunlight influences people’s real estate decisions, but city intensification may reduce sunlight exposure for neighbouring properties, causing a negative externality. There are hitherto no rigorous estimates of the cost of this externality. Using over 5,000 observations on house sales in Wellington, New Zealand, we derive the willingness to pay for an extra daily hour of sun, on average, across the year. After controlling for locational sorting and other considerations in an hedonic regression, we find that each extra daily hour of sunlight exposure is associated with a 2.4% increase in house sale price. This estimate is robust to a variety of alternative specifications. Our results can be used to price negative externalities caused by new development, so replacing inflexible regulations designed to address impacts of development on neighbours’ sunshine. 

"The Longer Term Impacts of Job Displacement on Labour Market Outcomes" Working Paper 17-12 by Dean Hyslop and Wilbur Townsend.
This paper analyses the longer term impacts of involuntary job loss of workers subsequent employment, earnings, and income support in New Zealand. It uses data from the Survey of Family, Income and Employment (SoFIE) to identify job displacements over the period 2001–10, matched to administrative data from Statistics New Zealand’s Integrated Data Infrastructure (IDI) covering the period 1999–2015, to facilitate at least five years of post-displacement observations. Following Dixon and Maré (2013), our analysis focuses on workers who had been employed for at least one year before their job displacement. Using both regression-adjustment and propensity score matching methods, we estimate that experiencing a job displacement substantially affected workers employment, earnings and income over the following five years. Compared to workers who did not lose their jobs, we estimate their employment rate was 20-25% lower in the year following displacement and, although their employment gradually improved, was still 8-12% lower five years later. Similarly, we estimate displaced workers’ conditional earnings and total income were 25-30% lower in the first year and 13-22% lower five years after being displaced. Such adverse effects are partly counterbalanced by higher levels of welfare benefit receipt and income support: benefit receipt was 6-11% and 3-4% higher after one and five years. We also find that the impacts were stronger for workers displaced from jobs during the great recession from 2008, with about 5% larger short and longer-term effects on employment, which were balanced by 3-5% higher rates of benefit receipt.

"An Effective NZ ETS: Clear Price Signals to Guide Low-Emission Investment" Motu Note #27 by Suzi Kerr, Catherine Leining, Joanna Silver, Phil Brown, Nigel Brunel, Sandra Cortés-Acosta , Stuart Frazer, Adrian Macey, Guy Salmon, and Paul Young
Early in 2016 Motu Economic and Public Policy Research gathered together a group of participants from diverse backgrounds and sectors to engage in a deep dialogue on key issues that affect the New Zealand Emissions Trading Scheme (NZ ETS) in order to generate new insights and strategic options to improve its effectiveness. Backed by a series of four working papers and four meetings in Wellington, dialogue participants came together in March 2017 to discuss an integrated proposal for managing unit supply and prices in the NZ ETS in a way that generates more predictable price signals to guide domestic decarbonisation. This document presents the proposal that emerged from the group’s work.

"Modelling the potential impact of New Zealand's freshwater reforms on land-based Greenhouse Gas emissions" Working Paper 17-10 by Adam Daigneault, Sandy Elliott, Suzie Greenhalgh, Suzi Kerr, Edmund Lou, Leah Murphy, Levente Timar and Sanjay Wadhwa
The National Policy Statement for Freshwater Management (NPS-FM) establishes the need to set and manage water resources within limits. This report is the first national assessment of the indirect impacts of the NPS-FM on New Zealand’s greenhouse gas emissions (GHGs). The water quality improvement aspect of New Zealand’s freshwater reforms are expected to drive significant changes in land and water management across the country. Emissions benefits through the freshwater reforms could potentially result in significant savings for New Zealand by starting the transition to low emissions in the agricultural sector and helping to achieve New Zealand’s overall climate goals. For farmers, changes in land use and management to meet water quality targets will reduce their potential future exposure to needs to reduce GHG emissions. GHG emissions reductions are a combination of reduced emissions through changes in management and de-stocking and increased carbon sequestration associated with planting riparian buffers or afforesting part of the farm. Key results are that without land use change, agricultural GHGs (primarily methane and nitrous oxide) could be reduced by 2.4% or 0.82 million metric tonnes of carbon-dioxide equivalent per annum (MtCO2e/yr) along with an additional 0.11 MtCO2e of forest carbon sequestration as a result of planting riparian buffers and pole planting for erosion control (for a net reduction of 0.92 MtCO2e/yr or 13%). If afforestation is perceived to be a feasible freshwater mitigation option, up to 800 000 ha of additional trees could be planted, thereby increasing carbon sequestration by 5.4 MtCO2-e/yr. In this case gross (net) GHGs could be reduced by 2.9 (8.2) MtCO2e/yr, primarily through reduction in stock numbers and increases in forest carbon sequestration. This option could reduce net emissions by nearly 80%. The majority of the emissions impact occurs in the sheep and beef sector, with a gross (net) reduction of 0.61 (0.72) MtCO2e/yr.  Nitrogen targets most strongly drive on-farm GHG reductions for all the modelled scenarios that limit mitigation to on-farm changes. This is primarily because actions to mitigate N are most closely related to practices that can also mitigate GHGs (e.g. stock management).

"Housing, the ‘Great Income Tax Experiment’, and the intergenerational consequences of the lease" Working Paper 17-09 by Andrew Coleman
This paper provides an analysis of how the New Zealand tax system may be affecting residential property markets. Like most OECD countries, New Zealand does not tax the imputed rent or capital gains from owner-occupied housing. Unlike most OECD countries, since 1989 New Zealand has taxed income placed in retirement savings funds on an income basis, rather than an expenditure basis. The result is likely to be the most distortionary tax policy towards housing in the OECD. Since 1989, these tax distortions have provided incentives that should have lead to significant increases in house prices and the average size of new dwellings, should have reduced owner-occupier rates, and should have led to a worsening of the overseas net asset position. The tax settings are likely to be regressive, and are not intergenerationally neutral, as they impose significant costs on current and future generations of young New Zealanders (and new migrants). Since it does not appear to be politically palatable to tax capital gains or imputed rent, to reduce the distortionary consequences of the tax system on housing markets New Zealand may wish to reconsider how it taxes retirement savings accounts by adopting the standard OECD approach.

"Empirical evidence on mitigation and co-benefit potential on dairy and sheep-beef farms with currently used farm practices" Technical Paper by Edmund Lou
In 2014, the New Zealand government released the National Policy Statement for Freshwater Management, largely aiming at controlling nutrient leaching across the country. What effects will this reform be likely to have on greenhouse gases? This is a technical paper related to Motu Working Paper 17-10: Modelling the potential impact of New Zealand’s freshwater reforms on land-based greenhouse gas emissions. Our results will help to validate nutrient abatement cost curves used in a national model NZFARM.

"Land-use Contaminant Loads and Mitigation Costs" Technical Paper by Adam Daigneault and Sandy Elliot
A great deal of research has been carried out to quantify the processes, transformations and effects of contaminant loss from land to water, as well as to identify strategies to mitigate contaminant losses to freshwater (e.g. Monaghan et al. 2007; McDowell & Nash, 2012; McDowell et al 2014). However, less research has been undertaken to assess the unintended impacts of the NPS-FM on New Zealand’s greenhouse gas emissions (GHG). This is a technical paper related to Motu Working Paper 17-10: Modelling the potential impact of New Zealand’s freshwater reforms on land-based greenhouse gas emissions. The aim of this component of the study was to use the existing catchment model CLUES (Catchment Model for Land use and Environmental Sustainability) (Woods et al. 2006; Semadeni-Davies et al. 2011, 2012) (to assess the loads of contaminants entering streams, summarised by Freshwater Management Unit (FMU). This involved running CLUES for a ‘current’ land use, extracting loads for each land-use by REC subcatchment, and then summarising the results by the larger FMU polygons.

"Freshwater contaminant limit assessment of the regions" Technical Paper by Suzie Greenhalgh and Leah Murphy
This report provides freshwater contaminant limit assessments for the regions for phosphorus, nitrogen, E. coli, and sediment. The assessments will be used for a national modelling exercise using New Zealand Forestry and Agricultural Regional Model (NZFARM) to help estimate impact of the implementation of the National Policy Statement for Freshwater Management (NPS-FM) 2014 on New Zealand’s greenhouse gas emissions. This is a technical paper related to Motu Working Paper 17-10: Modelling the potential impact of New Zealand’s freshwater reforms on land-based greenhouse gas emissions. Information about freshwater management areas (including, where available freshwater management units (FMUs)), priority catchments, relevant mandatory requirements, other practices, and non-regulatory policies that reduce contaminant loads, and limit setting in the regions are covered in the report. This information is used to estimate high and low scenarios for the expected change in levels of phosphorus (P), nitrogen (N), E. coli, and sediment in the freshwater of each region between 2015 and a future date such as 2030. The report also includes information on baseline loads created by NIWA from the CLUES model.