Notes on the Front

The Irish Times can claim it is stimulating debate on important issues. After all, didn’t one of their columnists provoke debate on the ‘generosity’ or otherwise of our social welfare system? And isn’t that same columnist provoking a debate on job subsidies? What I find curious is the mode of provocation: rather than investigation, examination and analysis, we get inaccuracy (to put it mildly), distortion and slipshod analysis dressed-up as commentary.

Sarah Carey’s latest subject? Job subsidies. Certainly, a subject calling for considerable debate, with people across the ideological divide offering legitimate contributions and criticisms. But that’s not our Sarah’s way. She is not interested in the subject per se. She only wants to have a go – and not a very well-targeted go (after all, its easier just to air one’s prejudices). Somehow, an initiative supported by IBEC, ISME, ICTU; an initiative that is being pursued in 14 other EU nations; an initiative that has been operating in countries for years – somehow this has become a sop to public sector unions. Public sector unions? Employment-retention subsidies? The head spins. Best to leave our Sarah to her ways and move on to a world where debate and legitimate disagreements are evidence-based.

David Begg made an effective reply yesterday – with a reference to a helpful analysis in the Financial Times.

‘ . . .government-funded schemes allow companies to introduce subsidised short-time working. Faced with a dip in demand, businesses can send workers home and governments will pick up the large part of the tab for a set period, which in Germany is up to two years. The effects are profound. In Germany, 1.25m were on short-time working in March against 3.45m unemployed. About a third less time is being worked, so authorities reckon that without short-time the unemployment figure would be close to 4m; 200,000 workers were on a similar scheme in France in the first quarter compared with 3.7m unemployed.'

The FT concludes that state-subsidised short-time schemes operated by continental European countries are ‘more effective in the short-term in restraining unemployment’ than private sector initiatives in the US and the UK. However, there is a sting in the tail.  The FT refers to European Central Bank’s findings on employment-retention schemes:

‘If the downturn is short-lived such schemes can be "efficient tools" but "over time, these measures generate a major fiscal burden without creating incentives for investment to foster recovery".

That’s about right. Over time, many things cost – including unemployment.

The EU Council has drawn up an informative summary of the various employment retention schemes operating in the EU, from 14 countries. And that’s the first thing to note: when discussing employment-retention, one is discussing schemes that differ considerably. There is no single fit. Some are well-crafted; some are desperate throws of the dice. Some will work, some won’t. But the Council – in an ‘on the hand, on the other’ analysis – puts forward the following:

‘The rationale for systems of temporary unemployment/reduced working time during a crisis is based on the critical success factor of maintaining employment, which itself is, of course, linked to a range of economic benefits. Indeed, such systems are considered less costly in the long run than making workers redundant, and then re-hiring them after a period of unemployment.’

Hmmm. Economic benefits. Less costly than redundancy and re-employment. That’s worthy of further investigation.

‘Furthermore, firms save the costs involved with redundancies and the subsequent costs of recruitment . . . (and) retain experienced and skilled workers and preserve human capital. If complemented with targeted training . . the measures can bring long-term benefits to both workers and companies, not only in terms of the company driving up its individual skills base, but also in terms of how the company image can be improved, both internally and externally. In addition, such measures assist in the prevention of redundancies, the maintenance of purchasing power, the preservation of functioning plants, and the bolstering of staff morale during economically difficult times.’

These substantial benefits should not be dismissed out of hand. But the EU Council also goes on to state:

‘ . . there is the potential to inadvertently introduce perverse incentives, which may encourage some companies to avail of financial support and assistance, even though they may have no real need to avail of such funding . . whereby financial support for company activities that would have taken place in any case (e.g. training), and may have been funded by the individual employer.’

Deadweight.

‘It should also be considered whether the scheme is being imposed unilaterally on workers or is a result of bilateral agreement.’

Partnership or ‘sit-down-and-shut-up-management’.

‘The most pertinent shortcoming of the reduced working time/temporary unemployment mechanisms is that they may not be able to differentiate between cyclical and structural problems within individual companies. Some companies may find themselves in such a precarious economic position, that receiving support from the State would only prolong the inevitable closure of the company/plant. This point underlines the need for clarification as to whether the problem facing a company is cyclical or structural.’

Postponing the inevitable or saving a viable company.

‘There may also be the potential for increased displacement, which could result in a focus on one single policy issue, thereby deflecting necessary attention from other relevant policy areas where remedy is also required, such as those currently seeking employment.’

Can scarce resources be better employed to the same effect?

It is important that all these are taken on aboard. Indeed, ICTU does just that, by providing a broad range of measure rather than just a reductionist one-size-fits-all proposal imposed on all sectors. The difficulties of designing and implementing programmes should not be used as an excuse to do nothing (a point well madeby WBS over at Cedar Lounge Revolution). Nor should such programmes be seen in isolation. Rather, it should be part of a range of measures to address one of the most important challenges to our economy – unemployment.

Stephen Kinsella of NUI Limerick makes a thoughtful contribution on the nature of this debate:

‘Even though I happen to agree with Karl (Whelan) on the narrow issue of employment subsidies (i.e. very skeptical) . . . there isn’t a dichotomous relationship between ’spend’ and ‘not spend’ on active labour market policies. There is a diverse mix of options which may be explored, effects estimated, and perhaps even enacted. There is a curious rhetoric running through many of the posts about the employment ’subsidy’ issue which seems to make it clear from the outset that whatever is tried will fail, and whatever is mooted is just for short term political gain. Samuelson, in his Principles text (reissue of the first edition, 1997, p. 7), cautions against this: “. . . words may be treacherous because we do not react in a neutral manner to them. Thus a man who approves of a government program to ration housing will call it a program of “social planning,” while an unsympathetic opponent will describe the same activity as “totalitarian bureaucratic regimentation.” Who can object to the former, and who could condone the latter?” ' 

Exactly. One of the main problems we are faced with is that we don’t know what we are debating. Does the government have a concrete programme in mind? What does it look like? How will it be administered? Will it look like any of the programmes surveyed by the EU council?

Karl Whelan has madea number of considered objections to employment-retention subsidies (and to ‘job creation subsidies’ which I am in agreement with). We ignore those objections at our peril. But at all times we must remember that the biggest distortion of our labour markets and the economy is the recession itself. There is no more deadweight than joblessness, no more substitution effect than substituting inactivity for activity, no more social distortion than the massive distortions brought by poverty, low incomes, ghettoisation, alienation.

ICTU has brought forward a compelling programme to address many aspects of growing unemployment – of which employment-retention is one element of a broad and considered mix. That there are disagreements on this or that particular shouldn't blind us to the agreed context, as spelt out by Donagh Brennan. But to my mind, there’s something missing – a next step that waits to be taken. There is a broader narrative to be written that would give new meaning and coherence to the various programmatic initiatives being urged by ICTU, the Labour Party, Sinn Fein and progressives. It is now time (and I will provide further arguments in subsequent posts) to throw down the gauntlet.

The state should become the employer of last resort.