Carey on Job Subsidies Post author By Karl Whelan Post date July 1, 2009 Sarah Carey has an article in today’s Irish Times which follows up on the discussions on this site about job subsidies. Categories In Fiscal Policy Tags Job Subsidies 16 Comments on Carey on Job Subsidies ← Light at the end of the Tunnel? → Lunn on Public Sector Reform 16 replies on “Carey on Job Subsidies” Underlines the lack of a real debate on unemployment in Ireland. Sure most economists dont like employment “subsidies”. Can we now start debating properly the ones that some economists have suggested? Why don’t the Times do a piece, for example, on the Bell and Blanchflower paper which has been the most constructive contribution to the unemployment debate so far. Or have a look at the work of people like Heckman on educational intervention? Maybe the Times should try writing an article on: (i) Greater use of job sharing rather than job shedding. (ii) Further training for younger workers. (iii) Redeployment of some aspects of the capital programme to more labour intensive low cost per job projects. (iv) Development of a graduate internship scheme where companies and public/voluntary agencies could hire recent graduates cheaply and tax efficently to perform tasks that would not displace existing workers. (v) Greater temporary use of short-term contracts by the public sector. (vi) At least examining the options for what can be done with PRSI. Surely, we are not completely out of ideas as to how to use the tax system to help make it less prohibitive for companies to hire younger and lower paid workers. (vii) Examining what the current arrangements are. For example, precisely how many people are already doing things like job sharing, taking a reduced working week, signing on some weeks and not others and so on. How well do these adjustment mechanisms actually work? (viii) We do not yet have a sense of the extent to which training programmes offer a buffer against such a dramatic collapse in demand but there is more or less consensus that more could be done in a number of areas including ensuring that very young people do not leave training too early and that younger workers can be more incentivise to enter training rather than unemployment. Insufficient attention is given to the fact that older workers with families and mortgages are arguably credit constrained on top of other factors mitigating against success of government training programmes for older workers. (ix) Also, if you look closely at the international debate a lot of this starts early in life. People who have had good early education, good schooling, supportive environments and so on can weather economic storms better than others. This is where we really need to focus some attention. Some of the kids growing up in areas that may now have up to 50 per cent male unemployment need early support all the way from pre-school. In some sense, this is the most important and least debated policy question. How do we avoid a recession leaving a permanent dent on a whole generation of people? Write something about that please – much more interesting than regurgitating a quick rant about a bad policy. Sarah Carey has an article in today’s Irish Times which follows up on the discussions on this site about job subsidies. Lord! Only a Sarah Carey column would decree that a subsidy to SME’s is a sop to the public sector. How so, you may ask? Ms. Carey, alas, leaves the answer to that conundrum to her readers’ imaginations… Liam makes some excellent points here in response to what is a fairly poor Sarah Carey IT article. Even though I happen to agree with Karl on the narrow issue of employment subsidies in this instance, Liam rightly points out that 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?” My second sentence above is a bit botched. When I say “the ones that some economists have suggested”, I am referring to policies rather than subsidies. Certainly both Karl Whelan and Sarah Carey are right to open up to scrutiny any proposal to bring these in and there is no point inferring their wider view on policies directed toward unemployment from this. Karl has already indicated in previous posts that he has sympathy with the view that “shovel-ready” (to use that now annoying sounding phrase) projects should be looked at more. My point above was not to take a pop at an individual journalist. The debate on unemployment is turgid across academia, policymakers and the media. It is the single biggest failure in the intellectual response to the economic downturn in Ireland and anyone professing expertise across these areas should be embarrassed at the lack of a real debate on this topic. @Liam and Stephen Remember that job subsidies are an actual real-life proposal being put forward by the government (with the support of ICTU and IBEC — Begg on 9PM News selling it as I write). In light of this, isn’t it somewhat harsh to criticise a journalist for discussing a government policy proposal on the grounds that she’d be better off to discuss proposals in academic papers you’ve read. That she did so by outlining the position of most economists on it, rather than just repeating government, opposition, union, or business talking points makes it seem all the more harsh. You can complain that journalists should discuss proposals in 100 page academic paper that you like but that is simply not how journalism works. If you pick out one of these proposals (not 9) and aggressively promoted it yourself, you might (might) get them to discuss it. But, for now, journalists will figure they are serving the public better by discussing the actual proposals. As for the proposals themselves, I’m happy to discuss them at greater length some other time. However, some quick responses just to avoid the continued accusation that I’m ignoring them. 1. Job sharing schemes are only likely to work well for a minority of employment and for a minority of potential employees. They also suffer from “lump of labour” thinking that can lead to other suggestions like reduced workweeks. 2. Policies to explicitly promote employing the young would have to be carefully designed so as not to break age discrimination laws. 3. Policies to assist graduates would be a bad priority. Unemployment rates fall with educational qualification. Graduates are more likely to have fall back jobs than those without a leaving cert (yes, they’ll be disappointed doing jobs that are “beneath them” but it’s better than nothing) and graduates are far less likely to get stuck in long-term unemployment. 4. Spending on temporary employment contracts comes under the “stimulus” banner. I’ve written enough about stimulus already for you to know why I don’t recommend this. 5. On public capital spending on labour-intensive projects, I’ve written before that this would be a better job creation approach than job subsidies. But this stuff is easier to cut than popular current spending such as health, education and justice. @EWI I don’t think the policy was described in the article as a sop to the public sector. Sop to the unions, yes, but the unions and the public sector are not the same thing. But you’re on to something. It is funny that the unions are doing all the running on what is a subsidy for businesses. ISME and IBEC must be thrilled that can get this money without even been seen to campaign for it. The day it was announced, I heard that IBEC were giving it a “guarded welcome” — guarded my eye! Karl I repeat that the debate is woeful and this is partly the fault of academics for not bothering to translate some of these 100 page pieces you refer to and partly the fault of journalists for not asking. This blog is helping. Apologies to Sarah Carey if the above sounded like I was having an individual pop. My point was that we are generally not focusing enough on constructive policies and giving too much focus to destroying bad ones. As Obama said during his election, we can do more than one thing at a time. On policies to assist graduates, many graduates are now simply going to go and displace low skilled workers from jobs that the graduates are overqualified for. We should give more consideration to a set of nine-month really low paid internship schemes. Do not dismiss this idea without teasing it through further. There is a strong appetite for this, in my view, among graduates themselves and a number of companies. It would not displace existing workers if conducted correctly and would prevent low skilled workers from being displaced by graduates who should not be applying for very low-skilled jobs if we believe that the Irish economy is going to pick up within the next three years. There are real costs to graduates not going into graduate-level employment that should be factored in. There is now not a graduate labour market. If we believe this to be a new permanent feature of the world then we should simply leave the graduates be. If we believe it to be temporary then we should be thinking of some policies to make sure 15-20 years of educational investment on behalf of the state isnt wasted. Its certainly worth debating bearing in mind of course that non-graduate young unemployment is quantitatively far more significant and has much more potential to become long-term unemployment. I absolutely agree that public capital spending on labour intensive projects is the one that has most support from a lot of literature and Edgar Morgenroth’s piece on the cost-per-job of various programmes is good to bear in mind here. I repeat, why not some media coverage of this? We can’t just say it wouldn’t be popular and stop. In terms of getting a debate going on early childhood intervention to prevent the really bad long-term outcomes of this mess, I will post at a later stage. To be fair, the government established a Ministry for Children during the boom and there has been a lot of work on early childhood in Ireland. Nobody has yet drawn the link between this and recession response and we should do this early rather than wait. Rob – im all for internships but to some extent it is academics job to translate, particularly if they are working on policy-relevant work. Think of the amount of work the development economists do in getting their points across. Again, my first comment was, in retrospect, too geared toward the individual piece and so for the third time I repeat that I wasnt intending to disparage a particular journalist and in general I try hard to steer away from that type of comment. Actually, one thing I have learned from this thread is that a session on the relationship between journalism and academia would be good to do. @Liam: the government have actually done one good thing on early childhood intervention – the one year universal paid preschool scheme to replace the Childcare supplement. The details can be criticised, but it’s a step in the right direction. I thought Sarah Carey’s piece was good, and I don’t agree that the debate is woeful. I think the debate (or lack of it) reflects the constraints we face rather than a nonchalance about the long term implications. Policies that entail spending big money for uncertain effects are not realistic options – if I understand my macroeconomist colleagues correctly. Obama might be able to do more than one thing at a time, but I’m not sure that we can. We are in a situation where the labour market requires significant reallocation from sectors that will never be as strong again at the same time as the world economy crashes; anything that delays or prevents this reallocation is bad. So, for example, to the extent that job-sharing schemes will slow the reallocation of labour from construction etc., I’m against that option (not to mention the lump-of-labour fallacy). It is genuinely hard to think of schemes that would help, say, demand deficiency that won’t hurt long-term reallocation (and/or the fiscal bottom line). Aideen- there has been a number of early childhood initiatives throughout the last ten years as acknowledged in my comment. I agree that a blanket suggestion otherwise would be incorrect and I hope this did not come across from my comment. We dont have any sense yet though of how early childhood policies should react to a downturn. I think this merits more attention than it is getting including the possible reallocation of resources from second and third level to primary and pre-school level if it is not possible to increase spending without reallocation. I will keep restating that we dont have a proper recession debate in Ireland – we have a strong body of commentary on banking and fiscal adjustment but nothing on wider aspects of adjustment. I disagree with very little that you say above about not being able to spend lots more money given the fiscal position and the need for caution about policies that would tie people to sinking ships. But framing all of this in terms only of the possible failures of these policies is one-sided. The current default policy is leading surely toward massive welfare losses. Within the context of the impossibility of sustaining higher budget deficits than already being taken on, we need to ask whether more can be done. If we already agree the answer is no then I am retiring. @Karl It’s pretty clear that Carey considers unions = public sector from the article. Sarah should stick to talking about stuff she knows, I think. Aideen, also with respect to the idea of spending money on policies that have uncertain effects. Sorry to be smart, can you name me any policy undertaken in Ireland in the last 10 years where the evidence-base was sufficiently in line with the implementation to generate certain positive effects? Some experimentation is going to be needed here along with a bit of leadership particularly given that a lot of the evidence base simply doesnt apply to this new situation. This is not an argument for large subsidy type projects but there are many things that could be trialled and then abandoned if not working. Apologies Aedin for misspelling your name above. Oh for an edit function or a well-functioning brain! Liam, couldn’t agree with you more on the lack of an evidence-base for policies in this country. Maybe this is precisely what makes me nervous about the idea of successive trials to be dropped if not supported by evidence. I don’t argue for certainty in outcomes before trying something, but I would argue for, say, a greater than 60% probability of achieving some success. During the good times (should I put that in inverted commas?), I would have been all for experimentation, but the costs of an expensive but unsuccessful policy right now are such that we have to be more cautious. That’s all I’m saying…. I think we have to consider the possiblity that adopting expensive and unsuccessful policies would have even greater welfare losses (through increased taxation) than the default. I think the conclusion of Sarah Carey is correct. But Sarah Carey got lucky this time. Other times she is most unhelpful by writing ill informed rubbish in the foeld of ecoonmics. Liam: You suggested a more meaningful intellectual engagement with the matter (economic downturn) in hand. I agree.. 1. This downturn is very different – explain how and why? Did the temporary Energy Shock have any affect? 2. Tax relief and Tax Breaks – abolish them? They create nothing. 3. We have massive job subsidies already – its called Welfare! 4. Growth and Competitiveness – explain these in the context of the current downturn: the explanations may be very uncomfortable. 5. Ireland or Island response? Agriculture and its external costs on land and water resources. As I mentioned in another post – this economic downturn is a real baddie. You have to shift your thinking into de Bono mode – very outside the box! I have formed the opinion that this is not a ‘cyclical’ recession/depression, but a permanent decline in economic activity. Wavey; up a bit, down a bit more. The ‘downs’ being larger that the ‘ups’. Watch the Nett Exports from the oil/gas exporting countries. These will be your cues. Brian P Comments are closed.