The efficiency of “saving” vs “creating” jobs

Marie Sherlock: As the country goes to the polls tomorrow, Live register figures for the first five months of 2009 are due to be released. The question remains as to whether the stark downward trend in job losses and part time work is beginning to plateau out, whether this is the beginning of the end of the economic crisis or is the live register going to rumble on well past the half a million mark.

Redundancy figures released earlier this week showed that figures for the month of May breached the 8000 mark, yet little can be interpreted from this as qualification for redundancy payment is confined to those working two or more years in the company. Nonetheless, in the absence of up to date QNHS data on sectoral employment levels, the redundancy figures do highlight the concentration of lay offs in what is termed “other services”, running well ahead of redundancies in construction and manufacturing.

The local and European election campaigns have naturally been dominated by the issues of job losses and the economic crisis- ironically these are issues largely beyond the reach of both sets of institutions, but of course that hasn’t prevented the turning of Friday’s poll into a proxy general election. In that context, I thought it interesting to engage in a brief perusal of the various political parties’ employment policies and intend that this be akin to the throw in ball into the debate, as opposed to a detailed treatise on active labour market policies.

Needless to say, all parties are singing off the one hymn sheet on the need to upskill and retrain those who now find themselves jobless, but the devil is in the detail and Fine Gael’s approach of reallocating Fás resources towards the enterprise-led Skillnets, and the limiting of the upskilling of workers within the context of existing industry, departs sharply from Labour’s agenda for the broadening of access to upskilling, training and work experience for individual workers. This distinction in approach reflects a divergence in thinking regarding the possible sources of future economic recovery, and in ways goes to the heart of the question about the efforts that should be made to retain existing jobs and businesses and the separate question of promoting “job creation”.

The trade union movement have long argued for some type of short time working mechanism to support existing firms effected by the economic downturn, who in less volatile economic trading conditions would be operating profitably. The criteria for entitlement to the support remains a moot point, with Sinn Fein proposing a trouble shooting body to identify and advise troubled companies along with a specific job retention fund of €300m. Labour’s Earn and Learn scheme most closely resembles the pilot project announced in the April Budget, however the 277 places made available in the pilot project by the Government makes the scheme wholly inadequate and in danger of being far too little too late to rescue potentially sustainable jobs.

In contrast, Fine Gael overlook the idea of direct support to retain existing jobs and instead address the broader issue of operating costs in the country. Their preference to introduce direct wage subsidies to incentivise companies to recruit unemployed persons raises important questions as to the economic efficiency of such a measure vis a vis the retention of existing jobs. While sustaining those currently employed can arguably impose a deadweight cost by delaying the natural turnover of businesses and can displace funding to support future creation, these costs can arguably be minimised be imposing time limits to benefits and by imposing strict criteria for eligibility. In contrast, the economic efficiency of a wage subsidy to create jobs is much more in question. Relieving 31% of the cost of a minimum wage job is an attractive short term measure for those who wish to reduce unemployment figures overnight but serious questions remain as to the long term sustainability of these jobs after the two years, the deadweight cost to the Government of jobs that would have been created anyway and most importantly of all, the possible displacement of both the funding of and the take up of formal training and upskilling that is necessary for long term economic growth.
Marie Sherlock is an economist with SIPTU

Posted in: Economics • Fiscal policy

Tagged with: jobs • economic efficiency

Marie Sherlock     @marie_sherlock

Marie Sherlock is an economist with SIPTU. Educated in TCD, Cambridge University and UCD, she worked in economic consultancy before joining SIPTU’s research department. She has served as a member of the Government’s Labour Market Council and Advisory Group on Tax and Social Welfare for the Minister of Social Protection. In 2015, she took a year out to head up the development of the Labour Party’s general election manifesto.