British solution to unemployment – make them work for free

There was a story in the UK Guardian yesterday (July 29. 2012) – Million jobless may face six months’ unpaid work or have benefits stopped – that described how the failed neo-liberal British government is following the path that the conservatives followed in Australia in attempting to “manage” the unemployment that their flawed policy regime created. The Australian approach has failed dramatically and imposed considerable hardship on the most disadvantaged citizens in our midst. The same approach is unfolding in Britain and it to is already looming as a failure.

The Guardian article reports on a recent study by the Centre for Economic and Social Inclusion (CESI) in Britain which:

… predicts that over a five year period starting in June 2013, 1.78 million people will be unable to find work through the government’s current two-year-long employment scheme, the work programme, even if targets are met.

The scenario is this:

1. British government introduces austerity policies which deliberately create unemployment. Jobs vanish because aggregate demand contracts. People stop spending and firms stop investing because the fear of unemployment rises.

2. The same government then claims the solution to the rising unemployment is a Community Action Programme (CAP) – which advertises itself as providing “support” for the “Very Long-Term Unemployed”.

3. The CAP’s client base rises dramatically as a result of the austerity program which created the unemployment problem in the first place. The austerity program ensures that many of those that enter short-term unemployment transit as time elapses into long-term and then very long-term unemployment, thus, keeping a regular clientele for its CAP.

4. Faced with an explosion of people to be managed the British government then decides that those receiving jobseeker’s allowance (JSA) – the only thing between starvation and penury – are clearly unmotivated and need to work. Just the terminology is the same – the unemployed became jobseeekers!

5. Solution – force anyone on JSA for more than three years to work for no pay for 6 months. Refusal to work for the benefit which is well below the minimum wage then leads to cancellation of the said benefit.

CESI estimated that the British Department for Work and Pensions (DWP) – which oversees the scheme has dramatically under-estimated the number of unemployed who are being referred to its Work Program – by a factor of 19 per cent.

This is the program that the Government claims will find work for the long-term unemployed.

It all reads like deja vu to me. The conservative Australian government adopted the same strategy when it was elected in 1996. Its privatised public employment service – the so-called Job Network – was a refinement of the trend towards mean-spirited government that led to the abandonment of a commitment to full employment and the retrenchment of a comprehensive welfare state.

The Job Network was epitomised by the government’s pursuit of the diminished goal of full employability, which constructed mass unemployment as a supply-side problem rather than a system-level failure of the economy to provide enough jobs for those who desired to work at the current wage rates on offer.

Under full employability, the government no longer ensured that employment growth matches labour force growth but focused, instead, on getting individuals ‘work ready’, should there be jobs available.

It was the exemplar of the OECD’s Jobs Study approach which focused on supply-side activation – a fancy word for blaming the victims of a demand failure and threatening them with starvation should they not agree to submit to the pernicious management regime (relentless dole diaries, meetings with case managers etc) which included working for free.

The Job Network was introduced at at time when it the macroeconomic constraints on its effectiveness were substantial. First, the Australian economy had failed to generate sufficient employment since 1975 to match the preferences of the labour force. Second, gross flows data revealed large inertia in all labour force categories and average unemployment duration rising to around 52 weeks and inversely related to the demand side of the labour market.

These development were accompanied by a policy of deliberate fiscal drag (pursuit of budget surpluses) which created the demand failure. The situation in Britain at present is very similar.

The most salient and empirically robust fact about the performance of the Australian economy at the time the Job Network was introduced was that actual GDP growth was not been strong enough to achieve and sustain full employment. As a consequence, the low point unemployment rate had ratcheted upwards over successive economic cycles.

The same situation exists in Britain now.

The Australian government’s response was to the rising long-term unemployment was to introduce a privatised management scheme. They created a parasitic private sector fringe – the Job Network – in effect, a new industry, whose product was unemployment.

The conservatives who took office in 1996 were not the founders of the scheme however. The neo-liberal ideology had been infused in the so-called workers’ party – the Labor Party – which is also in government at present.

The creation of a competitive market for the provision of employment assistance began with the “Working Nation’ White Paper of 1994, which was a belated response to the massive 1991 recession – that was caused by failed government policy.

Under the Keating Labor Government, one third of the public assistance effort for the long-term unemployed was given to contractors in both private and not-for-profit agencies. This quasi-market was subject to oversight by an independent government regulator and agencies were paid on a ‘fee-for-success’ basis.

This was the basis for the “new industry” – profiting from unemployment.

The Government argued that a competitive model would improve the quality and flexibility of services provided to the most disadvantaged job seekers.

Agencies provided individual case management and were able to refer the long-term unemployed to a range of jobs and subsidised work and training programs provided under the government’s Jobs Compact.

The election of the Coalition Government in March 1996 saw the abolition of the Jobs Compact programs and thoroughgoing reforms to labour market assistance.

The Working Nation strategy was derided as an expensive policy failure unduly concerned with process, and the continuing role of the central bureaucracy (the CES) was seen as antithetic to innovation and the tailoring of interventions to meet the needs of heterogeneous job seekers.

The Government identified cost cutting and the tighter targeting of support as explicit objectives of reform implying an ability to deliver both better and cheaper assistance.

Appropriations for Labour Market and Training Assistance were cut from $2.16 billion in 1995-96 to $1.2 billion in 1997-98. However, the principle goal of reform was defined as delivering better and more sustainable employment outcomes for job seekers underwritten by a more competitive, flexible and performance-based approach to the delivery of employment assistance.

In 1998, the focus on outcomes and the use of competition to drive greater efficiency and choice underlay the dismantling of the CES and its replacement by Centrelink and the Job Network.

A 2002 report by the federal Productivity Commission described the Job Network as a ‘managed’ or ‘quasi’ market for the provision of subsidised employment services, which aims to mimic the activities of competitive markets by allowing scope for competition, flexibility in service delivery, rewards based on outcomes and some degree of choice for the unemployed.

First, the Job Network comprises multiple independent agencies, each having a share of a common system of public service provision. Second, the agencies will be a mix of profit and not-for-profit organisations; and third, job seekers do not purchase services but have services purchased on their behalf by government.

Under the Job Network, the government was a purchaser and regulator of employment services, not a direct provider. The role of government was to award contracts through a competitive tender process, regulate providers, determine standards, and to collect and disseminate performance information.

However, this perverse “quasi market” soon revealed it was not immune from market failure.

There was policy schizophrenia in expecting an outcome-based funding model for employment services to deliver ‘better and more sustainable employment outcomes’ in the absence of concomitant policies to alleviate the macroeconomic constraint and create real employment opportunities.

In a highly demand-constrained labour market, characterised by persistent unemployment and marked regional disparities, it was always unclear how the supply-side focus of the Job Network could be effective.

It was also the case that a system centred on outcome payments in which providers had discretion with respect to the level and nature of assistance afforded to job seekers created incentives for ‘creaming’ and ‘parking’.

The Productivity Commission’s Independent Review of the Job Network in 2002 found that the payments structure to Job Network providers has led to a substantial proportion of Intensive Assistance recipients being ‘parked’ – that is, taken onto the private agency books to get the first incentive payment but then ignored because the prospects of getting any further payments (for successful job placement) were bleak.

Job seekers with the greater chance of achieving a payable outcome were targeted while those in greatest need of assistance (with low employment probabilities) were left unsupported.

The lack of correspondence between needs and services reflected the difficulties associated with specifying objective outcomes and performance indicators that will allocate resources according to an ordering of societal needs; and relate to both the quality of assistance provided and the quality and sustainability of jobs attained.

The prices attached to employment outcomes also did not adequately reflect all the costs of unemployment which include not only income and output loss, but the deleterious effects on self confidence, competence, social integration and harmony, and the appreciation and use of individual freedom and responsibility.

Subsequent evaluations of the effectiveness of the Job Network showed it failed to provide sustained employment prospects for the vast majority of the case load.

One of the features of the system that was most repugnant was known as “breaching”. The Government of the day (in 2002-03) reacted to the early criticisms of its failed program by reinforcing what it called the Active Participation Model – aimed at reducing the outlays that were rising as unemployment continued to increase in the face of the on-going failure to stimulate aggregate demand.

The Government argued that the Active Participation Model would ensure the case loads carried by the Job Network agencies would decline.

Underlying the new approach to “mutual obligation” was the view that improving the effectiveness of the employment services system depended on changes to the system itself, and not on the expansion of employment opportunities.

The enhanced ‘effectiveness’ of the system was sought by a reconfiguration of the payment structure and greater integration between Job Network services and mutual obligation activities.

As a result, the ‘Job Search Training’ and ‘Intensive Assistance’ programs were recast as ‘Intensive Support’ and ‘Customised Assistance’. A job seeker who remained unemployed after 12 months would receive Customised Assistance (CA) for a further six-month period.

After that if the individual had not found work they would be required to undertake another Mutual Obligation activity, which included Work for the Dole programs.

The extant data at the time showed the Work for Dole programs to be a categorical failure in providing a bridge to paid-work in the open labour market.

Data on labour market assistance outcomes for the year to March 2002 showed that three months after completing Work for the Dole just 11.6 per cent of participants were in full-time work. Half of the participants remained unemployed or had withdrawn from the labour force while one-quarter were in receipt of further assistance.

Further, the Government introduced penalties that would be imposed on the long-term unemployed people found to be – in the Government’s assessment – not genuinely seeking work.

The Government gave the Job Network providers the power to identify and punish unemployed people that the Government believes are deliberately avoiding work.

Once identified, the Job Agencies were also able to force these workers to complete double the hours in work-for-the-dole programs and issue on-the-spot suspensions of payments for unemployed people who failed to attend interviews.

This penalty system was called breaching. The data that emerged was shocking. There was an escalation in the number of people subjected to the loss of benefits.

The evidence was that Job Network providers acted capriciously and had no specific procedural guidelines for making decisions about breach recommendations leading to inconsistent treatment of the unemployed within a single organisation.

We learned that unemployed workers who failed to attend a first interview were more consistently and readily breached than others. Rules of natural justice were not being correctly applied in all instances (some unemployed were subjected to unjust decision-making processes).

Job Network agencies used strategic breaching to remove potentially “non productive” unemployed from the books – which meant – workers who they felt they were unable to secure any further placement funding for.

Moreover, those that were being breached include schizophrenics who were prone to episodic illness and unable to attend interviews on days when they were suffering the most; homeless people who were unable to access mail at old addresses informing them of an activity test interview and other disadvantaged citizens.

The reality is that the new compliance regime that the Australian Government introduced did not address the substantive cause of the mass unemployment – the failure of the economy to provide enough jobs.

It established a new industry – with private parasites pursuing a profit motive by meeting perverse performance targets specified in their contracts. These agencies were meant to support the unemployed but quickly assumed a police-type role imposing fines and disciplining the unemployed.

The system failed to achieve any of its stated purposes which were, of-course, not the real roles that the government was interested in pursuing anyway.

The current British government is following Australia down this very sorry path.

The bias in seeing the private sector as the source of recovery is not confined to neo-liberal, market-oriented economists.

Many progressive economists still choose to operate in the same blinkered world. Consider the latest Op Ed in the New York Times by Paul Krugman (July 29, 2012) – Crash of the Bumblebee – where he correctly notes that “Europe’s single currency is a deeply flawed construction” because it has no capacity in its present form to ensure necessary fiscal transfers are made within the monetary system to defend states which fall foul of declining aggregate demand.

Paul Krugman constructs the solution to the current Euro malaise in this way:

The answer is fairly clear: policy makers would have to (a) do something to bring southern Europe’s borrowing costs down and (b) give Europe’s debtors the same kind of opportunity to export their way out of trouble that Germany received during the good years — that is, create a boom in Germany that mirrors the boom in southern Europe between 1999 and 2007.

The first part of the solution is crucial and the ECB has the capacity to “bank buy lots of southern European bonds to bring those borrowing costs down” and recent statements by the ECB boss suggest they might be prepared to use that capacity even though it will bring the ECB into direct conflift with the Germans.

In his July 26, 2012 speech in London, ECB boss Mario Draghi tried to convince the participants at a Global Investment Conference that the Eurozone was “much stronger than people acknowledge today” and the “progress has been extraordinary in the last six months”.

Which to an outsider raises question of what planet he is on.

He continued though with an implicit deference to the fact that his statements are hardly convincing by saying that:

… the euro is irreversible. And it’s not an empty word now, because I preceded saying exactly what actions have been made, are being made to make it irreversible … [and to reinforce that view in the private markets] … Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.

His assessment “that it will be enough” depends on what they do. But the fact is that despite the flawed structure of the monetary system the Euro bosses designed, the ECB remains capable of acting as both a monetary and fiscal authority in the Eurozone and ensuring that the lack of currency sovereignty among member states is not dysfunctional.

To some extent the ECB has been performing this role via its Securities Market Program (SMP), which has seen it purchase billions of government debt issued by vulnerable Southern European governments. The fact they have been buying this debt in the secondary bond markets (that is, after the primary issue has been purchased by others, mostly banks) is neither here nor there.

The primary tendering institutions knew that they would be able to offload the debt to the ECB once it was issued. These pathetic little hurdles that politicians and central bankers place in their own paths to give the impression that they are obeying fiscal constraints don’t help anyone.

The fact is that ECB has violated the spirit if not the law of the monetary system (wich was vehemtly biased against bailouts)

Which means it has to be prepared to fund the deficits that the member states are running which will include the discretionary policy decisions these states should take to engender growth.

But when Mr Draghi says that the ECB will do everything it can he is not intending to do “everything” if the current form is anything to go by. The SMP is within a straitjacket of the austerity that is being imposed (by the Troika which included the ECB).

The imposition of the austerity programs constitutes a sort of chase one’s own tail and we have seen over the last few years how the crisis has worsened but in a saw-tooth sort of pattern. The bond markets give up on a nation and bond yield soar, the ECB steps in and the leaders conclude publicly that the crisis is over – only to see it re-emerge soon after as the next piece of austerity-laden economic news signals the failure of the system.

But it remains clearly true that the ECB can drag this crisis out indefinitely by ensuring there commercial banks do not fail (and the LTRO program is sufficient in that regard) and ensuring bond yields remain within some range (and the SMP and LTRO is sufficient in that regard). The solution to the crisis goes well beyond keeping the private bond markets at bay though.

Growth is required and that means rising budget deficits in the current context. It is that part of the “real solution” that none of the political and economic leaders within the Eurozone will admit and action.

Paul Krugman though considers this growth priority within a very narrow lens. He clearly thinks it should occur through international trade with the Germans exporting less and importing more and the more afflicted Southern nations doing the opposite.

The Euro leaders think that same thing and so the only dispute between them (as arch-type neo-liberals) and Paul Krugman (the popular progressive voice) is in the way that this trade-led recovery can be motivated.

The Euro leaders want it to come about by impoverishing the deficit nations so much – via wage cuts and other cost cutting means – that pennies becomes millions – and the competitiveness drives rising exports.

Paul Krugman thinks it should come about by Germany being forced to increase domestic demand, presumably by increasing real wages growth. He thinks this will require “higher inflation” in Germany.

The reliance on the private sector to achieve the recovery at a time when it is unlikely the private sectors under either strategy have the capacity to generate enough new aggregate demand to make the recovery bind is the thing that the Euro leaders and Paul Krugman share.

I agree with Paul Krugman that the “German model” (stifling domestic demand and relying on the spending of other nations via exports) is not a solution for the monetary union in general. It didn’t even work to the benefit of the majority of Germans.

It required workers in Germany accept much lower real standards of living and job security while their hard work was exported to other nations, who ultimately could not sustain the necessary growth.

But I see a more obvious solution that recognises that the private sectors are holding massive levels of debt against housing stock that is no longer as valuable as it was at the height of the speculative mania. It recognises that growth requires aggregate demand escalation which is unlikely to come from these heavily indebted private spenders.

It recognises the deflationary impact of the rising unemployment in Europe, which places a further brake on the capacity and willingness of the private sector to go further into debt to drive growth.

It also recognises that the ECB has the capacity to fund the growth via fiscal expansion programs designed and implemented by the public sector in the member states.

Why does Paul Krugman eschew public-led recovery? Perhaps because it is not politically feasible in the current European climate. But then neither is his suggestion that German inflates to give scope for Greece and Spain to export their way out of crisis.

Paul Krugman then asks three questions and provides his answers.

1. “could the euro be saved? Yes, probably”. My answer is yes, definitely (given the above discussion).

2. ” Should it be saved? Yes, even though its creation now looks like a huge mistake”. He thinks it would amount to a failure of the “wider European project” if it failed. My view is different. The failure of the Euro at present is endangering the “wider project” and once again invoking the nationalistic, anti-democratic forces that have led Europe to internal conflicts and other horrific developments in the past.

My view is that the neo-liberal political program is not what the “wider project” was about and is derailing that project. The design of the EMU was a “huge mistake” but that only reflects the neo-liberal mindset which remains dominant now and continues to seek solutions that are dysfunctional and destructive to European unity.

European political unity does not require a monetary union. And unless they abandon the fiscal rules and austerity mindset, monetary union will always work against achieving sustained prosperity for the European population, which is essential for tolerance and acceptance of cultural differences.

Austerity is breeding increased cultural intolerance not harmony.

3. “But will it actually be saved?” Paul Krugman thinks it is “very much in doubt”. My view is that the elites will continue to muddle along with these ad hoc measures and the ECB will continue to keep the system from the brink of collapse. But the rising social instability that will accompany the harshness imposed by the fiscal austerity will eventually become unbearable.

It may be that the on-going deficits – that the austerity will not turn to surpluses – and which are effectively being funded by the ECB (via the LTRO and SMP) will be sufficient to underpin enough aggregate demand to keep some lid on unemployment.

But then one observes open unemployment now rising above 25 per cent in Spain and the conclusion that this is coming to a head is very compelling. Nations cannot endure that level of unemployment for extended periods without serious political consequences.

And I haven’t even mentioned the worst aspect of all of this folly – that youth unemployment is rising over 50 per cent in several nations. That is a time bomb for the future that will ensure the Euro crisis of today is reverberating in 20 years time – with future workers less productive and less resilient than their parents are today.

Conclusion

Sorry tale all round.

Alternative Olympic Games Medal Tally

My Alternative Olympic Games Medal Tally is now active.

I update it early in the day and again around lunchtime when all the sports are concluded for the day.

That is enough for today!

(c) Copyright 2012 Bill Mitchell. All Rights Reserved.

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    23 Responses to British solution to unemployment – make them work for free

    1. The claim by The Guardian that people are being forced to do “unpaid” work is a pack of lies. And that’s about the tenth Guardian headline in the last month to promulgate that lie. The truth is that those concerned are paid what they would have got on benefits (which in some cases works out at a sum that is little different to the minimum wage).

      The Guardian is a leftie newspaper and lefties are often far more concerned to trumpet their concern for the allegedly down-trodden, than to actually do any thinking that might result in the problems of the least well-off being solved.

      Now for some thinking. Bill is of course quite right to say it is absurd to impose unnecessary austerity and then “solve” the problem by forcing the unemployed to work for a wage equal to what they’d have got on benefits.

      On the other hand, assuming no unnecessary austerity has been imposed, i.e. assuming the economy is at capacity, there IS SOMETHING to be said for forcing the unemployed to do temporary and possibly part-time jobs.

      As for the “force” or “workfare” element, the logic of that is that living on benefits is a nice easy-going way of life, especially if you can supplement benefits with a part-time “cash only” job. I know people doing this. And the “force” element discourages this particular fiddle.

      As to the SUBSIDY element, the logic of that is that given falling unemployment, the marginal product of labour declines. And when it declines to the minimum or “going” or union wage, further reductions in unemployment are not possible, else inflation kicks in. Thus a system that subsidises temporary jobs for the unemployed will in theory induce employers to accept this sort of labour, rather than bid up the price of more suitable labour, and hence exacerbate inflation.

    2. paul says:

      Those that do not want to work are a problem for a time when when those that do, can.
      Think more kindly of them for now, they are the frontline volunteer troops in the NAIRU war.

    3. Neil Wilson says:

      “The truth is that those concerned are paid what they would have got on benefits (which in some cases works out at a sum that is little different to the minimum wage).”

      No it’s not. Because another person isn’t getting a minimum wage *as well* which is what would have happen if ‘unpaid work’ hadn’t happened.

      Benefits are stopped and, effectively, a government subsidy paid to the employer instead.

      Your argument is a fallacy of composition. Somebody lost out because at best profit was made that shouldn’t have been made. At worst somebody was crowded out of a paying position – even if that was just overtime.

      “As to the SUBSIDY element, the logic of that is that given falling unemployment, the marginal product of labour declines”

      I don’t believe marginal product of labour ideas are accepted as valid theory around here.

    4. Kevin Harding says:

      developments here in Europe are very worrying
      the entrenchment of the recession due to attempting fiscal consolidation in current climate
      with seemingly no major political party advocating an increase in government net spending
      and the inevitable failure of current government and inter government strategies
      and if the USA elects a president pushing the us economy down a European route
      well as I say- alarming!
      if the European political project collapses it is hard see progressive alternatives flourishing

    5. gastro george says:

      “As for the “force” or “workfare” element, the logic of that is that living on benefits is a nice easy-going way of life, especially if you can supplement benefits with a part-time “cash only” job. I know people doing this.”

      Ad hominem observations like these are about as relevant as statements like “I’m not racist, my next-door neighbour’s a Sikh”.

      Have you ever lived in benefits yourself? Do you know the marginal rates of taxation for the poor? Your lack of sympathy for “easy-going” benefit recipients is an echo of the Daily Mail.

    6. BigRed says:

      @Ralph Musgrave: you’re writing

      On the other hand, assuming no unnecessary austerity has been imposed, i.e. assuming the economy is at capacity, there IS SOMETHING to be said for forcing the unemployed to do temporary and possibly part-time jobs.

      but an economy at capacity wouldn’t have long-term unemployed that need to be forced, in the first place, right? So your argument reduces to “long-term unemployed should not be forced to work”.

      As to your last paragraph: you seem to be discussing either 1) a situation where unemployment rates fall towards full employment or 2) a NAIRU concept.
      The first applies neither to the current situation in the UK nor to the one in Australia described in this blog post (and if it did, any subsidizing of jobs for the unemployed would be pointless since any remaining unemployment is frictional).
      As to the second, there have been plenty of posts on this blog discussing the inadequacy of the NAIRU-approach.
      So I have to admit that I don’t understand what, apart from bashing a center-left newspaper, the purpose of your comment was.

      best regards, BR

    7. Neil, You ASSUME, as I understand you, that Work Programme employees just DISPLACE existing employees. The advocates of the hundreds of employment subsidies that have been suggested or implemented since WWII have all tumbled to the fact that IF those subsidised into employment just displace existing employees, the relevant subsidy is pointless.

      Thus the £64k question in relation to any subsidy is whether the subsidy does more than simply DISPLACE. And every subsidy is bound to result in SOME DISPLACEMENT.

      I gave two reasons above for thinking that the Work Programme does more than simply displace: one was the marginal product of labour point.

      Re your claim that “marginal product of labour ideas are accepted as valid theory around here”, there must be some mighty big differences between most economics text books and the folk “around here”. Ideas relating to the marginal product of labour (and capital, come to that) are generally accepted in economics.

      Big Red,

      You claim that “but an economy at capacity wouldn’t have long-term unemployed”. My answer to that is that even when the economy is at capacity (which equates to an unemployment level of 3-5%) there are plenty of long and short term unemployed. (I’m assuming no JG, of course.)

      Re your second point on NAIRU, etc. I’ll try to clarify.

      The level of output or level of employment that correspond to “at capacity” or NAIRU are the same level, far as I’m concerned. That’s the level at which further increases in demand are too inflationary. And, that inflation arises because the quality or suitability of dole queue labour has fallen so far that employers resort to outbidding each other for “already employed” labour. Hence inflation.

      However, if the relatively unsuitable labour can be subsidised, that in theory would make up for the unsuitability, and would reduce the level of unemployment at which employers start to outbid each other for suitable labour.

    8. Neil Wilson says:

      “Neil, You ASSUME, as I understand you, that Work Programme employees just DISPLACE existing employees.”

      No. I present the following:

      – capital has receive a subsidised profit. Why should it get that when there is an alternative?
      – a worker may have been crowded out of overtime or even a job. Why should that happen when there is an alternative?

      The alternative is that private business can damn well pay if it wants to use labour, and the state uses the labour it has purchased for its own or other purposes *including just throwing it away*. There is a vastly reduced risk of crowding out then, and certainly no unwarranted distribution to the profit share.

      “there must be some mighty big differences between most economics text books and the folk “around here”. Ideas relating to the marginal product of labour (and capital, come to that) are generally accepted in economics.”

      That quote from Pavlina again in case you missed it:

      “Ralph’s own research uses declining marginal product of labor and the NAIRU as core theoretical concepts, so it is no surprise that we have deep theoretical disagreements over how labor markets work and how policy could rectify the problem of unemployment.”

    9. Thomas Bergbusch says:

      I like your post, but I LOVE your Alternative Olympic Games Medal Tally. I cannot help noticing that in medals to GDP Canada comes dead last, and is next to last in medals to population and medals to per capita GDP. Perhaps you could provide a composite index to truly depict the utter failure of Canada’s “own the podium” program? But I can’t decide whether I should be happy or sad about this. In 1976, when we actually hosted the games, we won not a single gold medal, and only one silver, and yet we had a working national healthcare system, and effective system of federal-provincial cost-shared funding for welfare recipients, lower unemployment, and vastly less inequality.

    10. NeilT says:

      Ralph: “The truth is that those concerned are paid what they would have got on benefits”. Really? And the evidence to back this up?

      JSA is just £64 a week and is not means tested. Those that only qualifiy for that (by paying national insurance) who do not receive rent or council tax rebates and who are then made to work a 40 hour week are effectively being “paid” the princely sum of £1.64 an hour. This is around £5 less than the (rather miserly) minimum wage. Why not offer them a job at the minimum wage? Why bother with JSA? If you want people to work (and I think most of us do) then simply create some jobs and pay them in the normal way. Job done, jobs a good’un. I urge you to read any and all of Bill’s writings on the Job Garauntee Scheme…

    11. CharlesJ says:

      Neil,
      “and the state uses the labour it has purchased for its own or other purposes *including just throwing it away*. There is a vastly reduced risk of crowding out then, and certainly no unwarranted distribution to the profit share.”

      I agree about the reduced risk of crowding out, because central government can veto use of JG personnel in jobs that have substantial crowding out of either the public sector or the voluntary sector.

      Representatives of central government can be placed at the local level with instructions to work with public sector unions and other employee groups to investigate potential crowding out issues, and veto the use of JG resources if necessary, unless there is a legitamate democratic mandate to do so.

      Central government should have this level of control in my view because JG is a macroeconomic policy, and should not be used by local authorities as a tool for lowering public sector wages to save money – a microeconomic use.

      Locally placed central government representatives may also have powers to ensure that the funds provided for training JG personnel (in addition to employment costs) are actually being used, and are being deployed in the best interests of JG partipants’ future job prospects – again this is macroeconomic because it relates to the long term potential output of the economy.

      The only question I have is where there is a legitimate political mandate to reduce the size of local government, which may necessitate some crowding out. Also where central government needs to reduce inflation, and chooses to do so by reducing employment in the regular public sector, which would in all likelihood force some crowding out to occur.

    12. F. Beard says:

      and the state uses the labour it has purchased for its own or other purposes *including just throwing it away*. Neil Wilson

      Just handing out money would effectively remove people from the labour market too since it would decrease the number of people desperate for wages. Thus there is no need for make-work. Let the unemployed find their own meaningful work to do such as coaching sports, gardening, continual education, raising their children, etc.

      We would not be having these problems, btw, if our money system had been ethical. Then the distinction between capital and labour would be far less than it is. Usury for stolen purchasing power (“Loans create deposits”) is no way to run an ethical money system, economy or society.

    13. Neil Wilson says:

      “Let the unemployed find their own meaningful work to do such as coaching sports, gardening, continual education, raising their children, etc.”

      For them to do that there has to be the opportunities available. They don’t just arise out of the ground based on a wish. They have to be organised.

      And whether you like it or not, the majority of people like being directed. There is a reason the armed forces never struggle for recruits.

      What is defined as ‘work’ is a matter of opinion, and the Job Guarantee tries to make sure there is an opportunity there so that people can do something useful and also demonstrate that they are useful if they aspire to greater things in the workforce.

      Job Guarantee can be anything from Workhouse to Dole. The choice of where to sit on that continuum is entirely political.

    14. Neil (Wilson),

      You claim that “capital has received a subsidised profit”. I assume you mean substantial profit from employment Work Programme people. If that were true, why do so many firms refuse to have anything to do with the Work Programme?

      The latter refusal simply confirms numerous bits of research done over the decades which show that a significant proportion of firms take a jaundiced view of employees who need subsidising. Many firms just cannot be bothered with the bureaucracy and hassle involved in employment subsidies.

      Re your claim that employers can “damn well pay if it wants to use labour”. That just plain ignores the fact that employers (as I pointed out above) JUST AREN’T PREPARED TO PAY the full rate for relatively unsuitable labour.

      Re “just throwing it away” are you suggesting it is better to employ someone on a totally unproductive JG scheme than to have them do a job where a private employer can get some minimal output from the employee? Plus the evidence from similar schemes in Switzerland is that the subsequent employment histories of those doing subsidised PRIVATE SECTOR work is better than those doing subsidised PUBLIC SECTOR work (like JG).

      NeilT,

      Re your point about minimum wages, I largely agree. It strikes me as raving bonkers to have a so-called minimum wage law in place, and then have thousands of employees (Work Programme people, interns and God knows who else) being paid LESS THAN the minimum hourly rate.

      Do we have a minimum wage law in the UK or don’t we? I’m baffled.

      As to EXACTLY what Work Programme people are paid, I’ve just been through some government publications which are supposed to explain the scheme, and they are gobbldegook. There is no information on what employees are paid. But my understanding has always been that they get JSA plus any other benefits they’d normally get, e.g. housing benefit.

      But my basic point above still stands, namely that the Guardian’s claim that these people are “unpaid” is just Guardian propaganda. The Guardian also keeps very quiet about Labour’s alternative schemes which are just as draconian, in some respects. Incidentally there is a similar scheme in Scotland where employees ARE PAID the min wage. See:

      http://www.adviceguide.org.uk/england/work_e/work_self-employed_or_looking_for_work_e/government_employment_schemes.htm

    15. F. Beard says:

      For them to do that there has to be the opportunities available. They don’t just arise out of the ground based on a wish. Neil Wilson

      Well, if the counterfeiting cartel, the banks, had not dispossessed people of their family farms, family shops (and increasingly their very homes) then people would have plenty of opportunity to keep busy on their OWN land or with their own businesses. So yes, being in the Army might easily seem a better state than rotting in an apartment but it is NOT ideal.

      But the entire JG theme ignores that people have been cheated by what is essentially a government backed/enforced counterfeiting cartel. Why not face that fact squarely and advocate restitution? Since when should victims of theft have to earn their restitution? Afraid of the Religious Right? But the Religious
      Right is far more likely to support just restitution than an expansion in government. Remember, it was GW Bush who first sent out “stimulus checks.”

    16. gastro george says:

      “For them to do that there has to be the opportunities available. They don’t just arise out of the ground based on a wish. They have to be organised. ”

      Absolutely true. You wonder if the authors of the “Big Society” and similar have ever belonged to an voluntary association or club where their money couldn’t drive what needed to be done. It’s generally a golden rule that 25% of the members will do 75% of the work, 10% will 90% of that – the rest are happy to participate but are rarely willing to take responsibility for organisation. And I not decrying the efforts of voluntary organisations, they do a lot of good. But there were reasons why the state replaced charities and the church as welfare organisers in the last couple of centuries – and it’s notable that most mature Western European countries manage with a far lower level of charitable organisations than we have in the UK. It’s much more efficient to do it that way.

    17. Neil Wilson says:

      ” Plus the evidence from similar schemes in Switzerland is that the subsequent employment histories of those doing subsidised PRIVATE SECTOR work is better than those doing subsidised PUBLIC SECTOR work (like JG).”

      Pavlina has already refuted that claim. Repeating it constantly doesn’t make it true.

      There is no evidence to back up your belief.

      “I assume you mean substantial profit from employment Work Programme people.”

      No I mean any profit. Rhetorical devices don’t alter the reality. Subsidies allow capital to make profits it hasn’t earned. That’s a market distortion.

      “That just plain ignores the fact that employers (as I pointed out above) JUST AREN’T PREPARED TO PAY the full rate for relatively unsuitable labour.”

      In that case they shouldn’t get any profit and ideally should feel competitive pressure to hire (if necessary from the public sector). Otherwise you have perverse incentives and a skewed market.

      “Re “just throwing it away” are you suggesting it is better to employ someone on a totally unproductive JG scheme than to have them do a job where a private employer can get some minimal output from the employee?”

      That is a political choice. It is entirely reasonable to deny subsidy to the private sector and to determine that providing people with an income is all that is required. Private companies can then compete for that money in the market place as they should by providing needed goods and services.

      The other political choice is that the state has purchased the labour and therefore the state will use it for the public purpose.

    18. paul says:

      If that were true, why do so many firms refuse to have anything to do with the Work Programme?
      Plenty of household names were over the programme like a dog on sick:

      TK Maxx,Sainsbury’s,Waterstones,Shelter,Marie Curie,99p stores,Maplin,Oxfam,Mind,BHS,Burger King,HMV,Boots,Body Shop

      I’m quite sure the would have re engineered their systems to run on this suddenly attractive ‘dole queue labour’ as much as possible if they could have gotten away with it.

      Unfortunately, their ignorant customers didn’t see it your way, and found profitable companies using unpaid workers a little unseemly. Labour utilised that is not being paid for is unpaid work in their deluded view.

      I really don’t think anyone should worry unduly over the arbeitsscheu until those that do want to work are taken care of.

      As for its the public/private success story in switzerland, that might be due to switzerland being different from the uk. e.g their low unemployment rate which bafflingly coexists with generous unemployment payments. As the DWP say:

      “Workfare is least effective in getting people into jobs in weak labour markets where unemployment is high.”

    19. gastro george says:

      “Re “just throwing it away” are you suggesting it is better to employ someone on a totally unproductive JG scheme than to have them do a job where a private employer can get some minimal output from the employee?”

      I just love the phrase “totally unproductive JG scheme” – as though any public employment is “unproductive”, as opposed to the “productive” private sector.

    20. Gastro George,

      I didn’t say that because a project is public sector, that therefor it is necessarily unproductive. What I did was to quote Neil’s phrase about “throwing away” the work or output of people on public sector or JG schemes, and ASK HIM if he preferred what seems to me according to his phraseology to be totally unproductive work to moderately productive private sector work.

      Neil Wilson,

      Re your claim that Pavlina has “refuted” my point about empirical evidence from Switzerland, (and other points) and that my repeating my points does not make them true, that argument can be turned on its head: Pavlina and her supporters repeating their points does not make those points true either.

      Anyone interested in my criticisms of Pavlina’s paper, see here:

      http://ralphanomics.blogspot.co.uk/2012/05/muddled-thinking-on-elr.html

    21. Dr Zen says:

      I will listen to Ralph when I see proof he works for 64 pounds a week. Like most people on the dole, what I lack is a job, not incentive to do one if one turns up.

    22. Neil Wilson says:

      ” Pavlina and her supporters repeating their points does not make those points true either.”

      Ultimately it comes down to a belief in a philosophy. It’s very difficult to prove macro effectiveness with statistics. You have to put it in practice and see what happens. There is only ever circumstantial evidence in support of a philosophical position at the edges. That’s when it gets normative. That’s when it get political.

      Feeding the private sector increasing amounts of meat has not produced the social outcome promised. Therefore it is entirely reasonable to be skeptical if not outright hostile to anything that increases their meat ration for no extra effort on their part.

      I’d be more supportive of measures that charges the private sector punitive contractor rates for the unemployed. A levy on profits (or possibly retained profits) set at the broad unemployment percentage rate for example – which encourages the profit share to invest/distribute during periods of high unemployment in the knowledge that the levy will come down as unemployment comes down.

    23. paul says:

      Dr Zen, as one of
      the allegedly down-trodden, ”
      it has been ralphanomically proven that
      that living on benefits is a nice easy-going way of life“.
      Ralph knows people like you.
      Never underestimate the power of anecdote.

      While unemployed “relatively unsuitable labour” do not have a job, they certainly have a role in the current arrangements.
      They Discipline the employed,
      serve as lightning rods for misplaced resentment,
      generate profits for private sector bureaucracies and, on top of all that,
      (allegedly) tame the beast of inflation.

      That’s pretty good value for £1.50 an hour.

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