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Options for Europe – Part 83

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

You can access the entire sequence of blogs in this series through the – Euro book Category.

I cannot guarantee the sequence of daily additions will make sense overall because at times I will go back and fill in bits (that I needed library access or whatever for). But you should be able to pick up the thread over time although the full edited version will only be available in the final book (obviously).

Part III – Options for Europe

Chapter 19 Employment guarantees

[PREVIOUS MATERIAL HERE]

The European Commission Youth Guarantee Initiative

In June 2012, the International Labour Conference in Geneva adopted a youth employment resolution calling for decent job creation with policy to be focused on increasing aggregate spending; increased spending on education and training; targetted support for disadvantaged youth; entreprenuership and business support for young people; and ensuring rights at work are protected (ILO, 2012: 43). The resolution aimed to provide “guiding principles” to “tackle the youth employment crisis” (p.43). The crisis is clear – “youth … have been disproportionately affected by the global crisis … the situation facing youth has become unsustainable and threatens to erode social cohesion” (p.45). Some European nations had responded to this crisis with specific youth guarantee programs, although the Scandinavian countries have a long history with policies that attempt to keep youth engaged in schooling, training or work. In 2007 for example, Sweden introduced a “new job guarantee scheme for young people” (Eurofound, 2012a: 1) while Finland introduced a similar scheme in 2005 but revised it twice in 2010 and 2013 as the crisis mounted. The defining characteristics of these schemes is that they aim “to reduce the time young people spend in unemployment and inactivity” (p.1). Typically, a young unemployed person is initially engaged by the Public Employment Service (PES) with “a personalised needs assessment and an employment plan, followed by the guarantee” (p.1). The latter takes the form of “either the offer of a job or a study opportunity (academic or vocational), or some other activation measure” (p.1). The evidence from evaluations of schemes of this type are that they tend to improve the chances of a participant finding a job quicker relative to older workers not given the intensive care. But, this ‘success’ “tended to dissipate during the economic crisis” (p.2). In other words, when there is jobs growth these schemes shuffle the unemployment queue such that those given intensive help move closer to the front of the queue. But when a recession strikes, and the job vacancies dissapear, the queue lengthens again and no amount of ‘supply-side’ initiative will improve create the necessary employment. People cannot search for jobs that are not there!

On October 22, 2012, the European Foundation for the Improvement of Living and Working Conditions (Eurofound) published a report, which sought to estimate the monetary cost of the growing incidence of youth classified as NEETs (youth that are not in employment, education or training) in Europe. The aim was to “to broaden “understanding of the benefits accruing from re-engaging young people in employment and education” and stimulate “governments and social partners to prevent the disengagement of young people from the labour market and education” (Eurofound, 2012: 65). Eurofound’s ‘conservative approach’ to estimating these costs still found that “In 2008, the 26 Member States lost almost €120 billion, corresponding to almost 1% of European GDP. When the recent economic crisis and the increase in the NEET population between 2008 and 2011 is taken into account, it is likely that this loss has been even greater … It was estimated to be €153 billion, corresponding to more than 1.2% of GDP in Europe” (p.81). For several nations including Greece, italy, and Ireland, the losses were estimated to be “equal to 2% or more of each country’s GDP” (p.81). For example, for Greece the estimated losses in 2011 were over EUR 7 billion or 3.28 per cent of GDP.

The ILO (2012: 48) estimated that the annual cost of “(i)mplementing such a young guarantee programme across the Eurozone would not exceed 21 billion euros … which represents around 0.45 per cent of Eurozone government spending, a modest figure vis-à-vis expected benefits”, although it is hard to know what they mean by ‘implementation’. Certainly, when the European bureaucrats talk about ‘youth guarantees’ they are not conceiving that governments will ensure that their young citizens will receive an on-going guaranteed job if they are not in schooling or training. There is still political resistance to that idea. The reality is that when job opportunities are scarce as a result of an inadequate total spending in the economy, young workers will always be at the back of the queue due to their lack of experience, along with other disadvantaged groups such as those with physical and mental disabilities. Only a JG improves the job prospects for those groups under these circumstances.

When Eurostat released the unemployment estimates for October 2012, the data showed that youth unemployment had deteriorated sharply over the previous 12 months across the EU and in some nations (for example, Greece 57 per cent; Spain 55.9 per cent) it was beyond what might be termed alarming levels. The data was evidence that the policy framework in place in Europe was moving the European economy in the wrong direction. The EC Commissioner for Employment, Social Affairs and Inclusion, László Andor responded to these disastrous unemployment statistics by announcing the Commission’s intention to introduce a Youth Guarantee scheme. He told the press that the high “youth unemployment has dramatic consequences for our economies, our societies and above all for young people. This is why we have to invest in Europe’s young people now … This Package would help Member States to ensure young people’s successful transition into work. The costs of not doing so would be catastrophic” (European Commission, 2012a). In other words, the situation had reached emergency proportions requiring a response of commensurate proportions.

In December 2012, the European Commission presented a proposal to the European Council for a European-wide Youth Guarantee (European Commission, 2012b). The European Council adopted the recommendation from the Commission on April 22, 2013 (European Council, 2013). The Youth Guarantee was taken to mean “a situation in which young people receive a good-quality offer of employment, continued education, an apprenticeship or a traineeship within a period of four months of becoming unemployed or leaving formal education. An offer of continued education could also encompass quality training programmes leading to a recognised vocational qualification” (European Council, 2013: 1). The Council had determined at its February 8, 2013 meeting to allocate “EUR 6 billion for the period 2014-20 to support the measures set out in the Youth Employment Package” (p.3), which included the Youth Guarantee.

The fact that the Commission was considering this policy initiative marked somewhat of a change in thinking amidst the doom and gloom that austerity had created to that date. The task, however, was to break out of the austerity straitjacket and introduce a policy that would represent a real change for European youth caught in despair of joblessness. The Youth Guarantee Initiative is a good idea but unfortunately failed to make that break.

The scale of the program had austerity written all over it. The European Council allocated just 6 billion euros under its Youth Employment Initiative (YEI) between 2014-20 to the program. The Euroepan Investment Bank Group also had committed to spend the same amount on youth employment initiatives but not necessarily on the Youth Guarantee. Where would the remaining funds come from? The answer is Member State governments that were being forced to reduce net spending overall to bring their fiscal balances into line with the SGP and the six pack. How one might ask will it be possible to avoid the catastrophe with such a minimal funding commitment. If the Member States really allocate significant amounts to the program then the funds will be at the expense of other programs. Austerity means a net retreat of the public sector no matter what changes are made to the mix of the public spending. The lack of any serious funding commitment really highlights the euro-zone disaster. Eurofound, one of the Commission’s own creations, estimate that the losses from the NEET disaster alone are at least €153 billion. That is nearly 3 billion euros a day are being wasted, every day, not to mention the other non-economic costs endured by the individuals concerned and society in general. In the face of that scale of disaster, the fact that the European Council can only allocate 6 billion euros tells you almost everything about its dysfunctionality and distorted sense of priorities.

The official documentation (for example, European Commission, 2012b) provides details of the sort of activities that would be funded under the Youth Guarantee. These activities can be clustered under headings such as information provision, training and wage subsidies/self-employment support. There is nary a job in sight! So is the European Commission’s Youth Guarantee an appropriately scaled program to meet the ‘catastrophe’ of youth unemployment in Europe? The program is clearly not an adequate response and continues the bias towards supply-side measures, which were defined by the OECD Jobs Study in 1994. The evidence from the last 20 years doesn’t support the principle tenets of the ‘activation’ approach. First, training programs that are divorced from the paid-work environment tend to be ineffective. Second, building new information systems to reduce mismatch between workers seeking jobs and the jobs on offer is only an effective strategy if there are jobs available. Third, proposals to address poor signalling (for example, improving interview techniques, C.V. presentation etc) is ineffectual if there a shortage of jobs. Fourth, wage subsidies have a long record of failure and operate on the flawed assumption that mass unemployment is the result of excessive wages. There is no consistent evidence that supports the idea that private firms will provide millions of jobs to the European youth as a result of wage subsidies (100 per cent or otherwise). If firms cannot sell the extra output they will not hire extra workers. They may hire youth and sack adults and pocket the cost differential if productivity considerations allowed.

The overwhelming problem with the Youth Guarantee proposal is that it skirts around the main issue – a lack of jobs. It continues the emphasis on full employability, that is, preparing youth for work, rather than ensuring there are enough jobs available to ensure there is full employment. What is needed in Europe is a large-scale job creation program for those who are not in formal education or formal apprenticeship programs. Within that job creation program, various training ladders can be included where appropriate and where the participant desires lie.

It is telling that the most recent document available from the European Commission on the Youth Guarantee initiative (European Commission, 2014) is a glossy brochure filled with photos that show young people in employment and training situations. The photos are copyrighted to Shutterstock, the stock photography agency based in New York. In other words, the brochure is filled with photos downloaded from the Internet, which are designed to send a positive message in lieu of any actual job experiences for youth in Europe being available to the bureaucrats in Brussels.

Employment guarantees versus Income guarantees

Many progressive commentators advocate the introduction of a Basic Income Guarantee (BIG) as the primary policy weapon against poverty and consider employment guarantees to be coercive. They highlight the fact that if there is a lack of employment alternatives available to citizens then the provision of an unconditional BIG, set at some ‘liveable’ level and payable to all citizens, is the most direct means of addressing income security. Mitchell and Watts (2004) present a detailed critical comparison of employment guarantees and income guarantees, which are beyond the scope of our narrative here. In brief, they conclude that the BIG conception of income insecurity and unemployment is highly problematic. Key BIG advocates (for example, Belgian Phillipe Van Parijs) typically claim unemployment (a scarcity of jobs) is caused by some workers enjoying excessive wages relative to the free market outcome. Trade unions and government minimum wage legislation is blamed for creating this scarcity of jobs. There is no recognition that mass unemployment is always the result of a deficiency of total spending in the economy. Further, the BIG proponents adopt the neo-liberal assumption that governments are financially constrained and thus propose to fund the income guarantees by taxing those who enjoy employment because their excessive wages deny the unemployment a chance to work. The unemployed are thus considered to be ‘allowing’ those in employment to enjoy being employed and as a result should be rewarded for their sacrifice. The implied concept of full employment is equally bizarre. The BIG advocates solve the problem of mass unemployment by engineering an artificial withdrawal of the available labour supply, so that some of the unemployed are reclassified as not in the labour force and in receipt of their basic income allotment.

Whether the BIG is to be modest or not, profound macroeconomic problems would still accompany its introduction. The mainstream BIG literature advocates the introduction of a BIG within a ‘fiscal neutral’ environment. This is presumably to allay the criticism of the neo-liberals who eschew government deficits. One of the sensitive issues for BIG proponents is thus its perceived ‘cost’. Under budget neutrality, the maximum sustainable BIG would be modest. Aggregate demand and employment impacts would be small, and even with some redistribution of working hours; high levels of labour underutilisation are likely to persist. Overall this strategy does not enhance the rights of the most disadvantaged, nor does it provide work for those who desire it.

Persistent unemployment can be avoided by the introduction of the BIG through a net government stimulus (deficit). That is, the unemployed could be persuaded to drop out of the labour force upon receipt of an income guarantee. But the value of the currency will fall given that nothing is provided in return for the government spending. The resulting inflationary bias would invoke interest rate adjustments (given the current inflation-first approach adopted by central banks) that would constrain the economy from achieving sufficient growth to offer real employment options to all aspiring workers. But then what would be the impact on labour supply? If the level of BIG is increased, total labour supply is likely to decrease as both the unemployed and employed workers drop out of the labour force. The economy would move towards full employment by stealth – pushing workers out of the labour force rather than providing work for them.

But then a further quandary emerges. The more generous BIG, would probably stimulate total spending such that there would be a shortage of labour at ‘full employment’, resulting from the artificial reduction of the full employment level of employment, which then compounds the inflationary pressure. The alternative is that the excess demand for goods would be increasingly met via imports with consequential effects for the exchange rate and the domestic price level, which would accentuate the inflationary pressure. Mitchell and Watts (2004) explored these and other destructive dynamics in detail. The conclusion is that the introduction of a BIG policy is likely to be highly problematic with respect its capacity to deliver both sustained full employment and price stability.

In contradistinction, the JG creates a buffer employment capacity in the economy by hiring at a fixed price in exchange for hours of work and does not compete with private sector wages. Employment redistributions between the private sector and the buffer stock can always be achieved to stabilise any wage inflation in the non-JG sector. The JG addresses the problem of unemployment at its root cause – a lack of jobs. It solution is direct – provide as many jobs as are required.

There is an additional and important contrast to be drawn between employment guarantees and income guarantees. The JG is predicated on the view that participation in work remains central to our identity and independence, and persistent unemployment remains the central cause of income insecurity and social exclusion. The benefits of work go well beyond the provision of income. Individuals achieve social standing from work and the social networks that emerge through workplaces provide many of the opportunities that define the quality of life. Further, the JG recognises that work remains intrinsic to human existence. Humans seek to transform nature to live. Certainly, history has evolved to the stage where the organisation of that effort – Capitalism – is oppressive and the anathema of liberation, despite the wage form making it look as though we have freedom to choose. But we need to separate the specific form of work organisation from the intrinsic meaning of work for people. People will still seek ways to ‘work’ and will have to work, even if we liberate ourselves from the specific yoke of Capitalism. There has also been considerable research done by social scientists which suggests that people still consider work to be a central aspect of life and there are deep-seated views about deservingness and responsibility for one’s circumstances. These views translate into very firm attitudes about mutual obligation and how much support should be provided to the unemployed. These attitudes while mostly unhelpful are ingrained and will take time to shift. Further, most unemployed workers indicate in surveys that they prefer to work rather than be provided with income support.

If the vast majority of workers prefer to work then the systemic failure to provide a sufficient quantum of jobs imposes harsh costs that can be alleviated by the introduction of a JG. In this regard, the JG is a source of freedom – from the oppression of unemployment, the capitalist property relations notwithstanding. The future of paid work is clearly an important debate. The traditional moral views about the virtues of work – which are exploited by the capitalist class – need to be recast. Clearly, social policy can play a part in engendering this debate and help establish transition dynamics. However, it is likely that a non-capitalist system of work and income generation is needed before the yoke of the work ethic and the stigmatisation of non-work is fully expunged.

In contradistinction, while the introduction of an BIG has superficial appeal – by allowing individuals to subsist without work – the approach effectively denies these social (non-income) aspects of work. BIG individuals are reduced to being ‘consumption’ units. As long as the government provides them with enough income to allow them to maintain some basic consumption levels, its responsibilities are complete. Payment of a BIG to all citizens would signify a further withdrawal by the State from its responsibility to manage economic affairs and care for its citizens by ensuring that there were sufficient jobs for all. Young people must be encouraged to develop skills and engage in paid work, rather than be the passive recipients of social security benefit. The failure to engage in paid work cannot be narrowly construed as an inability to generate disposable income which can be addressed through a benefit, but entails a much broader form of exclusion from economic, social and cultural life, which has highly detrimental consequences. There are substantial social benefits that arise from the provision of stable work with decent wages, health and retirement benefits.

BIG advocates fail to explain how its availability will promote meaningful engagement on the part of the disadvantaged, who have limited income earning opportunities. The universal availability of the BIG, does not overcome the stigma associated with voluntary unemployment of the able-bodied, who do not have caring or other responsibilities.

Further, how can society make a transition such that work is more broadly defined and the stigma of not being engaged in traditional work is lessened? That is a central question for a progressive. The question is how to make this transition in light of the constraints that capital places on the working class and the State. BIG advocates think that their approach provides exactly this dynamic. Clearly, there is a need to embrace a broader concept of work in the first phase of decoupling work and income. However, to impose this new culture of non-work on to society as it currently exists is unlikely to be a constructive approach. The patent resentment of the unemployed will only be transferred to the ‘surfers on Malibu’ (using Van Parijs’ conception of life on the Basic Income)! By way of contrast, the JG provides a vehicle to establish a new employment paradigm where community development jobs become valued. Over time, and within this new JG employment paradigm, public debate and education can help broaden the concept of valuable work until activities which we might construe today as being ‘leisure’ would become considered to be ‘gainful’ employment. Ultimately, struggling musicians, artists, surfers, thespians, and the like, would be working within the JG. In return for the income security, the surfer might be required to conduct water safety awareness for school children; and musicians might be required to rehearse some days a week in school halls and thus impart knowledge about band dynamics and increase the appreciation of music to young school children. Thinking laterally, a bit more, community activism could become a JG job. For example, organising and managing a community garden to provide food for the poor could be considered a paid job. We would see more of that activity if it was rewarded in this way.

In other words, society can begin to re-define the concept of productive work well beyond the realms of ‘gainful work’, which in current parlance, specifically relates to activities that generate private profits for firms. Over time, productivity would become more of a social, shared, public concept, and only limited by one’s imagination. In this way, the JG becomes an evolutionary force – providing income security to those who want it but also the platform for wider definitions of what we mean by work!

It is also highly likely that the introduction of the JG will place pressure on private employers, particularly in the low-skill service sectors to restructure their workplaces to overcome the discontent that their underemployed workers feel.
A full-time JG position at wages not significantly different from the low pay in the private sector service industries would appear attractive relative to a private job that rations the worker hours. In this regard, the JG would offer flexibility to workers and become a source for dynamic efficiency. Some workers would prefer part-time jobs while others would require full-time jobs within the JG. Private firms would be motivated to invest in new work processes, which would generate higher productivity. It should be obvious this flexibility can accommodate virtually any requirement of workers. Further, it is very easy to design the program in such a way that child care services will be provided by JG workers, to accommodate parental needs. Disabled workers can be incorporated within this flexible environment whereas private firms have demonstrated an unwillingness to accommodate this cohort.

Social attitudes take time to evolve and are best reinforced by changes in the educational system. The social fabric must be rebuilt over time. The change in the mode of production through evolutionary means will not happen overnight, and concepts of community wealth and civic responsibility that have been eroded over time, by the divide and conquer individualism of the neo-liberal era, have to be restored. The traditional moral views about the virtues of work – which are exploited by the capitalist class – need to be recast. Clearly, social policy can play a part in engendering this debate and help establish transition dynamics. However, it is likely that a non-capitalist system of work and income generation is needed before the yoke of the work ethic and the stigmatisation of non-work is fully expunged.

The BIG approach creates a dependency on passive welfare payments and hence a stigmatised cohort. It also treats people who are unable to find adequate market-based work as ‘consumption’ entities and the is satisfied to meet their consumption needs. However, the intrinsic social and capacity building role of participating in paid work is ignored and hence undervalued. It is sometimes said that beyond all the benefits in terms of self-esteem, social inclusion, confidence-building, skill augmentation and the like, a priceless benefit of creating full employment through job creation is that the ‘children see at least one parent going to work each morning’. In other words, it creates an intergenerational stimulus that the BIG approach can never create.

Unlike the BIG model, the JG model meets these conditions within the constraints of a monetary capitalist system. It is a far better vehicle to rebuild a sense of community and the purposeful nature of work. It is the only real alternative if intergenerational disadvantage is to be avoided. It also provides the framework whereby the concept of work itself can be broadened to include activities that many would currently dismiss as being leisure, which is consistent with the aspirations of some BIG advocates. The JG allows for capacity building by integrating training and skills development into the paid work environment.

[THAT ENDS CHAPTER 19 – I HAVE TO WRITE ONE SMALL CHAPTER INTRODUCING THE CURRENT ORTHODOXY IN EUROPE – SIX PACK ETC THEN INTRODUCTION – LOOKING LIKE ABOUT A WEEK MAXIMUM. TONIGHT I HAVE TO WRITE ABOUT THE FEDERAL ‘BUDGET’ IN AUSTRALIA]

Additional references

This list will be progressively compiled.

CofFEE (2008) ‘Creating effective local labour markets: a new framework for regional employment policy’, Centre of Full Employment and Equity, University of Newcastle, November. http://e1.newcastle.edu.au/coffee/pubs/reports/2008/CofFEE_JA/CofFEE_JA_final_report_November_2008.pdf”>””’

Der Spiegel (2009) ‘New Idea to Keep Unemployment Down: Germany Mulls ‘Parking’ Unwanted Labor in New State-Funded Firms’, April 14, 2009. http://www.spiegel.de/international/germany/new-idea-to-keep-unemployment-down-germany-mulls-parking-unwanted-labor-in-new-state-funded-firms-a-618887.html

Eurofound (2012a) ‘Youth Guarantee: Experiences from Finland and Sweden’, 2012. http://www.eurofound.europa.eu/pubdocs/2012/42/en/1/EF1242EN.pdf

Eurofound (2012b) ‘Young people not in employment, education or training: Characteristics, costs and policy responses in Europe’, October 22, 2012. http://www.eurofound.europa.eu/pubdocs/2012/54/en/1/EF1254EN.pdf

European Commission (2012a) ‘Youth employment: Commission proposes package of measures’, Press Release, December 5, 2012. http://europa.eu/rapid/press-release_IP-12-1311_en.htm?locale=en

European Commission (2012b) ‘Proposal for a Council Recommendation on Establishing a Youth Guarantee’, Commission Staff Working Document, COM(2012) 729, December 5, 2012. http://ec.europa.eu/social/BlobServlet?docId=9222&langId=en

European Commission (2014) ‘Leaflet – The Youth Guarantee: Making It Happen’, April 2014. http://ec.europa.eu/social/BlobServlet?docId=11601&langId=en

European Council (2013) ‘Council Recommendation of 22 April 2013 on establishing a Youth Guarantee’, Official Journal of the European Union, C120/1, 26.4.2013. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013H0426(01)&rid=1

Evert, H. and Neumann, P. (2009) ‘Tarifparteien fordern Staatsgeld gegen Jobkrise’, Die Welt, April 14, 2009. http://www.welt.de/wirtschaft/article3556507/Tarifparteien-fordern-Staatsgeld-gegen-Jobkrise.html

Graham, B. (1937) Storage and Stability: A Modern Ever-normal Granary, New York, McGraw Hill.

Gregg, P. and Layard, R. (2009) ‘A job guarantee’, mimeo, London School of Economics, March 16, 2009. http://cep.lse.ac.uk/textonly/_new/staff/layard/pdf/001JGProposal-16-03-09.pdf

ILO (2012) ‘Eurozone Job Crisis: Trends and Policy Responses’, Geneva, International Labour Organization.

Layard, R. (1997) ‘Preventing Long-Term Unemployment’, in Phillpott, John (ed.), Working for Full Employment, Routledge, London, 190-203.

Layard, R. (1998) ‘Getting People Back to Work’, Centrepiece Magazine, 3(3), Autumn, 24-27.

Layard, R., Nickell, S. and Jackman, R. (1991) Unemployment, Macroeconomic Performance and the Labour Market, Oxford University Press, Oxford.

Mitchell, W.F. and Watts, M.J. (2004) ‘Comparison of the Macroeconomic Consequences of Basic Income and Job Guarantee Schemes’, Rutgers Journal of Law and Urban Policy, 2 1-24.

Nickell, S. and Quintini, G. (2001) ‘The recent performance of the UK labour market’, Glasgow: talk given to Economics Section of the British Association for the Advancement of Science, September.

OECD (1994) Jobs Study, Organisation for Economic Co-operation and Development, Paris.

OECD (2001) Innovations in labour market policies, the Australian way, Organisation for Economic Co-operation and Development, Paris.

Ormerod, P. (1994) The death of economics, London, Faber and Faber.

Piore, M.J. (1979) Unemployment and inflation, institutionalist and structuralist views, White Plains: M.E. Sharpe, Inc.

Sowell, T. (2006) On Classical Economics, New Haven CT, Yale University Press.

Zuckerman, E.W. (2003) ‘Some Notes on the Relationship between Sociology and Economics (and Political Science):
Cross-Disciplinary Citation Patterns over the 20th Century’, mimeo, MIT Sloan School of Management, October 14, 2003.

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.

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