The problem with Labour’s jobs guarantee: a subsidy for companies


by Chris Dillow    
10:06 am - January 5th 2013

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You can rely on the Labour party to live down to its reputation as a party of capitalism.

Its "compulsory jobs guarantee" does so in two ways.

First, the fact that it will be compulsory for the long-term unemployed to take up the jobs panders to a mistaken "divide and rule" rhetoric that distinguishes between skivers and strivers. As Neil says, the party is – yet again – "running scared of the Daily Mail".

Secondly, the policy will, as Liam Byrne says, "provide subsidy" to private sector employers to hire the long-term unemployed.Labour will, in effect, give taxpayers' money to Tesco so it can employ more shelf-stackers.

And herein lies the economic problem with the scheme. At the margin, employers will prefer to hire a subsidized long-term unemployed person rather than an unsubsidized short-term unemployed one. In this sense, Labour's plan improves job prospects for the long-term unemployed, at the expense of the short-term unemployed, and has a deadweight cost of paying companies to do what they would have done anyway*.

Labour's plan thus falls far short of more sensible "employer of last resort"-style policies to combat unemployment. It accepts capitalism as it is, and fails to confront the fact that capitalism is unable to provide work for all.

All that said, there is something to be said for the plan. It starts from the sad fact that public opinion about welfare is ill-informed and ignorant. Faced with this, a sensible party should campaign in lies and govern in truth. It should wibble, as Byrne does, about people needing to be "working or training, not claiming" simply because this is the easiest way to get votes from bigots. In office, when the scheme is up and running, the compulsory element can be quietly dropped, on the grounds that it is costly to administer and enforce.

And then, when the evidence shows that subsidized jobs are of poor quality, and are displacing the shorter-term unemployed, the party can switch from subsidizing the private sector to creating new jobs through a programme of public works, in the way a proper job guarantee scheme would.

In this sense, if Labour's plan has any merit, it is as the thin end of a wedge.


* Granted, there might be an income effect; employers getting the subsidy might feel able to hire more people generally, but this effect might not be large.

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About the author
Chris Dillow is a regular contributor and former City economist, now an economics writer. He is also the author of The End of Politics: New Labour and the Folly of Managerialism. Also at: Stumbling and Mumbling
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Reader comments


Chris

I have followed you for years, but after this sentence, I am afraid it’s over… “a sensible party should campaign in lies and govern in truth”.

Sorry. It was fun for a while. And we wonder why voter turnout and respect for politicians is at an all time low.

Stuart

“Labour will, in effect, give taxpayers’ money to Tesco so it can employ more shelf-stackers.”

From my past experience of shopping at one of Tesco’s largest superstores, Tesco could certainly do with employing more price-checkers to close the gaps between posted shelf prices and what shoppers get charged for the items at the checkouts.

Shrugged…: “And we wonder why voter turnout and respect for politicians is at an all time low.”

Exactly. At least Chris Dillow is blunt about it, I suppose.

If the Labour Party was actually sensible it would try to campaign to change public opinion, not leave the shaping of public opinion to Tory-dominated press and then deal with the resulting adverse polls by a combination of implementing Tory policy themselves and outright lying.

4. Chaise Guevara

@ 2 Bob B

“From my past experience of shopping at one of Tesco’s largest superstores, Tesco could certainly do with employing more price-checkers to close the gaps between posted shelf prices and what shoppers get charged for the items at the checkouts.”

Goes both ways. If you check your receipt, it works in your favour. I once got a cutlery set from a supermarket at something like a fifth of the price because it had been mislabelled. Wasn’t deliberate: I thought it was a great deal, saw I’d been overcharged, complained, and was told that the price I’d paid was “correct” but that they’d refund the difference.

Bob B: “Tesco could certainly do with employing more price-checkers”

But your typical supermarket chain won’t do that, will it.

It will employ about the same number at any one time (probably the very same people) but it will get them for free – and thanks to their fear of destitution if they’re sacked they’ll probably be easily coerced to work harder than before, and for longer than their contracted hours.

This may enable either (A) shareholders to cash in on the subsidy or (B) price cuts which undercut other retailers, forcing them to join the scheme too.

If Labour can only come up with the revival of the Youth Training Scheme then they’re in trouble. Hardly a vision for a better future.

Why is it when I see initiatives like this I’m immediately reminded of why Spencer was hired by Jerry St.Clair in Phoenix Nights.

8. gastro george

@3 jungle

“If the Labour Party was actually sensible it would try to campaign to change public opinion …”

It’s actually worse than that because, IIRC, the public’s opinion doesn’t actually need changing, it just needs informing. If you see what I mean (and I suspect that you mean the same).

Paying in-work benefits to employees to raise their wage is a subsidy for labour, but this plan is a genuine subsidy for employers. I don’t think the compulsory issue is really much of a change because accepting employment is supposed to already be the understanding for receiving unemployment benefit.

Kinda agree with Chris that at the margin, employers will prefer to hire a subsidised long-term unemployed person rather than an unsubsidised short-term unemployed one. So the subsidy is with the employer to employ a marginal product worker. However, downside for short-term unemployed workers is premised on pretty static analysis that output would remain the same. Basically just a swap. If output expands there is no reason why both would not be employed.

The one thing it would do is to subsidise poor business models and be a disincentive for productivity improvements. People have mentioned the supermarkets and contrary to what some seem to believe none of the supermarkets are making decent profit margins. Their margins are under pressure as more people switch to grocery shopping online. None of them have worked out how to make a profit from online shopping that costs them £15-£20 to process an order when they can only get customers to pay £5. You doing your own shopping makes the supermarket money, employing someone to do your shopping for you which is what happens with online shopping costs them money. No prizes for guessing who would be major users of subsidised long-term unemployed labour in this scheme. Effectively it would be their business model which is no longer working that would be subsidised by the state.

If the jobs are there they will be filled. How come I can deliver to major regional distribution centres all over mainland U.K. but find non UK staff doingthe jobs . And doing them well ought add.

Surely, the way forward is just to dump the long-term unemployed onto the likes Tesco et al, with an order that they compulsory employ them at the prevailing wages rates within the company? Given that we are told that unemployment is largely a function of benefit dependency and nothing to do with demand for labour and we are further told that the unemployed could find work if only they could be arsed to get up and look for it. Then cutting all the costs associated recruiting must be a good thing right?

Tesco et al hate having to subsidise unemployed people, so they would support it. The Right feel people who can work should work, and there should be an element of compulsion in welfare, so they support it. Paying people at the prevailing rates of pay would mean nobody would be exploited so the Left would support it.

Can’t see the downside.

12. Chaise Guevara

@ 11 Jim

Tesco wouldn’t support it. Why would it? It would resent having its business dictated to it, and TBH I’d have to side with Tesco here.

“Labour’s plan improves job prospects for the long-term unemployed, at the expense of the short-term unemployed, and has a deadweight cost of paying companies to do what they would have done anyway”

Except that it doesn’t, really. Difficult to judge until a plan is actually executed, but the nearest thing to it (the last Labour Government’s Future Jobs Fund) was judged a success by most analysts, including recently the DWP:

http://statistics.dwp.gov.uk/asd/asd1/adhoc_analysis/2012/impacts_costs_benefits_fjf.pdf

CG @ 12

I bet if you asked the CEO of the 200 biggest companies, including Tesco if:

a) He resented paying for unemployment.
b) He supported compulsion to get people back into work.
c) Most long term unemployed are in that position through chioce.
d) Most disabled people could work, if they really tried.
e) The private sector are the best people of finding people’s skills and assign them jobs accordingly.

It is only when you take that to its logical conclusion and dump the long term unemployed on a pro rata basis onto the Country’s biggest employers that they would squeal like fucking pigs.

@10

“How come I can deliver to major regional distribution centres all over mainland U.K. but find non UK staff doingthe jobs . And doing them well ought add.”

They may have got these jobs before the recession when there were more around, and stayed in them through recession.

They may also have had extensive experience in similiar jobs before moving here which meant they were more suitable than UK applicants who had less experience.

A guaranteed job on the minimum wage for the long-term unemployed is clearly a good idea. I just wish that it was in existence when I was unemployed in the late 1980s.

17. Charlieman

@13. Oliver: “Difficult to judge until a plan is actually executed, but the nearest thing to it (the last Labour Government’s Future Jobs Fund) was judged a success by most analysts, including recently the DWP:

http://statistics.dwp.gov.uk/asd/asd1/adhoc_analysis/2012/impacts_costs_benefits_fjf.pdf

Labour’s FJF kicked in before the effects of recession became noticeable. It was a pre-emptive measure, hence the results which I am happy to applaud as much as you.

I’m as sceptic as Chris Dillow about future job creation proposals. If the money goes to projects — almost no matter who proposes it — that would not otherwise take off, I’ll think about it. I do not wish to subsidise “business as usual”.

18. Renie Anjeh

A rather sad article to be honest. Labour – the clue is in the name. Anyway, this policy is effect the Future Jobs Fund applied to everyone. Welfare is not a choice (and people do think that), it is a safety net and we should return to the contributory principle behind the welfare state. It is extraordinary that we are seeing leftwingers like Owen Jones and Chris Dillow jump in bed with the Tories, by opposing a policy that puts people into work rather than on benefits. Labour will and should stick to its guns on a Jobs Guarantee because it is an essential part of what welfare is about and if it wins some Tory voters over that’s fine.

19. Planeshift

“It is extraordinary that we are seeing leftwingers like Owen Jones and Chris Dillow jump in bed with the Tories”

I love the fact labour tribalists still think a good rebuttal is ‘you oppose this policy, so do the tories, therefore you have jumped in bed with the tories’.

Have you seen what your party is doing in Scotland?

20. Renie Anjeh

Yes I have. Labour is fighting to keep the Union and is being realistic about the deficit and how we can prioritise public services over certain benefits. The thing is a Jobs Guarantee is a very good policy and it is shocking that so-called Labour people are now opposing the traditions of the party – Labour – and are totally content with people not being in work when they can. Many of these people complained when the Future Jobs Fund was scrapped which makes it even more remarkable.

“Labour people are now opposing the traditions of the party”
ROFL

Boy oh boy, that’s quite an interesting article to read. Makes sense. Particularly about where the money is coming from to fund this initiative and where it would go.

Subsidising business… aren’t the tory party supposed to be the pro-big business? Dear oh dear. When you’ve switched alliances this much it makes me wonder what they’re doing. It’s not even a socialist approach either, in fact it’s the reverse. A socialist approach would be to employ them directly in infrastructure programs and the like to pick up the slack of capitalism as it were. Yet the people who are proposing this are tories. ¬_¬ Labourites don’t see that Labour is no longer the Labour of the 1970′s in fact they’re further more right than the Conservatives of the 1970′s on many policies.

If you want labour from the 1970′s…not actually that bad. You need to vote Green. In the mean time. Enjoy voting for the same party whether it be Red, Blue or Yellow.


Reactions: Twitter, blogs
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  2. Jason Brickley

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  3. Ferret Dave

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  6. Martin Grouch

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  7. Kitty

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    RT @libcon: The problem with Labour's jobs guarantee: a subsidy for companies http://t.co/qIthiSV9

  14. Sunny Hundal

    Real problem with Labour's jobs guarantee: it's a subsidy to companies who may employ people anyway http://t.co/kfvCpwkE says @CJFDillow

  15. Conor McBride

    Real problem with Labour's jobs guarantee: it's a subsidy to companies who may employ people anyway http://t.co/kfvCpwkE says @CJFDillow

  16. Linda K.

    Real problem with Labour's jobs guarantee: it's a subsidy to companies who may employ people anyway http://t.co/kfvCpwkE says @CJFDillow

  17. Sean

    http://t.co/s47Geh46 Agree. What's not mentioned is that this could drive wages down.

  18. Greg Linehan

    Real problem with Labour's jobs guarantee: it's a subsidy to companies who may employ people anyway http://t.co/kfvCpwkE says @CJFDillow

  19. John Bullshit

    Real problem with Labour's jobs guarantee: it's a subsidy to companies who may employ people anyway http://t.co/kfvCpwkE says @CJFDillow

  20. Ron Wilson

    Labour giving our money 2 Tesco 2 employ shelf stackers better #apoundforscotland 2 generate growth & tackle inequality http://t.co/ZSy0HJ0x

  21. David O'Keefe

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  22. Terry Murphy or FBH

    The problem with Labour’s jobs guarantee: a subsidy for companies | Liberal Conspiracy http://t.co/tzpI4hob via @libcon

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    Real problem with Labour's jobs guarantee: it's a subsidy to companies who may employ people anyway http://t.co/kfvCpwkE says @CJFDillow

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  26. Mahmoona Shah

    RT @libcon: The problem with Labour's jobs guarantee: a subsidy for companies http://t.co/v3jNIxH8 > So much for predistribution…

  27. andrew

    The problem with Labour's jobs guarantee – Liberal Conspiracy: You can rely on the Labour party to live down to … http://t.co/aqTJMoMj

  28. Mark Thompson

    The problem with Labour’s jobs guarantee: a subsidy for companies | Liberal Conspiracy http://t.co/CXAd3Tjl (via Instapaper)

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    [...] But as Chris Dillow says, [...]

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