Subsidy is not a dirty word
by Matt Grist
Today David Cameron announced the Government’s youth employment strategy. There is much to be commended, specifically around the expansion of apprenticeships and the greater flexibility granted unemployed young people to volunteer and undertake work experience. But the proof will be in the pudding – particularly around achieving quality and scale in apprenticeship provision.
I would like to pick up on the Government’s attitude to job subsidies in the strategy. It says that activist interventions by government such as the New Deal and Future Jobs Fund were expensive and showed little long-term benefit. There is truth in this assessment – the New Deal was particularly poor at keeping young people in sustained employment. And those calling for the reinstatement of the Future Jobs Fund should consider this: how useful is it for a young person to work in a contrived public sector job, when that sector will not be hiring many new employees any time soon?
But I reject the Government’s claim that it is against job subsidies per se. The Nobel Laureate economist James Heckman has shown how subsidising work through welfare-to-work schemes – effectively what the Government plans to do through the Universal Credit, which will increase marginal wage returns when moving off out-of-work benefits – is a very effective way of tackling unemployment and raising individuals’ earning potential over the long-term.
Moreover, subsidies do not have to come through bureaucratic national programmes. In times of uncertain growth, nervous employers can be persuaded to hire workers through incentives offered through the tax system. Demos recommended in The Forgotten Half that employer’s national insurance contributions be reduced (at a tapered rate) for workers under 25. Why won’t the Government countenance such a subsidy?