The Unemployment Crisis: A Modest 0.7% Response

Even the Government admits their policies are having little effect on job creation.  They expect unemployment to remain at 13 percent by 2015, a fall of only one percentage point since they took office.  The number of people at work will only grow by 12,000 over the lifetime of this Government. Truly, we are into a period of medium-term stagnation.

A number of analysts have rightly called for a sustained and substantial programme of investment.  This would boost growth in the medium-term while putting people back to work in the short-term.  But it cannot, alone, fill the jobs gap – especially for those seeking to participate in the service sectors of the economy.  There needs to be complementary strategies.

David Begg, General Secretary of ICTU, recently provided one of them. Speaking at the TEEU annual conference he said:

‘I would say that ultimately the State must be willing to contemplate being an employer of last resort through local authorities or social employment. The lessons of the Great Depression may have been lost but they are as valid in social terms now as they were in the 1930s. No country, no society can afford to regard so many of its unemployed citizens as expendable.’

The state as Employer of Last Resort (ELR) – that’s a considerable intervention.  The concept is simple:  during periods of enforced unemployment, where the private markets cannot employ people who want to work, the state should employ people until sufficient job creation commences. 

An ELR programme would employ people through the mainstream public sector, local authorities, or community, voluntary and non-profit organisations on socially beneficial projects.  There are a number of questions over how this would work.  I will focus on two and, in so doing, start the work of outlining an ELR programme.

What Kind of Wor?

An ELR programme would, in the first instance, be targeted at the long-term unemployed.  Being out of work for extended periods diminishes people’s capacity to return to the labour market and erodes their skill base; this is in addition to the negative individual and social consequences (which have measureable economic costs) that people experience. 

The first step would be to conduct an audit of work opportunities in the public and voluntary sectors:  community development and outreach groups, children and youth services, sporting groups, education supports and assistants, childcare, eldercare, drug rehabilitation and ex-offender support services, environmental supports, parks and leisure activities, community health groups, homelessness, neighbourhood regeneration, public safety, etc. The list goes one. 

Second, the Government would mobilise public agencies and community/ voluntary groups to participate in this programme – in concert with trade unions and management in the public and civil society sectors.  Groups and agencies would submit proposals to employ people on specified projects which would be vetted to ensure the work meets benchmarks that stress social value-added, while eliminating labour displacement, market distortions and deadweight.

Third, the employment programme would be rolled out –with temporary contracts paid by the state:  one year, 18 months, two years - whichever is deemed appropriate.  This could be co-ordinated with training agencies for each individual.  For instance, a person may get a contract for 32 hours work a week but also for 8 hours training which could be for work or personal skills.  Therefore, an ELR programme could combine both work and training in a drive to both employ and upgrade skills.

How Much Would This Cost?

A worker on an ELR would be paid a decent wage.  Some proponents suggest this should be at the minimum wage but there are arguments for putting the wage slightly higher – to incentivise take-up and act as a new, if ad hoc, floor to wage-setting.  A participant would retain secondary benefits on the scheme (payment for adult dependents, eligible for Family Income Supplement, back-to-school payments, medical cards, etc.). 

A weekly 39-hour contract of work/training could be set at €9 per hour, or €18,250 annually.  An additional 15 percent would be added for training costs and administration.  To employ 50,000 through an ELR programme would cost approximately €1.05 billion a year. 

This is, however, only a headline rate.  Let’s go through two types of ‘back-of-the-Excel-sheet’ calculations to assess the final cost to the state.  The first is a per-employed estimate.

(a)   There would be a reduction of 50,000 social protection payments.  A rough estimate would be €481 million.  This figure may be slightly on the high side since not all people moving from the Live Register to an ELR job would be on €185 a week (e.g. young people, lower payments due to means-testing, etc.).  So let’s reduce this to €450 million.

(b)   On average, a person on the ELR wage of €18,250 would return to the Exchequer €946 in income tax and USC.  This would come to, in total, €47.5 million.

A reduction in social protection costs and an increase of tax revenue would come to approximately €500 million.  But there’s more.

(c) A person in ELR work would, on average, experience an increase of €7,700 in disposable income.  Most of this would be returned to the economy through consumer spending, increasing VAT/excise revenue.  Just as important, business turnover would increase – which could lead to job creation/retention?  This would be an additional gain to the Exchequer.

There are further revenue potentials when we factor in:

• The expenditure on training which are labour dense

• The savings from reducing the economic/social costs of long-term unemployment

• Employers’ PRSI:  ELR jobs in the public sector would just involve a transfer within public agencies but voluntary sector jobs would raise €1,962 per employee in PRSI.  This could increase revenue by approximately €50 million, if half of all jobs come via the voluntary sector

• The supply-side, or social value-added, benefit from ELR programmes – the benefits from increased resources to drug rehabilitation schemes, literacy programmes, unemployed supports, training for lone-parents.  These all have positive economic knock-ons.

If we just focus on savings from social protection reductions and increased tax revenue, an ELR programme would cost €500 million.  And the risks to this are on the upside since we’re not including the impact on consumer demand, revenue from training, employers’ PRSI and other savings listed above. 

A second calculation can be based on the ESRI’s estimate of the impact of Government wage consumption on the economy.  €1 billion expenditure would result in GDP rising by €1.28 billion.  The Department of Finance estimates that this would, on average, reduce the deficit by approximately €600 million.  This would result in a cost of €400 million.

So, the cost to the state from employing 50,000 people would be somewhere in the region of €400 and €500 million, with the potential of the cost being lower.  This amounts to 0.7 percent of total government spending.

Where Do We Get the Money?

That’s the easy part.  There are three main sources.

• The Government is holding over €18 billion in cash which even they admit is in excess to what would normally be required.  €400 to €500 million could be diverted into paying for an ELR programme with only a minimal impact on our liquidity buffer.  This would entail no extra borrowing, taxation or compensating spending cuts in other programme.

• The Government is proposing a tax package of €1 billion.  Claiming our Future has compiled a list of tax measures of up to €7 billion, mostly on high income groups and unproductive activity.  There’s a range of measures that could pay for this without any resort to borrowing.

• The cost of temporarily reducing the low-rate of Employers’ PRSI and the low VAT rate will be €533 million in 2013.  Withdrawing some of this reduction would free up resources for investing in direct job creation – a better outcome than giving subsidies to companies that laying people off.

Gathering resources from these sources (and there may be more) would quickly raise €400 to €500 million, with little negative impact.

* * *

We can put 50,000 people back to work within the next 12 months.  It would take that long to get the ELR programme off the ground.   This wouldn’t transform the employment crisis overnight; but it would reduce long-term unemployment by over 25 percent.   Nor is it a long-term solution.  In the long-term we must look to the indigenous sector’s ability to create jobs – both public and private - augmented by foreign direct investment.

But combined with a strong investment programme and an end to reductions in public sector employment (which has been shown to have hardly an impact on the deficit but a dreadful impact on the domestic economy), an ELR could make a major contribution to putting people back to work, keeping them in contact with the labour force – and creating social value-added in communities throughout Ireland.

Isn’t that worth the fractional price of 0.7 percent?

Comments

[tells.it.like.it.is]

Typos:

s/What Kind of Wor/What Kind of Work/

s/The list goes one/The list goes on/

[tells.it.like.it.is]

You calculations seem a fishy too ...

"A second calculation can be based on the ESRI’s estimate of the impact of Government wage consumption on the economy. €1 billion expenditure would result in GDP rising by €1.28 billion."

But this isn't €1 billion in *fresh* wage spending, instead circa half of it is just a re-branding of current welfare spend.

So I think you should half the project deficit reduction to €300 million, no?

Also ...

"Employers’ PRSI ... This could increase revenue by approximately €50 million, if half of all jobs come via the voluntary sector"

Where does the voluntary sector get its funding? Much of it comes from direct grants from the HSE etc. Simply recycling this money back into the state coffers gives no net gain (and forces the voluntary groups to cut budget for other things to find the extra PRSI payments).

Also you don't seem to have accounted properly for the non-wage costs of taking on this army of 50,000.

[Ciaran]

Michael,

Best of luck with these proposals. Alas, ideas like these are waved away by those who espouse the idiotic maxim: 'government can't create jobs, only the private sector can create jobs'. You'll also have a tough time convincing certain people that direct public subvention of employment is an economic benefit, even though they have no similar problem with the IDA or Enterprise Ireland sponsoring every two-bit 'entrepreneur' who promises, with crossed fingers, to 'create' a small amount of jobs over a large timeframe.

Shops don't refuse the disposable income of people in receipt of payment from public funds, but one gets the feeling that it is an exercise in futility attempting to tell some people otherwise, particularly those who buy into the 'crowding out' myth.

[Michael Taft]

Ciaran - thanks for that. I share your pessimism but one must keep working on alternatives; the stagnation that is setting in (the OECD projections about a global recession and the poor Irish estimates) means that eventually we'll have to start looking at new ideas.

tell.it.like.it.is - First, there is explicit reference to a 15% top up for training/administration. That is why 50,000 jobs created would result in a headline cost of 1.049 billion. This breaks down to €2,738 or a total of €137 million.

Second, such investment could be categorised as temporary wage consumption (if the employees are treated as direct state employees) or temporary non-wage consumption (the state purchases services from community/voluntary groups in the form of employment payment). It wouldn't be treated as a social transfer since it isn't. The employment of any person results in reduced social protection spend - either current or future. It doesn't change because it is public, private or voluntary.

Third, you may find a redirection of expenditure or an enhanced ability to generate new revenue by an increase in employment in this sector. This will depend on an organisation-by-organisation basis. That is why I didn't include this.

At the end of the day, cutting long-term unemployment by 25%, putting 50,000 people back to work - that can't be anything but positive. I'm sure you would agree with that.

[tells.it.like.it.is]

"First, there is explicit reference to a 15% top up for training/administration."

Sure, but my feeling is that this is too low to account for all the non-wage costs, especially when the likelihood is that these 50,000 workers would be very widely dispersed, often into organizations that are not already tooled up to receive an infux of new employees.

"It wouldn't be treated as a social transfer since it isn't."

Sure, but it doesn't matter what it's called from the point of view of calculating the economic impact.

If give you two fishes today and call a social transfer, then tomorrow employ you for a wage of two fishes & a loaf of bread, your net gain on which to base *new* economic activity is limited the loaf of bread.

"At the end of the day, cutting long-term unemployment by 25%, putting 50,000 people back to work - that can't be anything but positive"

Sure, but I'm arguing for a more accurate costing of the enterprise, not against its essential goodness.

It could be pure motherhood & apple pie, but if the true costs are prohibitive, it will never happen.

[CMK]

Talk of 'prohibitive' costs for creating employing using the state as an employer of last resort is bonkers, truly bonkers. We're paying out billions upon billions every year to unsecured bondholders with barely a murmur in our media and with an impressive omerta among our right wing economists who spring into action instantly whenever public spending to create employment is mentioned. tells.it.like.it.is admit that your preference is for half a million unemployed as a tool to leverage down the so-called 'costs' of employment? You'll emote about the human impact at unemployment but you'll argue against, with a fanatical vehemence, government doing anything to try to create employment. What that says to me is that you are an ideologue of the worst stripe: you'll adherence to the esoteric and abstract nostrums of neo-classical and neo-liberal economics take precedence over doing anything to relief what is now, for decent people [which excludes the vast majority of right wing economists], an unemployment catastrophe.

[tells.it.like.it.is]

@CMK

Almost the very first step in doing something about it, is to figure out what that something will cost.

Not to emote (your phrase) about the billions paid to bondholders, then go on a march, and afterwards settle down for a nice pint with a bit of mutual-backslapping on the side.

Those billions seem to have been re-purposed as the ultimate discussion-stopper on any other costs incurred by the state.

Should the taxpayer continue to pay an allowance to cover female night attire for Army cadets?

"Quit that crazy talk! Don't ya know we're paying billions to bondholders! All other costs are therefore untouchable and unmentionable!"

Back to the real world ...

If Michael is interested in proposing realistic solutions, then his supporting calculations must be open to scrutiny.

Of course, suggestions to create employment emanating from the union camp would be far more believable if the main agenda of ICTU over the past couple years hadn't been to run down public service employment in the most expensive way possible in order to protect the benefits enjoyed by older public servants.

[Ciaran]

'tells.it.like.it.is',

I think the billions being repaid to international loan sharks is a pretty convincing 'discussion-stopper'. Certainly more so than irrelevancies like allowances for night attire for female soldiers, or any other petty examples to which you want to divert the discussion.

Michael's above proposals amount to a much better solution to the unemployment and economic crises that have afflicted this country, than anything else that's been tried so far, which has amounted to nothing more than taking huge amounts of money out of the economy, demonising those in receipt of social welfare payments, as well as transparent attempts at union-busting.

The fact that Michael's proposals entail the use of public money may horrify you, but I think it's obvious that austerity based on Swabian housewife myths have never worked, here or in any other country, at any time.

[tells.it.like.it.is]

@Ciaran

"Certainly more so than irrelevancies like allowances for night attire for female soldiers"

Problem is those "irrelevancies" add up to €1.5 billion per annum in allowances, of which a mere 5% was on chopping block for this year, and 10% for next.

The final savings came in at less than 0.25%, once the insider lobby got its hands on the proposals.

Now if Michael's calculations are correct, the projected savings on those "petty examples" would have funded more than 10,000 ELR positions!

"Michael's above proposals amount to a much better solution to the unemployment ... as well as transparent attempts at union-busting."

No, the main direct state impact on employment during the crisis had nothing to do with "union-busting".

In fact the unions were the primary co-conspirators with the state in running down public sector headcount in order to shore up the insiders' benefits.

So on the one hand the unions demanded and got the most expensive reduction-in-force possible. A billion handed out tax-free in gratuities, huge additional pension costs, surplus staff redeployed to make-work positions.

Next we turn around and start up a massive program of public works?

Surely it would have been far better to either (a) not run down public sector numbers in the first place, or better still, (b) selectively let go surplus staff but then hire larger numbers of graduates into frontline positions where they are needed.

[Ciaran]

'tells.it.like.it.is',

There's more to union-busting than strike-breakers cracking heads at lock-outs. I'm thinking more of Richard Bruton's attack on the rights of workers in service industries, as well as other general attempts to lower the standard of working conditions, in order to placate IBEC, ISME, SFA, Chambers Ireland and the other business representatives / unions.

The "€1.5 billion per annum" worth of allowances is still dwarfed by the amount we're paying in odious debt to the bond pirates. Many of these allowances are merited depending on the job, while others are antiquated and wasteful. However, the point is that getting rid of the latter category of allowance is something that should be done simply as a matter of good housekeeping (for want of a better word), regardless of the economic climate. Getting rid of all of the allowances may end up being counter-productive in terms of service provision - provided, of course, that public service provision is your chief concern, rather than getting one over the unionised public serpents.

Also, I presume you're referring to Croke Park when talking about the unions' 'co-conspiracy' with the State. Whatever else about their conduct during this period, running down the public sector workforce was never their intention : they've always sought to avoid compulsory redundancies. And if they have shorn up "the insiders"' benefits, well guess what? Those insiders are their members, and they're meant to defend their interests, and prevent the race to the bottom desired by the neoliberal right. You don't seriously think the Government would lift the recruitment embargo if the unions had agreed to all the cuts and diminished employment rights demanded of them, do you?

Also, I'm not sure what you mean by "make-work positions", though I have no doubt you've got at least one pertinent example up your sleeve. Suffice to say, I'm sure there's no such problem in the private sector, with every non-executive director and stock/property portfolio-holder working their fingers to the bone for the good of the nation.

"Next, we turn around and start up a massive (sic) program of public works?"

Well, I know it be such a shame after all the good work done in demoralizing a large part of society, but, to answer your question : yes.

Still, glad to see you don't buy into the notion that we have an overstaffed public sector.

[tells.it.like.it.is]

"Also, I presume you're referring to Croke Park when talking about the unions' 'co-conspiracy' with the State."

Yes.

"Whatever else about their conduct during this period, running down the public sector workforce was never their intention : they've always sought to avoid compulsory redundancies."

So it turned out that compulsory redundancies (and to a lesser extent outsourcing) were the *only* forms of headcount reduction that the unions sought to avoid.

By contrast, they actively pursued the forms of headcount reduction that were most advantageous to the insiders - early retirement, voluntary redundancies, and non-recruitment - but least advantageous to service users and to the next generation of public servants.

That headcount reduction was never the unions intention is simply not believable.

There were many other ways to skin the payroll-reduction cat, with different sets of winners and losers in each case. Many of the alternative approaches would have led to less damage to service levels and less reduction of total headcount.

Yet by pure chance the form of payroll reduction most beneficial to the insiders just happened to fall into the union's lap in the middle of that long night of negotiation in Croke Park.

"Also, I'm not sure what you mean by "make-work positions", though I have no doubt you've got at least one pertinent example up your sleeve."

I refer you to the recent redployment of that small army of VEC CEOs to newly invented desk jobs. An alternative would be to recognize that these positions were redundant, let the surplus staff go, and use the funds thus freed up to hire 3-4 graduate teachers for each CEO.

Instead we have non-recruitment of the (good value) staff that we need and retention of the (massively overpaid) staff that we don't.

[CMK]

@ tells.it.like.thinks.it.is

**Almost the very first step in doing something about it, is to figure out what that something will cost.**

Sound advice: it’s a pity the government didn’t do that before they started bailing out the banks. Of course, it’s always interesting to hear the bailouts being defended, the opened ended costs of the bailouts being ignored, by people who in the same breath condemn a couple of million being paid for carer’s or some other essential public service.

**Not to emote (your phrase) about the billions paid to bondholders, then go on a march, and afterwards settle down for a nice pint with a bit of mutual-backslapping on the side.**

Ah, the complacency of someone who had never had to march for anything in his/her life. Right wingers are beyond parody.

**Those billions seem to have been re-purposed as the ultimate discussion-stopper on any other costs incurred by the state.**

Well, like, yeah, dude. We’re constantly being lectured that ‘we’re spending more than we’re taking in and we have to borrow a billion every month to pay for a bloated public sector’ [see Patricia Callan of ISME on ‘Primetime’ last night and Sean Murphy of Chambers Ireland on ‘Primetime’ on Tuesday night. Hilariously, they both used almost the exact same formula of words]. We’re having to borrow a billion a month because we’re handing over two billion every month to pay bondholders for bankrupt banks and to pay the interest on the debts that we’ve been forced to incur to pay for these banks’ recklessness. I know that the right-wing consensus is that the bank bailout has ‘moved on’, but it’s a factor in the state of the public finances now, today, and probably for the next generation. Demands to cut public spending – because we have to borrow to fund that spending – while ignoring that we have to borrow more to pay back financial institutions – is clear evidence that ideological thinking has irreversibly diminished any capacity to provide real analysis of this crisis.

**Should the taxpayer continue to pay an allowance to cover female night attire for Army cadets?**

A beautiful sentence! It captures very succinctly all that is completely rotten with our current economic orthodoxy. It focuses on an entirely negligible part of public spending – a fraction of the public budget given to support profitable businesses – and is dismissive of the needs of female public servants. And indeed completely disregards that those public servants have made a commitment to place themselves in danger should they be requested to do so. Not the kinds of danger that denizens of the IFSC might encounter like a scalded tongue from a latte that is a tad too hot. It’s, you know, real danger with guns, bad guys and stuff.

**If Michael is interested in proposing realistic solutions, then his supporting calculations must be open to scrutiny.**

Michael’s solution is reasonable, humane, an example of what this society badly needs and his costings are open to scrutiny. If only the decision on the bank bailouts and NAMA were as transparent. But, of course, they were focused on saving those who really matter, while spending money trying to alleviate the human catastrophe of mass unemployment is a waste of money and, moreover, the very idea itself must be harried and nit-picked to death.

[tells.it.like.it.is]

@CMK

"It focuses on an entirely negligible part of public spending"

As pointed out earlier, the sum of those individually negligible spending items adds up to €1.5 billion per annum.

"... is dismissive of the needs of female public servants."

Female public servants have no additional needs in the night attire department than male public servants.

Neither are their needs any greater or lesser than the night attire requirements of women or indeed men outside that sector.

We *all* need PJs, the question is whether it makes any sense at all to provide such PJs on the state's dime to *anyone*.

"And indeed completely disregards that those public servants have made a commitment to place themselves in danger should they be requested to do so ... real danger with guns, bad guys and stuff."

In other countries people are exhorted to "support the troops" either by funding the purchase of ever bigger guns, or else by campaigning against such troops being deployed into intractable foreign wars.

Never have I heard that we should honour their service by buying the soldiers (only the female ones, mind) new pajamas.

Are these jammies bullet-proof? How could the possesion of new PJs possibly make a wit's difference to their safety when on deployment?

Unless of course you're talking about the indigenous bad guys, closer to home. Most of those formerly associated with the bad guys have long ceased to be of concern to the security forces, either stalking the corridors of power themselves (the ex. WP gang) or else just a heartbeat away (the Shinners).

"... the very idea itself must be harried and nit-picked to death."

Pointing out a 50% margin or error on the one of the main funding planks is hardly nitpicking.