The Youth Guarantee programme is potentially a positive development. To prevent long-term youth unemployment, the Government launched a programme that would guarantee young people either a place in education, training or a job.
However, a couple of developments put in question the operation and effect of this guarantee - and both revolve around our old friend, JobBridge. First, as part of the Youth Guarantee Implementation Plan, JobBridge will now become mandatory:
In the case of young people, failures to engage that will give rise to sanctions will include:
- Failure to apply for or accept an opportunity on the national internship scheme (JobBridge)
This suggests two things: first, young unemployment must now pro-actively apply for JobBridge – something that wasn’t required before. Second, it seems the Department will pro-actively create new JobBridge opportunities (that is, contacting employers to participate in the scheme) and then offering them to young unemployed; previously, JobBridge opportunities were generated by businesses alone. This indicates a substantial increase in the scheme.
And the sanctions will be pretty harsh. Young people could see their Jobseeker payment cut by up to 25 percent.
The second development is the news that one company – Advance Pitstop – has taken on 28 interns. This company employs 200 people nationwide so the interns, whose labour is essentially free, make up 14 percent of their payroll. Unsurprisingly, this made national news and not a little bit of criticism (this company is not the only one that has been featured in the media).
Should a scheme that provides labour to employers for free be mandatory? Clearly, there are areas of social protection which are already mandatory. For instance, a Jobseekers’ recipient must show they are available for, and actively seeking, work. Past practice also requires recipients to meet with Department officials as part of the evaluation process, take up a ‘legitimate’ offer of training / job or attend an accepted training / education course (of course, there’s a number of issues with ‘legitimate’).
However, a mandatory scheme that supplies free labour to employers raises a number of concerns. In this post, I’m not addressing the effectiveness of the JobBridge scheme – its ability to help people transition from unemployment into work. We don’t have a lot of information about this aspect, despite the Indecon Report which assessed the scheme without a control group. The ESRI’s Philip O’Connell – a leading researcher in labour market programmes’ effectiveness – stated that, ‘We don’t know the deadweight or displacement’ of the scheme.
I want to focus on the issue of distortion to competition and the loss to the Exchequer. Displacement is usually defined as a situation where an intern replaces an existing employee. We don’t know to what extent that occurs. However, there is another type of displacement that can occur – where an employee might have been hired if JobBridge didn’t exist.
Let’s take a company that currently employs 100 people takes on 14 interns. No doubt they do this because they can fully employ their labour to the benefit of the company. If they employed 14 people at the national minimum wage for a minimum period of six months:
- Personnel cost per employee (including employers’ PRSI): €9,761
- Total personnel costs for the 14 interns: €136,654
Total personnel costs might be reduced if the employer hires someone covered by the Employer Job (PRSI) Incentive Scheme which reduces their PRSI payments – but in this company it would apply to only 5 employees.
So that’s a subsidy over €136,000 to this company – the increase in payroll costs if the 14 people were actually employed rather than taken on as interns. That’s a nice subsidy.
The CSO estimate that the average personnel cost in the car repair sector was €27,600 in 2011. So for the six-month period, the intern subsidy represents nearly 10 percent of their personnel costs. That, too, is a nice subsidy.
What is the cost to the Exchequer if the company had employed the 14 people rather than taken them on as interns? It’s the social protection payment, plus the €50 top-up, plus the lost tax revenue. Let’s assume the intern is a young person (receiving €144 per week) though JobBridge is open to all ages.
- Social welfare payment (plus top-up): €5,044
- Taxation: €765. A minimum wage worker would, over the year, pay €876. But as this is for six months, there is no tax paid. The loss is made up employers’ PRSI.
The loss to the Exchequer for each intern is €5,809. For all the interns, it is approximately €81,300. This doesn’t count tax revenue from higher spending or the benefits to other businesses from increased demand.
So a subsidy of over a quarter of a million to the company results in an Exchequer loss of €163,000.
But there’s another problem. Competitors are put at a disadvantage. The company is receiving a subsidy of 10 percent of personnel costs. Competitors may have to compensate. They can do this by either cutting their own payroll costs. Or by also availing of the JobBridge scheme – not for the primary purpose of providing in-work experience for the interns – but to compensate for labour costs.
We have a situation where JobBridge could be increasingly used by companies to reduce labour costs to remain competitive.
I’m not suggesting that JobBridge is, in general, being used in this way. But the JobBridge advertisements show a significant number of vacancies which would seem to be more appropriate to market employment (‘sales and marketing executive’? ‘accounts administrator’?).
Making the JobBridge mandatory could increase this trend – increase subsidies to companies, increase loss to the Exchequer, and increase the distortion in the market, opening up an intern-race-to-the-bottom.
What started out as a reasonable scheme – to provide people with experience in the field they are seeking to find employment – is in danger of turning into a scheme where more and more employment can only be found through subsidised internships, where there is even more competition for genuine market vacancies and where companies avail of JobBridge to reduce their labour costs. And now make it mandatory?
This is not much of a guarantee.
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