Saturday, 7 July 2012

don't worry money, your money's happiness is all that money

Recently, I read an article entitled Why Women Have No Opinions. Of course, the author is not actually suggesting that women do not have opinions, she is merely addressing the fact that less than a fifth of op-ed articles in major newspapers are written by women. The reason, she says, is that women won't usually write about something unless they feel extremely qualified to do so, as opposed to men, who feel comfortable blathering out a load of hot air whenever given the opportunity.

Well as a female I've taken note and produced my own "dinner party" piece, I've read a little bit on the subject and I'd like to give you my non-expert thoughts on the wage subsidy, a topic I feel goes nicely with the (un)employment theme of my blog.

As you may be aware, youth unemployment is a big ol' problem in this country. When us young people (hey I count, I'm still in the 18-24 bracket for another 9 months and 1 day dammit) are not hanging around street corners in our hoodies or drinking cheap cider in parks, we're failing to find jobs, presumably due to employers thinking us younglings are useless, stupid and incompetent due to our lack of life experience.

So what is Britain's coalition government doing about it?

Last November, they announced a £1bn "Youth Contract" to tackle record youth unemployment and most recently, plans for a wage subsidy have moved forward. Now from what I understand about the wage subsidy with my feeble female brain, it provides a subsidy to firms taking on young workers to the tune of £2,275 per person, or the equivalent of three months pay at minimum wage. Basically, the government pays firms to employ people. The wage subsidy will now be available to firms in the "top 20" most god-foresaken hell-holes disadvatanged areas, such as Hartlepool, Dudley, Sunderland, etc. The idea of course, is that employers have an extra incentive to take a chance and hire an 18-24 year old, enough money to hopefully make up for their assumed incompetence, giving those youths crucial opportunities to gain experience so they can finally put something on their CVs.

So will this work? As the Centre for Economic and Social Inclusion (CESI) point out "general wage subsidies have two big problems: low take-up by employers; and a large amount of paying for what would have happened anyway (so-called “deadweight”).." CESI further point out that similar schemes in the UK that have been tried and scrapped were not all that successful, Workstart, the “National Insurance Contributions holiday”, The New Deal Employment Option, and the £1,000 Six Month Offer. Furthermore, critics of such schemes often point out that such subsidies, if taken up, create jobs that do not really exist, or "non-jobs" (see here).

CESI have their own suggestions for improving/simplifying the scheme, but is there any other solutions for youth unemployment? Some suggest scrapping the minimum wage. Several economists/misers argue that the minimum wage is a bad thing because some businesses cannot afford to hire as many people; and particularly inexperienced, young, are simply not "worth" minimum wage and are priced out of the market.

Of course this paints an extremely bleak picture, a world where some people are somewhat comparable to the "epsilon semi-morons" in Brave New World (see here if you haven't read it). Not to mention the fact that it seems extremely unpalatable and exploitative to not pay someone a fair wage. Anyway, a recent study by the Low Pay Commission concludes that a fair wage is actually economically beneficial; as firms and sectors most affected by the introduction of a minimum wage actually experienced significant increases in productivity as a result.

So now that we've learned its important to pay people the minimum wage, you got any other suggestions? I'm not entirely sure. Economics is a tricky area for me, in first year of university I took a module called Introduction to Economics which consisted largely of me sitting in the back of the lecture hall playing Tetris and Rainbow Islands on my phone (yes my phone was that awesome) whilst acronyms such as "GDP" flew straight over my head. I was thrilled to get 45 on the exam, as merely passing seemed somewhat miraculous. That summer I decided it would probably be a good idea to actually learn some basics, and took to reading Naked Economics: Undressing the Dismal Science by Charles Wheelan. Now, Wheelan too suggests scrapping the minimum wage, but advocates compensating workers through the systems not unlike the USA's Earned Income Tax Credit system, which he claims is “one of the biggest poverty-fighting tools in recent years”. The EITC uses the income tax system to subsidize low-wage workers to raise their total income above the poverty line. A worker getting $11,000 a year, for example, could possibly get an additional $8,000 through the EITC. In the UK, we have the Working Tax Credit; but it's over complicated, difficult to understand and of course, not available to under 25s.

Taking lessons from Wheelan, I suggest we pay the wage subsidy directly to the workers, like a tax credit, and allow firms to pay workers below minimum wage for a limited period only. Example: a company pays a worker £3.20 an hour and for every hour worked, the public purse compensates an extra £3, for say 3-4 months, after which the "minimum wage exemption period" elapses and firms will be expected to pay a full wage. By expecting the firms to foot some of the costs, less money is lost through "deadweight" and there is an incentive to give employees proper training and have the chance to gain some valuable skills rather than just doing "non-jobs", but the decreased labour costs mean they still have an incentive to hire young people. Furthermore, I'd argue that the "minimum wage exemption period" should only be available to smaller businesses to help them to flourish; and prevent corporate giants cashing in on cheap labour, as the "we can't afford to pay the full wage!" argument doesn't sound so believable coming from Tesco or Asda.

Of course, this would probably still suffer the same problems as the wage subsidy proposed by our government, including low take-up; and even though workers would be compensated I'm sure a bad taste will still be left in the mouth of many if firms are allowed exemption from minimum wage guidelines. C'mon people, comment, let's turn my blog into a thinktank and solve youth unemployment.....oops, getting ahead of myself here.

Anyway, that was my non-expert view on something I don't really know that much about but still have an opinion on. To summarise, I'm not sure the wage subsidy will be that helpful and could be implemented better, but it's probably better than nothing.

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