Saturday, February 21, 2009

Governments and Jobs - How Not to Intervene

Many governments are looking at strategies to impact the labour market, stimulate job creation and get people back to work.

The Labour Party in Britain, when it came to power as New Labour in 1997 under Tony Blair, aggressively pursued just such a scheme. Known as the “New Deal”, the aim was to stop the culture of dependency on social security payments, force the long term unemployed to reskill and use job placements to get back into the workforce. It was a flagship program with cultural aims as well as a specific set of goals focused on training and unemployment. Wage subsidies, tax credits and direct incentives were all used as tools to end long term unemployment. It has cost £75 billion.

Frank Field, a former New Labour Minister, has offered an analysis of this scheme in the London Evening Standard. “The results are derisory," he said, adding that in a decade the number of people doing no work had fallen just 400,000 from 5.7million. Yet at the same time the number of young people not in work or education had actually gone up. Only a third of young people held a job for more than 13 weeks after being on the New Deal - even during the boom. The rest returned to living on benefits. Private training contractors, he said, failed to sanction youngsters who did not turn up, in case they lost their subsidies. Many schemes were unsuitable, he added. For example: putting illiterate people on IT training with too few work stations to go round. There are a growing number of young people who will likely live on benefit payments for life.

£75 billion – or $150 billion to have almost no impact and certainly this big scheme has not lived up to the promises New Labour made for it.

Those now looking to Governments to have an impact on jobs should look very carefully at the New Deal. It tells us a lot about how governments role in the economy is usually very weak and often counter productive.

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