Monday, 12 January 2009

Employment incentives - a different tack

Conservatives have rushed to criticise Labour PM Gordon Brown for stealing an employment initiative designed to help the long-term jobless.

Apparently the tories have been pushing for tax-payer support to companies which help the less employable since last Autumn (though whether this is because conservative employers are incentivised by protectionist subsidies rather than free markets they unhelpfully don't mention).

So what we have here is two equally wrong-headed party perspectives fighting to claim credit for a policy which will only make the problem worse.

Exactly how is it beneficial to the economy that one section of jobless are favoured over another? It is just madness - it is socially divisive and the sums are highly debatable.

While any action on employment is to be welcomed this smacks of expediency and the irresistible build-up of undesirable bureaucratic complications: there is nothing to stop a company taking the handout without providing any demonstrable benefit - all to shift an unpopular statistic from their account books.

And when the money runs out what then (£2,500 equates to about 2 months pay at the basic income tax rate)? Do they just lay off the workers? Is there anything to stop the company playing the system to cycle through one set of workers after another?

I accept that the biggest hurdle to long-term jobless finding secure employment is the length of their inactivity, but the Conservative/Labour proposals amount to a perverse incentive which doesn't address underlying questions of productivity. Meanwhile it also undermines the incentive for employers to keep fully-trained workers on their books.

In every way this announcement is bad news.

So what is the alternative?

My personal preference would be to look at the most successful labour-market model out there, and yes, it is the football industry.

Introducing transfer fees into workplace contracts immediately creates a positive incentive to maximise the value from each agreement while also fixing the terms under which it may be broken. Workers benefit from being valued more highly, employers benefit from the higher value placed on their workforce, the government benefits from the taxation on the fees involved while everybody has an interest in raising their value.

The plain difference between a subsidised labour market and an open market for your labour is simple: people are valued on an individual basis and there is a direct link to their productivity.

Of course this suggestion represents a major threat to the ingrained vested interests of time-servers and yes-men, but it also represents a serious way to liberate the talent of everybody in society.

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