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David Begg won’t be the one to turn down €250 million Jobs Fund
Read more about: Features, Government, Irish Politics, Policy 
Last night the government put forward plans to invest in jobs to the trade unions as part of the social partnership plans. The fund will initially consist of a €250 million investment with a possible pot of €1bn in theory.
The proposal for a new temporary employment subsidy scheme, under which companies could receive payments of up to €200 per employee per week, was presented last night by the Government to trade unions and employers.
Initial Union reaction was far from ecstatic.
“I can’t say I am happy to be honest because there are different levels of ambition on our side and the side of the Government,” he said, adding that the proposals needed a good bit of reflection at today’s meeting.
According to the Irish Times this morning the government
stated that it would invest €250 million in the scheme but in further talks with unions late last night it said that the final amount allocated to its “jobs agenda” could reach €1 billion if the measures proved to be effective.
So on tenterhooks for the day – what will the unions do?
According to Begg, the choice is simple – its the only game in town. No deal now means no deal at all. So it looks like they will sign up to it and defer minimum wage talks until 2011. This is the final admission that social partnership is dead if nothing comes from this round and it seems unlikely Begg will be the one to let that happen.
Karl Whelan has done a very interesting analysis on whether such a scheme is even valuable.
However, to the extent that the scheme avoids no-hoper firms, it slants the outcome towards the more obvious source of deadweight loss: Supporting firms who would have kept the vast majority of their workers in any case. Looked at this way, the scheme is very expensive. If the effect of the subsidies (relative to the case where they are not paid) is to save one in five jobs at the supported firms over the next year (a high figure, I would guess) then the cost would be €52,000 per year per job saved.
As I understand it, the budget for the scheme up to the end of next year will be €250 million, with a maximum payment period of 15 months. Over a fifteen month period, the cost per worked covered would be €13,000. A figure of 30,000 workers has been mentioned. If all of those 30,000 were covered for fifteen months, the scheme would cost €390 million, so I’m guessing the smaller budget is based on a gradual roll out of the scheme.
In addition, because ICTU had been asking for a scheme with a price tag of €1 billion, the discussions on Morning Ireland mention the possibility that the scheme could be extended or enhanced to cost this much. However, without understanding a time-scale for this €1 billion figure, it doesn’t mean very much.
Cian,
It gets worse:
” if we spend €250 million (or a €1 billion) on these schemes we will undoubtedly have to find a corresponding €250 million in tax increases or, more likely, spending cuts to offset them. These measures will themselves have a negative effect on aggregate demand and thus unemployment.
This comes back to the point I made in my post on stimulus. In the current environment, spending measures like this need to be evaluated according to balanced-budget multipliers (i.e. factoring in the negative effects of the taxes that need to be raised or other spending that needs to be cut to pay for them.) With so many difficult cuts in public spending ahead of us, why put ourselves deeper in the hole by adding an extra €250 million (€60 for every man, woman and child in the country) just to pay for a program that doesn’t help much.”
Of course Karl Whelan is right, but the political counterargument is that no government can ignore the problem of rising unemployment, or be seen to do nothing as the rate of unemployment doubles. It’s the sectoral spread that also causes concern – in previous downturns it’s construction that gets hit first and then general labour throughout the economy. What makes the current crisis stand out is the loss of jobs among the professional classes and the lack of employment opportunities for graduates. Plus, there’s a fair old shake out yet to come in a variety of sectors, such as hotels/catering, the motor trade and the retail sector as well as the continuing seepage of industrial jobs and among SMEs providing support services to the industrial base. And it’s generally accepted that even when things turn around – as they inevitably will – unemployment will fall much more slowly in relation to any resurgence in economic growth.
So even with the best will in the world and careful design of well-targeted interventions, it will be very difficult to avoid some wastage of public money on job protection schemes. Another problem is that politicians will seek a geographical imperative – initiatives piled into their own constituency areas – for any community type employment schemes. This happened in the 1980s, almost to the point of becoming a national scandal! My own view is that job protection schemes or any other manpower policy initiatives should be integrated into a general recovery strategy for the economy and decisions on specific measures made in the cold light of our economic priorities, not as a separate deal to appease the trades unions, placate an angry electorate or to boost the electoral prospects of TDs. How this can be achieved I have no idea, except that control of any designated ‘jobs fund’ should be kept at arms length from politicians.
Veronica,
This a very well-reasoned and balanced argument.
That it will not been acted upon by the politicians and the trade unions is regrettable.
We are advised by external agencies that we can expect little help until we help ourselves.
At the root of our present financial melt-down is the vast stock of empty houses; flats; rooms over shops; development land and fallow acres.
As the Benchmarking Process began to erode our Manufacturing & Export cost base – both in direct wages and the oncost of Utilities, viz. ESB (Who make outrageous profits) Bord Gais etc.- Bank lending was diverted to the Construction Industry.
The only value added was vast profits to the developers and builders. Government got Stamp Duty and VAT, but it was on a finite base that would have a finite end.
That there was extensive added value to individual TD’s and Councillors has been since proven, and Frank Dunlop leads the procession into prison.
Regrettably, prison just adds to the cost base.
So, in what direction does Government go?
A “Bung”, of any sum, to underwrite employment is likely to be squandered.
Let us go back to the empty Housing Stock etc…
To the extent that the explosion in house building was speculative; that cheap bank lending induced Sean Citizen to take a punt, there needs to be a correction.
Consider a levy – in the form of an extension of Capital Gains Tax (CGT).
This would work as follows:
The Insured cost of reinstatement of a house, being the principle private residence of the owner, would reckon as Tax Free on any subsequent disposal.
The difference – being the Opportunity Windfall Gain (OWG)- would be taxed under the rules of CGT.
This system could be extended to include all fallow property and land.
Consider scrapping the Social Partnership.
It is too costly, benefitting special interest groups and driven by empty rhetoric, by bewhiskered goats, bleating generalisations, when the reality is that the Beggs; O’Connors; Dorans; Halpennys et al – all pay themselves huge chunks of their Members’ subscriptions – for very little.
It would be more realistic to place the entire Union Funds under the umbrella of the Labour Court; suitable qualified professionals who would husband the resources of the Members for the benefit of the members – not the General Secretaries.
Plowing €125 million of either Taxpayers or borrowed money is throwing good money after bad.
If any of you bloggers have a better idea, the forum is Open.