Workfare: a marginal employment subsidy for public and private sectors (2nd edition)
Workfare has had a chequered history because it has not been well thought out. It increases employment not just because it calls the bluff of the workshy; this element need not be all that harsh. It works because it acts as a marginal employment subsidy of a type not tried before (except unwittingly as part of workfare). The subsidy is as follows. As full employment is approached (i.e.given rising demand), dole queue labour gets progressively less suited to available vacancies, which induces employers to out bid each other in an attempt to attract or retain better quality or more suitable labour, and this is inflationary. This phenomenon is behind NAIRU, the level of unemployment below which it is allegedly impossible to go. But the above unsuitability of the unemployed is temporary for each person: a job usually appears sooner or later for which they are suited. Thus the antidote is to compensate employers for this unsuitability, i.e. subsidise the unemployed into temporary jobs and this is more or less what workfare has always consisted of. This ought to reduce NAIRU. The above NAIRU reducing characteristic of workfare is key to proving it should operate as much in the private as public sector. In fact it works better in the former because the private sector is better at employing relatively unskilled labour. It is often claimed that workfare should take the form of specially set up job creation schemes. The arguments for this do not stand inspection (and nor do a large majority of other arguments for these schemes). Thus workfare jobs should be with existing employers. To effect workfare in this form, the unemployed are made available to all employers at little or no charge to the latter, while the number of jobs so created is strictly limited so as to prevent employers replacing existing em¬ployees with workfare employees. The above all amounts to saying that there is a much stronger case for heavily subsidised temporary employment agencies than for subsidised normal employment agencies (Job Centres in the U.K.). Or to put it yet another way, in a totally free market (i.e. in the absence of unemployment benefit) the unemployed have the choice of doing nothing, or doing a job other than their usual one for a while. To date, governments have subsidised only the former. This booklet claims governments should subsidise the latter activity (perhaps at the expense of the former).
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- Calmfors, Lars & Forslund, Anders, 1991. "Real-Wage Determination and Labour Market Policies: The Swedish Experience," Economic Journal, Royal Economic Society, vol. 101(408), pages 1130-48, September.
- Disney, Richard & Webb, Steven, 1991. "Why Are There So Many Long Term Sick in Britain?," Economic Journal, Royal Economic Society, vol. 101(405), pages 252-62, March.
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