Academic journal article The Economic and Labour Relations Review : ELRR

A Case for Public Sector Job Creation Schemes

Academic journal article The Economic and Labour Relations Review : ELRR

A Case for Public Sector Job Creation Schemes

Article excerpt

1. Introduction

This paper argues that in the current recession the mix of labour market programs (LMP) should be altered away from supply-side measures towards direct job creation through the public sector. On both efficiency and equity grounds there is a strong case for public sector job creation schemes (PSJCS). The argument is extended further by suggesting that such programs should be developed on a permanent basis, their size and funding be counter-cyclical and they embody a fundamental principle - the right to obtain work at award wage rates. (1)

Three caveats should be borne in mind when considering the arguments. First, direct job creation measures are not proposed as a solution for mass unemployment or as a substitute for general macroeconomic stabilisation policies. Second, supply side labour market measures do have an important role to play in improving the efficiency and equity of the labour market, however, the potential effectiveness of these programs is constrained in a recession. Third, the case presented is one of principle only, there are no details provided on funding, eligibility criteria for participants, the duration of programs and the type of programs to be funded.

2. Recent Theory and Policy on Unemployment

Many OECD economies have gone through more than two decades of historically high rates of unemployment. The reasons for the persistence of high unemployment rates are diverse and include both supply side and demand side explanations (see Layard, Nickell and Jackman, 1991, ch.9). High unemployment rates have not only become endemic, they have increased the underlying NAIRU (non accelerating inflation rate of unemployment). That is, an ever increasing unemployment rate is associated with price stability.

There are a number of reasons for the increasing NAIRU. One view is that those workers bargaining over key wage rates are largely insulated from the effects of unemployment through their employment in secure jobs in the public sector and in large private companies. Any economic recovery leads to an improvement in their bargaining position and increasing wage rates despite the continued presence of high rates of unemployment. This is the insiders-outsiders thesis which argues that the workforce is divided into those in secure jobs and those in either insecure jobs or unemployment. It is the insiders who make the wage bargains, it is the outsiders who suffer the consequences of recession (Blanchard and Summers, 1986).

A complementary view is that there is a group of workers who, once unemployed, find it difficult to regain employment. As a consequence they endure long spells of unemployment. In accession the average duration of unemployment increases and the proportion of the unemployed who are in long-term unemployment (LTU) increases. Those in LTU suffer from the fact that employers use their predicament as a recruitment screen; not having worked over a long period is used as a reason for not offering jobs to the long-term unemployed. Those in LTU tend to become stigmatised, demoralised and quickly loose their skills and work experience value to potential employers. With economic recovery job vacancies tend to be filled from those in short-term unemployment, those outside of the labour force and by those already in employment. That is, job growth does not translate into a matching reduction in either the unemployment rate or the numbers in LTU. As a consequence, a large pool of LTU remains well beyond the end of a recession and the unemployment rate responds slowly to recovery in the labour market (see Layard, Nickell and Jackman, 1991, ch. 5).

"Outsiders" and those in LTU often suffer from a range of labour market disabilities including low levels of educational and training attainments; limited mobility across occupations, regions or industries; and possess personal characteristics (being of a particular race, gender, age or ethnic background) that are used to screen them away from employment. …

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