Unemployment and active labour market intervention: Pay for delay?

Abstract

Active labour market policy measures have grown in popularity once more. At a time of global economic meltdown, these policies have attracted renewed interest amongst policy makers as they aim to improve the labour market position of unemployed workers. Whilst training and public work creation schemes target primarily the reemployment probabilities of the jobless, job subsidies – sometimes referred to as welfare to- work initiatives – are directed at making work pay, especially for the low skilled and those who would otherwise fail to retain their jobs. Short-term working arrangements have become particularly popular in this context. However, this chapter will argue that active labour market interventions remain largely ineffective. What is more, they become costly barriers to economic catch-up. By reference to the Schumpeterian concept of ‘creative destruction’, a policy alternative is presented - first through initial wage growth across industries, subsequently through wage restraint and, ultimately, in pursuit of a sustainable platform for investment in technological advancement, skills, innovation and economic growth. Economically effective but politically unpalatable, the proposition is unlikely to be favoured by policy makers and political interest groups. However, it counters industrial ossification attempts at a time when flexible and highly productive industries are required to ensure sustainable job creation and retention.