Anthony Browne: Give a job to the unemployed and get half of the benefits saved

The Chancellor is getting flooded with proposals to revive the economy (see ConHome's 'turbocharge series'), so he should be able to create some fireworks during his growth review. Most of the proposed reforms aim to boost businesses, such as reductions in taxes and red tape. But the Chancellor should include some measures to more directly help the unemployed get into jobs, not just because it is the right thing to do, but because otherwise the headlines about youth unemployment being the worst since the last Conservative government will start to draw political blood. He needs to help people find jobs, and to be seen to be helping them. Clearly the government is already doing a massive amount - I am a big supporter of Ian Duncan Smith's welfare reforms, and the Work Programme should prove very successful. But there is another reform I think the government should make.

One of the best ways to help the unemployed would be to give employers an incentive to take them on. I don't mean subsidising jobs for the unemployed, like the Labour government's future jobs fund. Such job subsidy schemes are notorious for not working - they encourage public or private employers to invent non-jobs, and then people are back on the dole when the subsidy finishes because the job no longer exists. Instead, the government should attach subsidies to unemployed people, to make them more attractive to employers who are recruiting for real jobs.

I can see instinctive Conservative opposition to this, but there is a clear economic rationale for it - it is, in fact, addressing a failure in the labour market. If an employer is considering two roughly equal candidates, one of whom is employed and one unemployed, they will tend to plump for the already employed one as being a safer bet. But if the employer gave the job to the unemployed person, he would save the taxpayer a lot of money in reduced benefits bills. But all the upside would go to the government, and not to the employer, while the risk associated with taking on the unemployed person would all go to the employer and not to the government. What we need to do is align the incentives of the employer with that of the government (and the wider economy) and give them a bonus for taking on an unemployed person for the job - sharing the proceeds of taking someone off the dole. This could be either through scrapping National Insurance contrubutions for unemployed people given jobs, or giving employers a share (such as 50%) of the benefits saved by the government. To reduce deadweight and cap the costs, the government should only introduce the scheme for people who have been unemployed for more than three (or six?) months, and time limit the NI break/benefits share to one year. The scheme has several specific advantages - it is only about getting unemployed people into real jobs (not fake jobs), and the subsidy will only last for as long as they are employed: if the company stops employing them, then they will no longer benefit from the NI break or share of benefits. It also has the advantage that (if the deadweight costs are sufficiently small) it would not cost the government anything, but would actually save it money - each time that a company was induced to take on an unemployed person rather than an already employed one, then the government would save money from reduced benefits.

You might counter that it is unfair to rig the labour market in favour of the long term unemployed over the employed, but it is also just correcting a market failure.  Unemployed people - particularly those who have been out of work for three months or more - are at a particular disadvantage in the labour market. They are often demotivated and discouraged by repeated rejection, lacking in self-confidence, and after a while losing contacts and up-to-date skills. All of this makes it mush less likely they would get a job in the first place, but would all be immediately remedied if they actually started working. There is a huge economic - as well as human - reason to make sure that the short term unemployed don't become the intractible long term unemployed, who are far more difficult to help. You need to keep the labour market churning, rather than fragmenting into "ins" and "outs".

It is only through imaginative, wide-scale policies such as this that the government will make a real difference, and starting turning the tide on unemployment.