Training? Subsidies? The search for a solution

In its annual Employment Outlook, published today, the OECD makes a strong call for member countries to put more effort into positive measures designed to get people back into work rather than simply pay for people to remain idle. In the jargon beloved of economic bureaucrats, it wants a shift from "passive" support to "active labour market policies".

Such policies can be anything from a pro-active public employment service to training programmes, support of unemployed people who start businesses and subsidies to employment in the private sector.

What is clear is that Britain scores low in its commitment to such measures, which comprise only a quarter of labour market programmes. The vast bulk of expenditure continues to go on support for those who are out of work. In Sweden, by contrast, more is spent on "active" than "passive" measures.

The OECD reflects growing scepticism about the value of training in combating unemployment. Based on the experience of the US and the Netherlands, it suggests that "broadly targeted" programmes do not deliver and that "highly targeted" ones are simply too expensive.

By contrast, it takes an altogether more positive line on integrated programmes of job-search assistance and counselling. These produce "positive outcomes with limited resources", it says.

The public sector has a crucial role in bringing everything together through its employment service, says the OECD. This co-ordinating role can be strengthened if the various functions, ranging from jobs counselling to the administration of benefits and decisions about who gets on to the various active programmes, "are carried out by the same front office". Such integrated systems exist in only a few countries, such as Austria, Germany, Japan and Norway.

The OECD is cautious about the remedy of wage subsidies, increasingly backed by the UK. The problem it identifies is that firms may hire people who are eligible for a subsidy at the expense of laying off someone who is not subsidised. In addition, firms that take on subsidised workers may expand while those that do not do so contract.

The countervailing arguments are that subsidies bridge the gap with those outside the labour market. Even a job that lasts a short time raises the motivation of the long-term unemployed.

But questions remain as to whether the subsidy should be given to the job-seeker or the firm, the form of the payment, and the height at which it should be set relative to average wages.

Paul Wallace