If Burnham wants firms to hire young people, he needs to get out of their way
Firms don’t need subsidies to incentivise them to hire NEETs, we just need to make sure that work pays, says Mani Basharzad
Andy Burnham’s honeymoon seems to be getting shorter by the day. Even before reaching Nunber 10, he is refusing to hold a proper press conference. But when he enters office, he will face an economy whose wages have stagnated since 2008, whose public debt is approaching the size of its GDP, and which has more than one million people not in education, employment or training (NEETs), costing the government £125bn.
Post-financial crisis stagnation has been a common trend across Europe, but when it comes to the number of NEETs, the UK is performing particularly badly. Comparing the UK with countries in the European Union, only Romania has a higher share of NEETs.
When asked about youth unemployment, Andy Burnham has spoken about a “guarantee of a work placement.” He has also said he will not follow “the traditional Westminster way of just crude cuts, short-term crude cuts that then create a backlash,” and instead wants to reduce welfare by “moving towards a more preventative state that makes the right investments to support people into work.” But this rhetoric of spending more as the solution seems to be exactly the sort of short-term Westminster policymaking that Burnham says he wants to avoid.
What’s the problem with paying firms to hire young people? The problem is that they simply incentivise firms to hire one group of employees instead of another. The Resolution Foundation has argued that “targeted subsidies” are needed to encourage firms to hire NEETs rather than relying on tax cuts. But these kinds of policies merely redistribute slices of the existing pie rather than expand the economy.
This is a zero-sum game. It does not solve the problem; it merely shifts it elsewhere. When businesses have little prospect of creating new jobs, government intervention can only distribute existing jobs across different age groups.
Deruglation
The real solution is to make work pay – not through more government spending, but by ensuring that welfare pays less than work and by making it easier for firms to hire and fire employees through labour market deregulation. If the government extended the National Insurance contribution exemption to 21-24-year-olds who have not been in employment, education, or training during the previous year, it would cost only £0.77bn, according to Policy Engine. With the extensive human capital this country possesses, the government does not need to force employers to hire young people graduating from world-leading academic institutions; it simply needs to get out of the way.
To solve the problem, the new Chancellor needs to look at both sides of the labour market. On the employers’ side, labour market regulations make it difficult to dismiss employees, while red tape and minimum wage requirements increase the cost of hiring them. On the workers’ side, too many young people lack an incentive to enter work. Generous long-term sickness benefits, which people can even learn how to claim by following “sickfluencers” on Tiktok and Instagram, reduce the attractiveness of employment. The government is making job creation harder for both employers and workers, and this has created a stagnant job market.
If Burnham wants to solve the youth unemployment crisis, he needs to look at the underlying reasons why businesses have little incentive to create more jobs. Why are more millionaires leaving the UK than any other country in the world? The reason is not that the government is doing too little, but that it is doing too much.
Mani Basharzad is junior research associate at the IEA