The broken-down youth employment policy [update 2]

Good old John Key.  He’s put his thinking cap on and come up with a scheme to help up to 17,000 unemployed youngsters.  Good on him, eh.

That nice Mr Key is going to spend around $152,000,000 of your money “to get thousands of young New Zealanders off the dole.”  What  a guy, what a scheme, what a plan.

Estimates suggest this spend-up “will assist roughly 15% of the people it’s meant to be targeting, indicating a deluge of cash around  ”That’s around $59,000 per youngster it’s supposed to help, or around $9,000 each for all of them, showing that as far as “plans” go this makes about as much sense as spending $50,000,000 on the John Key Memorial Cycleway to attract around 20,000 tourists (spending around $25,000 per cycle-tourist to derive “benefits” said to be around $10,000 for each lyca-clad visitor).  So as far as thinking caps go it’s only too clear that the nice Mr Key just doesn’t own one.  His only “big idea” is throwing money at things. Your money.

He might as well just give that money to each of the youngsters and tell them to head off on their OE.

But in fact the cost to you and me is much higher than just the money spent on this feelgood nonsense.  Every dollar that government spends costs producers around two dollars to produce, meaning this spend-and-hope package.   I’ll let you work out what that works out to. The sums aren’t difficult.  But it’s hardly what businesses need at a time when they desperately need every dollar they can get to keep their heads above water.

Now John Key (he’s such a nice man, isn’t he) said over the weekend that this is an example of how his government can "play some part in terms of trying to keep the economy feeling as though it is moving forward and that we are supporting it."  But it’s not, is it.  It’s yet another example of our friend the Broken Window Fallacy – another example of how government just makes the problem they’ve created even worse.

After all, it was government who  created the problem. It’s reported that in June last year, around 4000 young people were unemployed. There are now 17,000. Now if you think back a couple of years you might remember that it was around then that the government increased the youth rate, and in February this year (in the very teeth of the recession) they increased the minimum wage too.  Supporters of both moves insisted that neither would have any effect on unemployment, which shows you how little those people know about anything.  Others of us pointed out at that the chief result would be to increase unemployment amongst the most marginal employees. Like those 17,000 youngsters now unemployed.  This is one of those occasions it would be nice to be wrong, but unfortunately it was all too predictable, wasn’t it.

And government is now making what they created even worse.  Rather than leaving the sum of half-a-billion in the hands of producers, who would use it to genuinely move the economy forward,  government is taking the investment bread from their mouths to give youngsters an unsustainable crust – and getting headlines for “doing something” when what it’s doing is only exacerbating what they’ve already created.  Short-term non-solutions to a long-term problem of their own making.

So given that Mr Key clearly has no ideas beyond tax-and spend and making beneficiaries out of would-be employees, let me give him two simple ones to sort out this problem.

1. The first is to abolish the minimum wage for every marginal employee – that is, for every employee who can barely produce enough to justify their position.  Abolish the minimum wage so that employers can create genuine positions at the recession wages they can actually afford while offering an opportunity for these marginal employees to get a foot on the employment ladder.
2. And to make it easier for these employees to pay their bills, give each of them a two-year income tax holiday so they’ve got a chance at being a genuine producer.

How about those two ideas, which will help both producers and employees, and would definitely play some part in keeping the economy genuinely moving forward and the government progressively getting the hell out of the way. Everybody wins, unlike now.

UPDATE 1:  The reactions around the blogs are a good measure of political partisanship and economic (il)literacy.  David Farrar says "Ra, ra.”  Labour’s Red Alert nitwits want more, and more. Lindsay Mitchell points out that the headlines are wrong, that dole for 16-17 year olds isn’t being “scrapped” since it doesn’t exist – and that Job Ops and Community Max are Fancy names for failed ideas.  Eddie at Labour’s Double Standard, one of the cheerleaders of minimum wage hikes, says the scheme has “good potential [Galt save us] but will it deliver?”  And Cactus?  She points out what no one else has:

    Once again the National (Socialists) do not understand that government cannot create jobs . . . Now John Key has come up with another idea to match the "Bill English Cycleway". $156 million poured down the hole with selectively picking "winners" from losers. . .
    These are not real jobs. At the end of the six months they can hand the worker back. These young people are still unemployed.

UPDATE 2: It’s deja vu, says Russell Brown.

A bold $150 million plan to keep all New Zealand under 18 year-olds in school, or in training … the idea sounds oddly familiar. Ah yes. Helen Clark announced it as Labour Party policy 18 months ago.

Naturally, National’s supporters were bagging it then . . .

UPDATE 3: As if to reassert their place in the elite of economic illiteracy, the Unite Union has chosen today “to initiate a petition for a Citizens Initiated Referendum on raising the minimum wage . . . starting with an immediate rise to $15 per hour.”  They surely don’t have the brains they were born with.