Macedonia vs. Unemployment - Proposal Submitted to the Government - Part II

Macedonia vs. Unemployment - Proposal Submitted to the Government - Part II

By: Dr. Sam VakninFormerly Economic Advisor to the Government of the Republic of Macedonia

Encouraging Employers to Hire the Unemployed

The principle governing any incentive scheme intended to encourage employers to hire hitherto unemployed workers must be that the employer will get increasing participation in the wage costs of the newly hired formerly unemployed workers – more with every year the person remains employed. Thus, a graduated incentive scale has to be part of any law and incentive plan. Example: employers will get increasing participation in wage costs – more with every 6 months the person has been unemployed by them.

Additionally, employers must undertake to employ the worker a number of months equal to the number of months they received benefits for the worker and with the same salary. It would be even better if the incentives to the employer were to be paid for every SECOND month of employment. Thus, the employer would have an incentive to continue to employ the new worker.

Employers will receive benefits for a new worker only if he was registered with an unemployment office for 6 consecutive months preceding his new employment.

I recommend linking the size of investment incentives (including tax holidays) to the potential increase in employment deriving from the investment project.

ALTERNATIVE TEXT PROPOSED BY MACEDONIAN EXPERTS

There are two types of incentive schemes intended to encourage employers to hire hitherto unemployed workers.

In the first method the employer gets increasing participation in the wage costs of the newly hired formerly unemployed workers – more with every year the person remains employed. Thus, a graduated incentive scale has to be part of any law and incentive plan. Example: employers will get increasing participation in wage costs – more with every 6 months the person has been unemployed by them.

In the second method (preferrale in Macedonia’s conditions), employers must undertake to employ the worker a number of months equal to the number of months they received benefits for the worker and with the same salary. It would be even better if the incentives to the employer were to be paid for every SECOND month of employment. Thus, the employer would have an incentive to continue to employ the new worker.

Employers will receive benefits for a new worker only if he was registered with an unemployment office for more than 12 consecutive months preceding his new employment – or if he or she is a recipient of welfare payments and social benefits through the Employment Bureau. This is much like the very successful American and British schemes of “Welfare to Work”.

I recommend linking the size of investment incentives (including tax holidays) to the potential increase in employment deriving from the investment project.

Encouraging Labour Mobility

Workers must be encouraged to respond promptly and positively to employment signals, even if it means relocating. We recommend obliging a worker to accept any job offered to him in a geographical radius of 100 km from his place of residence. Rejection of such work offered (“it is too far”) should result in a loss of the “unemployed” status and any benefits attaching thereof. On the other hand, the Employment Bureau should offer financial and logistical assistance in relocation and incentives to relocate to areas of high labour demand. The needs of the unemployed worker’s family should also be considered and catered to (kindergarten or school for his children, work for his wife and so on).

Fixed term labour contracts with a lower cost of dismissal and a simplified procedure for firing workers must be allowed (see details below).

I recommend altering the Labour Relations Law to allow more flexible hiring and firing procedures. Currently, to dismiss a worker, the employee has to show that it has restricted hiring, applied workforce attrition and reduced overall overtime prior to dismissing the worker. The latter has recourse to the courts against the former. This recourse should be eliminated and replaced with conciliation, mediation, or arbitration (see below for details).

Reforms in the Minimum Wage

The minimum wage is an obstacle to the formation of new workplaces (see analysis in the next chapter). It needs to be reformed.

I propose a scaled minimum wage, age-related and means tested and also connected to skills.

In other words, the minimum wage should vary according to age, other (non-wage) income and skills.

Administrative Measures: Early Retirement

Macedonia must allow the employer to encourage the early retirement of workers which otherwise might be rendered technologically redundant. Early retirement is an efficient mechanism to deal with under-employment and hidden unemployment.

Romania ameliorated its unemployment problem largely through early retirement.

Offering a severance package, which includes a handsome up-front payment combined with benefits from the Employment Fund, can encourage early retirement. A special Early Retirement Fund can be created by setting aside receipts from the privatization of state assets and from dividends received by the state from its various shareholdings, to provide excess severance fees in case of early retirement.

ALTERNATIVE TEXT PROPOSED BY MACEDONIAN EXPERTS

An employer with technologically redundant employees should be allowed to offer to them the following retirement scheme:

1.     They will be considered pensioners for the purposes of every applicable law and benefit (for instance, for the purposes of the Health Fund).

2.     Thus, they will not be “fired” but “retired”.

3.     Upon retirement, they will receive a lump sum, which will represent their compensation for their accumulated work tenure, in accordance with the law (=their severance fee).

4.     They will begin to receive monthly pension payments, as per their entitlement, work tenure, level of last salary, etc. only when they reach the age prescribed by law (63 – 65) – LIKE EVERY OTHER PENSIONER.

NOT RECOMMENDED Administrative Measures: Reduction of Working Hours

Another classic administrative measure (lately implemented in France) is a reduction in the standard working week (in the number of working hours). For reasons analyzed in the next chapter, we recommend NOT to implement such a move, despite its obvious (though false) allure.

NOT RECOMMENDED Administrative Measures: Public Works

All the medically capable unemployed should be compulsorily engaged in public works for a salary equal to their unemployment benefits (Workfare). A refusal by the unemployed person to be engaged in public works should result in the revocation of his “unemployed” status and of all the benefits attaching thereto.

Generally, we would not have recommended public works.

From the Encyclopedia Britannica:

“The weakness in the proposal to use disguised unemployment for the construction of social overhead capital projects arises from inadequate consideration of the problem of providing necessary subsistence funds to maintain the workers during the long waiting period before the projects yield consumable output. This can be managed somehow for small-scale local community projects when workers are maintained in situ by their relatives – but not when workers move away. The only way to raise subsistence funds is to encourage voluntary savings and expansion of marketable surplus of food purchased with these savings.”

But public works financed by grants or soft loans can serve as an interim “unemployment sink” – a buffer against wild upswings in unemployment.

The situation in Macedonia is so extreme, that it is comparable only to the Great Depression in the USA.

In the USA, in 1932, the Civilian Conservation Corps (CCC) was established to tackle nature conservation work for the young and unmarried men. They planted trees, erected flood barriers, put out forest fires and constructed forest roads and trails. They lived in work camps under a semi-military regime. They were provided with food rations and a modest monthly cash allowance, medical care and other necessities. The CCC employed 500,000 people at its peak – and 3 million people throughout its existence.

In any case, there is always the danger that public works will simply displace existing employment. Labour union and local municipality endorsements should, therefore, be strictly observed.

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