It appears that the correct method to reduce unemployment is to reduce unemployment benefits, increase in work benefits, abolish the minimum wage and insist that those unemployed take a job, any job, at any price.
After all, that’s what Germany has done and the German unemployment rate fell dramatically as a result of doing just that. Scott Sumner has the detail:
So what’s the real explanation for the German success? That’s pretty obvious; the Hartz reforms of 2003 sharply reduced the incentive to not work, and sharply increased the incentive to take low wage jobs. As a result, today Germany has lots of very low wage jobs of the type that would be illegal in France or California. ….So the one major success story among developed countries has achieved its success by doing essentially the exact opposite of what progressives want. Germany has no minimum wage, reduced its incentives to live off welfare, and has a level of wage inequality that is increasing even faster than in the US. It’s no wonder that progressives prefer to focus on things like “vocational training programs,” which were just as common during the 30-year period of steadily rising German unemployment.
That’s a fairly forthright explanation of what has been going on. And the real annoyance of that Progressive stand (what we over here might call Guardianista), that we must raise the wages of the lowly paid, not reduce them, that no one should be forced to work to gain benefits, is that you can derive the Hartz reforms from the work of Richard Layard. Indeed, even the timid attempts we do have to get people to work, any job at all at any price, even if the pay must be topped up with benefits, can be derived from Layard’s work. For what he’s actually saying is that long term unemployment puts people on the scrap heap. Thus there have to be sticks and carrots to drag them, screaming wildly if need be, back into the labour force.
Sumner is depressed at the way that the American left insists on counterproductive policies on unemployment. And we are here about the British left. If the market for low skill labour isn’t clearing then that must mean that the price of low skilled labour is too high for the market to clear. If you’re really worried about getting people into jobs you’ve therefore got to accept that wages will fall. If you then want to top them up with in work benefits then that’s intellectually at least, just fine. But wibbling on about how the minimum wage must rise because inequality is just condemning ever more people to lives wasted on the dole.