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Subsidies that Save

Was France’s recent wave of protests against an amendment that would have increased employers’ freedom to fire young workers a blessing in disguise? To defuse the protests, President Jacques Chirac was forced to withdraw the provision, and instead has proposed hiring subsidies as a way to reduce youth joblessness. A related proposal for targeted wage subsidies is being floated in Germany.

Advocates of greater labor-market flexibility insist that paying employers to hire young people is the wrong approach. Allow employers to fire workers more easily, they argue, and employers will hire them more readily. The limitation of this approach, however, is that a free market for labor will neither eradicate unemployment nor transform marginal, low-end workers into high-productivity, high-wage employees. If the proposed subsidies in France and Germany have a defect, it is not that they are unnecessary, but that they do not go far enough.

In the advanced economies of the West, many people in all age groups are effectively left out of formal employment. In the United States, the pay of less qualified workers is so meager that, if their situation is not dire, they find it emotionally difficult to keep a job for long, or they become too demoralized or distracted to be adequate employees, or minimum-wage laws make them unaffordable to law-abiding employers. In Europe, they are excluded from employment by labor agreements and in some cases by minimum-wage laws. In both cases, these workers lose the opportunity for engagement and personal development that most legitimate jobs provide.

This deprivation in turn generates high social costs, including crime, violence, and dependency. The latter pathologies then become a weapon in the populist attack on free enterprise, which Western countries require for economic dynamism – and thus prosperity. So those who are included and benefit by free enterprise, yet are burdened by the social costs of exclusion, should all be willing to pay something to remedy these conditions.