The Road to Post-War Recovery

For the world’s advanced countries, a key challenge is to broaden economic and social inclusion without diminishing the economic dynamism they already have. . The problems of war-ravaged countries are far more acute and their choices much more constrained. Indeed, they confront a double challenge: to create dynamic economies and to promote, at the same time, economic and social inclusion. Without both of these elements, national reconciliation will likely prove impossible.

Social exclusion in industrial countries imposes costs throughout society that policymakers must address with effective and targeted measures. Lack of jobs, for example, often leads people, particularly the young, away from work and into dependency on drugs and crime. Society, then , needs to pay for the costs of crime prevention policies and the administration of justice.

A flexible labor market, as many suggest, will not in itself promote inclusion. Welfare programs in war-ravaged countries often aggravate joblessness by reducing work incentives and creating a culture of dependency. Minimum-wage laws and labor agreements often make the least productive workers unaffordable to law-abiding employers. So what these countries need are more employment opportunities and higher salaries in the private sector for these workers.

Specifically, a wage subsidy program that lowers the cost of hiring full-time unskilled workers could make it more attractive for firms to hire them. At the same time, on-the-job training would make the program attractive to workers and to society as a whole. Governments could afford the cost of the subsidies since cutting unemployment would not only lower public security costs, but would also reduce the need for welfare programs.