How can we stop the unemployment epidemic?

18th November 2011

Creative solutions have been thin on the ground. This Daily Mail article shows the paucity of ideas. It suggests that President Obama can solve his unemployment problems at a stroke by decreasing regulation in Government-controlled areas:

"Regulations are controlled by presidential appointees at agencies such as the Environmental Protection Agency and the Labor Department, which are part of the executive branch, and at "independent" agencies, such as the National Labor Relations Board. Tougher regulations lead employers to locate elsewhere. Friendlier regulations draw them back home." Less regulation as a solution to unemployment may be sound, but it is hardly ground-breaking.

Right-wing thinkers stress the importance of the private sector, but have yet to find a complete answer to the dichotomy that banks are deleveraging and small and medium-sized companies therefore have less access to capital. This piece from Danny Kruger is typical:

"Ultimately, we will reduce youth unemployment by growing the private sector, and particularly SMEs, as a share of the economy, and by tackling young people's attitudinal barriers to hard work and long-term life planning."

The solution proposed by the Co-alition to date has focused on apprenticeship schemes. Companies with up to 50 employees will be given £1,500 if they hire an apprentice, with the aim of increasing the number of 16 to 24-year-olds undertaking an apprenticeship to 20,000. This is worthy, but does not put a significant dent in the one million or so youth unemployed.

The left's solution is outlined here: "It includes: a £2bn bank bonus tax to pay for 100,000 jobs for young people and build 25,000 affordable homes; bring forward investment in schools and transport to create vacancies; reverse the VAT rise so households have more cash to spend on the High Street; cut the VAT on home improvements to 5%; and introduce a one-year national insurance tax break for small firms that take on more workers." Again, it is worthy, but expensive at a time when the country is focusing on austerity.

There are some small steps being taken by individuals. This BBC article – talks about a scheme that is training women to become electricians. It may be small fry, but organiser Diane Johnson hopes it could inform the thrust of government policy: "(She) is hopeful her scheme could be a blueprint for others to copy and she wants to work with the government to how that can be done.

"Funding is, of course, crucial. In this case, the tab has been picked up by L&Q and three private electrical firms – Axis, Mulalley and Smith & Byford – who are providing work placements. Ms Johnson believes government money earmarked to boost employment should be focused on these sorts of initiatives, rather than on further education courses that she says get people a certificate but do not necessarily provide the hands-on experience required by employers."

Radical financial thinker Bernard Lietaer takes this one step further, suggesting that adopting a new structure of money may be the solution: He believes small businesses fail because of cash flow. They must pay their suppliers instantly, but they don't get paid for 90 days. His solution passes the burden around the supply chain.  He believes money has to evolve in the same way that other systems have evolved. There is more on Lietaer here: http://www.lietaer.com/

His solution has already been used successfully in countries such as Uruguay and Brazil and he believes it gives better allocation of capital across an economy, diverting capital to where it is needed most. He points out that there have been 97 banking crises over the past 10 years and, as such, it is time to change the structure rather than simply trying to mend a broken system.

More on Mindful Money

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UK unemployment jumps raising fears over recovery

Technology and the economy of the future

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