Do We Need Unemployment Benefits?
What a bold question! Well, I assume it is. Because the following will sound pretty strange from a self-confessed left-wing radical, who belongs to a political side that is known to be keen on supporting the unemployed, and in the Moroccan case, very close to the unemployed graduate movement. Therefore, do allow me to put in a disclaimer: I absolutely feel sympathy towards the unemployed movement, but I disagree with their almost fetishist obsession with jobs in the civil service. Indeed, constitutional rights allow for any citizen to apply for a job in the public sector. However, this right is narrowed down by the law, then by administrative regulations. It seems that even the idea of an entrance exam is too much for the most extreme of them to bear.
Now that this matter is settled, let us turn to the idea itself; Why would Morocco need an unemployed benefits program? First, because the bulk of our unemployed population is not voluntary on the dole. They are genuinely looking for a job, and for many of them, the underground economy is providing for their living. Benefits, when properly designed and applied would allow them to live in dignity, and look for proper jobs. The way I see it, the benefits are there not to disturb some market mechanisms that are yet to be defined and enforced, but to set the standards for better labour-management relationship, and for the public authorities to encourage individuals to move from underground to legal, ‘official’ economy.
Let us first consider the figures on unemployment and inflation. The relationship is considered to be cardinal in mainstream academia. The well-known NAIRU (non accelerating inflation rate of unemployment) is a good start for us to estimate how deep involuntary unemployment is, and thus provide the public authorities with the financial means to deal with it.
When one considers the relatively recent historical series on inflation and unemployment, one is surprised to notice that there was a surprisingly effective effort put into taming inflation (and Morocco can pride itself to be in a full deflation mode without much damage to growth) while policies, when carried out, look despairingly ineffective in view of the near stable level of unemployment. The question remains: why does unemployment remain that high? In a precedent post, I mentioned data that ruled out any serious effect minimum wage might have. There is also little, if no evidence pointing to relationship between labour legislation and unemployment. If anything, it is favourable to the management, especially in the important economic sectors like textile, Telecom services and other outsourced services. I should elaborate on that later on.
When simple econometric computations are run on unemployment and inflation, results look a bit inconclusive. Indeed, the Moroccan Philips Curve does not look like the theoretical one, and if anything, any correlation is too low and too insignificant to be of use. Though it might be too early to tell, there seems to be no direct link between anti-inflationary policies and unemployment. It does however deny policy makers from such argument.
They failed in addressing the problem because they did not devise the proper policies, not because of the so-called necessary trade-off between inflation and unemployment. To their credit, it must be pointed out that a particular sub-population was not fully cooperative; in fact, it was adamant in its claim for public service recruitment.
Moving on. The current level of unemployment can be reduced. Why so? Because even with sketchy econometric models, there is a way to compute the level of unemployed people that can be put to jobs. If I may direct the reader’s attention to a post I wrote on estimating the output gap for the Moroccan economy, the computations reached the conclusion that, as late as 2009, the Moroccan factory is producing below its productive capacity. The terms of the equation are simple: because output gap is negative, the economy can take on more labour so as to lift-up real GDP until the potential GDP is reached. We know the existing level of labour stock, we know exactly (well, with a confidence interval of 95%) how much labour adds to GDP, there remains only to compute how much is needed from the unemployed to bridge that gap in labour force. Estimates are such that an additional 5 basis points to the workforce –ceteris paribus, mainly the capital stock- are needed to bridge the output gap, and certainly much more if capital stock was expanded too. 5% looks a lot (that is, after all, about 53% of the unemployment rate) but then again, because convergence process (the so-called catching-up) with potential output takes time, it remains quite a reasonable target. In absolute terms, that means some 482.000 people would find new jobs. Before I go any further, I must apologize for the sketchy figures, which is mainly due to the data (and my own limited knowledge on the particular field of labour economics)
Now that we know the current level of unemployment can be cured up to 5%, why bother about introducing benefits for those on the dole? First because, just like other vulnerable populations, the public authorities rely on family and tribal solidarity to look after the special needs, the divorcées, the underdogs and the misfits. The large-scale shift in values, the rising individualism (whatever has been said on the matter, RDH surveys can testify) all these changes that are breaking -or already did so- the traditional mould so many people long for (and you know what they are called? reactionaries, that right) and so there’s a need to implement nation-wide programs, like the employment or support benefits. The targeted population, following the HCP figures, would be as follows: about 700.000 unemployed with little or no qualification, not so much a burden on the nation, considering benefits are usually lower than the minimum wage;
Now, I don’t have much time, nor data to elaborate on how these benefits should be defined (and I think legislation here plays a critical role) but under the assumption of average benefits of MAD 1100 per month per individual is not only workable, but provides invaluable teachings in order to expand the program and protect the left-behind, while encouraging them to fight back and return to work. Incidentally, the whole annual cost for such a scheme is approximately MAD 7 Billion, that is 13% of a wealth tax levy on the millionaires in Morocco (at the low rate of 40%). So in essence, a benefit scheme is perfectly workable, so long as it works as it serves a two-fold objective: first, as a temporary stipend for those unemployed (that would include training costs, job lookout, etc…) and as the nation’s solidarity with those definitely unable to contribute to society.
I should like to devote a piece on how these benefits should be designed so as to encourage rather than subdue work, but there it is: it is high time we grabbed the bull by the horn and start a debate on how efficient benefits schemes should be. Their introduction is now beyond debate, it is a necessity.