Prescribing the Right Remedy for Unemployment
China Times editorial (Taipei, Taiwan, ROC)
February 5, 2009
Soon after the New Year, the government hastily launched its "educational voucher" program. The vouchers are intended to encourage young people who have been unemployed for many months to return to college or to technical institutes. They would receive both academic credit and subsidies. Educational vouchers would in effect be government allowances. It is generally believed that recently graduated twenty somethings are most likely to benefit from such a program. Once people are married and have children, economic pressures usually prevent them from returning to school.
Meanwhile the Executive Yuan has introduced a variety of plans to combat unemployment. Various ministries would draw up programs and project the number of jobs they would provide. These would include jobs as EPD resource recovery workers, Department of Health dengue fever prevention and control workers, Ministry of Education field workers, Department of the Interior landscape beautification and small scale construction project workers. A few days ago at the KMT's Chinese New Year party, President Ma and others expressed their approval of these measures. But a wave of outside criticism has cast doubt on its potential efficacy.
The government's task is to settle down, determine the root cause of unemployment on Taiwan, then decide how to solve it. Policy planners should ask themselves, "Why has unemployment surged recently? How can we moderate it?" They should refrain from prescribing remedies willy nilly.
Let's look at the government's educational vouchers program. Labor statistics divide adults into three categories. One. Employed workers, Two. Unemployed workers. Three. Non-workers. Employed workers plus unemployed workers are referred to as the work force. Unemployment is calculated by dividing unemployed workers by the labor force. Housewives, students, retirees and those who are idle but not seeking work are referred to as non-workers. The government's educational vouchers would encourage young people to return to college for further education. In effect they would encourage many people to withdraw from the labor force and become students or other non-workers. Statistically such an arrangement would reduce the unemployment rate. But it would hardly be what the public has in mind when talking about reducing unemployment.
Those most likely to return to college for further education would probably be twenty somethings. They may be unmarried, living with their parents, and feel less pressured to make a living. For them to return to school during a recession is not wrong per se. But these people are not really those who need rescuing. Those who need rescuing are married forty and fifty somethings with substantial monthly expenditures who cannot afford to be without an income. Their unemployment would result in social problems, even domestic tragedies. Therefore, social compassion, social assistance, and social security ought to rescue these people. These middle-aged unemployed workers will find it difficult to abandon their families and return to school. The educational vouchers program will cost 5.4 billion in taxpayer money, but will do nothing for those most in need of a helping hand, those who must support a family. As a number of observers have noted, educational vouchers merely rescue the government's unemployment figures, not the unemployed. If one thinks of a depression as a severe foot disease, then educational vouchers do not treat the disease. They merely tell the patients to stop walking. As long as they don't walk, their feet won't hurt, and the government can pretend that no one is afflicted with a foot disease.
Now let's look at the various ministries' programs for combatting unemployment. When the Executive Yuan grouped job opportunities along ministerial lines, it made the mistake of thinking in supply side terms. Unemployment on Taiwan is not not evenly distributed among the various industries. This is a natural consequence of East Asian economies' export-driven orientation. To combat today's massive unemployment, one must adopt a bottom-up approach. First the government must understand the imbalance between supply and demand in the marketplace and industry. Then the Ministry of Economic Affairs and other ministries must provide specific remedies. These remedies need not be drawn up from scratch. For example, they could be fast-tracked or modified versions of the "i-Taiwan Project." Such a demand side policy would be the correct policy. For central ministries and departments to prescribe top-down landscape beautification programs and environmental cleanup programs, in the hope of alleviating unemployment, is akin to manufacturing a product and attempting to sell it to consumers without first doing market research. Such an thoughtless approach is unlikely to be successful.
A number of financial publications have evaluated various governments' responses to the financial crisis. Many experts feel the best way to reduce unemployment during a recession is to invest in infrastructure. This creates a solid foundation for future growth. But so far we have seen only one short-term, money-burning government program after another. We have not seen any aggressive programs prescribing the right cure for the disease. Still less have we seen any projections of where our economy will be in three to five years. President Ma would like the public to give Executive Yuan Vice Minister Chiu Chen-hsiung's financial experts a big hand. Positive encouragement is fine as a matter of principle. But as a matter of practice the people can applaud until their palms are red. It still won't reduce the pain in their feet.