Thursday, 7 February 2013

Jobs cheaper than benefits?

I've just heard it again on the news; a fallacious argument that comes out whenever job cuts are mentioned.  This time it was a one of the usual culprits, a union spokesman, but I have often noticed senior Labour politicians rely on it, and they really should know better.  Yet it refuses to die, perhaps because for some reason it is hardly ever challenged by either journalists, or the opposing side.  The argument goes like this:

"Remember, public sector workers pay their taxes too, so cutting jobs means that people who are currently paying their contribution to society will be made unemployed, and have to claim benefits, and instead be a burden on the system.  At a time when the benefit bill is rising, this just doesn't make sense."

No.  It's this argument that doesn't make sense.  Public sector employees are paid for entirely by the state.  Their wages come from the same vast, taxpayer-funded pot from which benefits are drawn.  Public services don't make a profit, generally they don't charge people for using them, so where else can the money come from?  So when a teacher or nurse pays his taxes, the government is only ever recouping a fraction of the money that they have already paid out.  And when you consider that average pay in the public sector is fairly low, and that they are eligible for the same tax-free allowance as anyone else, then you're usually left with just 20% of the remainder.  Which is probably not a lot.  In strict financial terms then, it will always be cheaper to keep an unemployed person on benefits, than to pay them a full salary, minus taxes, in the public sector.

Also, there's the surprisingly contentious fact that the public sector actually provides no direct benefit to the national economy.  It's all paid for by the state, so no self-sustaining growth is stimulated; and this would be the case even if the public sector wasn't hugely inefficient and wasteful, which it certainly is.  That's not to say that the private sector is 100% efficient (in fact it may be worse), but profit-making businesses provide the economic growth, and pay the wages, which means they must always contribute a little more than what they take out of the system. This must be the case, unless they rely on state subsidy to break even, or fiddle their taxes, or go bust.

Don't misunderstand me, public services provide significant social benefits: supplying less tangible products that make people happier, safer, more secure.  And of course the economy gains indirectly, whenever businesses don't have to pay to provide private health plans to their workers, teach them how to read and write, employ their own private security, or build their own roads.  Who knows, the indirect economic stimulation provided by a teacher during her career may be many times that of someone who spends their life selling car insurance - but that's not quite the point.  Any job has to be useful, and a private sector job that is useful, and done by someone who is competent, will bring in enough new money for the business to make a profit, the employee to receive a wage, and the government to take a slice in tax.

Public sector jobs don't have to pay for themselves in this way.  Mostly the economic and social benefits they create are almost impossible to quantify, so in some cases, there may well be none.  A business that employs someone incompetent, or creates a job which generates no discernible extra profit does so at a measurable monetary cost.  I'm sure this still happens a lot in the private sector, but it's much easier to get away with it in the public sector, where the government will always pick up the bill.  People easily assume that every public sector job is necessary, and always does society good.  But this is simply not credible.  Many jobs will not create benefit equal to their cost in wages, others may be completely useless, some yet may be counter-productive for all we know.  And in such a case, it would definitely be better to pay them £70 a week to sit at home, than £30k a year to do more harm than good....

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