Thursday, May 14, 2009

A Worthwhile Investment

Over the next few weeks and months, tens of thousands of graduates will enter the workforce for the first time. Only the door will be locked. In America they're calling it the worst year to graduate from college ever. Though for once I think the hyperbole applies more to Ireland than to the US.

I've talked to a number of senior business people over the past few weeks and many of them are thinking about this issue themselves. Not least because quite a few have children precisely in the 'about to graduate' category. My own take on it is that almost all those businesses that would have normally taken on 1-2 or even 10-20 graduates are simply putting the decision on hold. This is not good news for graduates nor for our much vaunted ambitions to be a knowledge economy.

So what to do about it? As ever, the price mechanism has a role to play. One idea I have been discussing with others is that of giving every business in the country a 'graduate voucher'. It would work as follows:
  • every business in the country that is up to date with their tax returns receives a graduate voucher, which they must start using between now and the end of 2009.
  • if they choose to use the voucher, they have to employ a graduate (third level or plc) who is not already in employment or has graduated in the past year and been unemployed since.
  • the company can then use the voucher to offset, say, 50% of the graduate's salary, up to a limit of, say, €24,000.
  • the offset would take the form of a straightforward tax rebate: in other words, the employer would submit their normal monthly PAYE tax return, deducting 50% of the graduate salary for that month (€1,000 at maximum level).
  • the voucher is valid for one year from the date of employment of the graduate.
  • it would be a policy decision whether to extent it for, say, another year - after that, recovery should have set in and thus the scheme is no longer required.
The value of this approach is that it allows companies to employ graduates 'on the cheap' without having to find savings elsewhere (i.e.: firing more expensive employees). Ideally the vouchers should be tradable, in other words, if I don't want to hire a graduate I should be able to sell my voucher (presumably for anything up to €12,000) to those eligible employers who want to take on more than one graduate.

There will be a net cost to the Exchequer, even allowing for the savings in no longer having to pay social welfare to unemployed graduates. But the net gain to the economy in terms of engaging graduates in the workforce and not letting their skills atrophy should outweigh such costs.

I'd certainly be prepared as an employer to use the graduate voucher myself: and so would many others I've spoken to.

Clarification: just to clarify, I've assumed a maximum fulltime annual salary for a graduate of €24,000 of which €12,000 would be rebated via the voucher scheme.

8 comments:

  1. I'd propose a scheme more like the back to work scheme. what kind of graduate starts off on 48000? usual grad start is around the 25k mark. the problem with hiring people is not the cost and risk. its the amount of work that is available.

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  2. I should have been clearer Stephen: I meant 24k as the full time salary - with 12k rebateable. I've added a clarification to the original post to this effect.

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  3. Yeah that makes perfect sense! Great idea, the gov would be paying them that anyway in dole (at least here in Ireland they would) and companies can but grow when they have capacity and new brains.

    Ofcourse the argument i was give when i suggested something similar is that these grads would simply soak up the jobs that other employees would be get and cause extra tax burden.

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  4. First off - this is a great idea...
    A couple of things though...

    Why let companies profiteer off this by selling on their voucher when they don't hire a graduate? This takes the "incentive" right out of it... Instead - just make hiring any graduate cheaper (maybe with a limit of X per company - but I'd say no).

    Also - why not say (rather than 50% of the employee's salary) that for each graduate employed in the next 12 months the company can retain all PAYE and PRSI for that employee for the next 24 months (quite a substantial incentive) with the added benefit of not reducing government income from tax / PRSI (if he/she wasn't working the state makes nothing off him/her anyway so the cost washes out there and also the state is saved the cost of the graduate joining the live register!

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  5. This comment has been removed by the author.

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  6. Gerard - good to see this debate starting. Could you address the following please:

    (i) Rough guestimate of costing. A bad scenario would see about 30,000 recent unemployed graduates so potential exposure of 360 million euro. This is not small beans. I am assuming that the previous commentator is mistaken in thinking you are suggesting that companies would be allowed to sell the voucher. I think Colm McCarthy would run over you with his car if this is a suggestion. We need to work out the actual number of these people who would be unemployed without this scheme as this clearly could be used as a counterbalancing saving.

    (ii) I dont know what the legal issues are with respect to state support of industry. It would be worth thinking this through.

    (iii) Potentially strong incentive effects to swing away from hiring people without qualifications to people with qualifications (whether needed for the job or not). Given that the ones with qualifications have already received a large education subsidy this is potentially unfair.

    (iv) Bluntening neccesary global migration responses. I dont believe this argument myself but it will get thrown out. Brian Lenihan senior once argued that there were too many people in the country. "We can't all live on a small island". Your proposals limits neccesary global restructuring.

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  7. Have a look at all the possebilities for getting more educated: masterstudies.com

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  8. Liam - belatedly, some responses:

    (i) Rough guestimate of costing. A bad scenario would see about 30,000 recent unemployed graduates so potential exposure of 360 million euro. This is not small beans. I am assuming that the previous commentator is mistaken in thinking you are suggesting that companies would be allowed to sell the voucher. I think Colm McCarthy would run over you with his car if this is a suggestion. We need to work out the actual number of these people who would be unemployed without this scheme as this clearly could be used as a counterbalancing saving.

    > Agreed: it could be a big 'outlay' in revenue foregone for the government - net of any savings - key assumption is likely unemployment rate for graduates (I'm guessing very high for now)

    (ii) I dont know what the legal issues are with respect to state support of industry. It would be worth thinking this through.

    > agreed: though its more of an anti tax on labour, reducing the costs of employing people - can't imagine even the eurocrats arguing too strongly against that one (and there must be tonnes of precedents)

    (iii) Potentially strong incentive effects to swing away from hiring people without qualifications to people with qualifications (whether needed for the job or not). Given that the ones with qualifications have already received a large education subsidy this is potentially unfair.

    > I doubt many employers will want to hire graduates when they usually hire non-graduates (who are cheaper anyway)

    (iv) Bluntening neccesary global migration responses. I dont believe this argument myself but it will get thrown out. Brian Lenihan senior once argued that there were too many people in the country. "We can't all live on a small island". Your proposals limits neccesary global restructuring.

    > indeed: but there really is nowhere for them to go right now, unless everyone takes remedial Mandarin and is prepared to work for 25% of what they could get on the dole!

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