Economic Policy Review ISSN 1313 - 0544

Stimulating employment during a crisis – how it should not be done

Author: Adriana Mladenova / 12.03.2009
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One of the anti-crisis measures in the government plan (The Stanishev's plan) foresees that the government would provide additional 120 levs to the salary of employees in companies which introduce reduced business hours for a period of 3 months, in order to protect the employment of their staff. This week the information came out that the ranking of the companies which would receive these "bonuses" would depend on the reduction of their sales and profits. The greater the reduction and when it is not resulting from seasonal cycles, the greater is the chance that the companies would be included into the scheme. 

Every sensible person could not avoid it but ask the question - why do you assist companies which are at most disadvantageous position and hence have the smallest chance of survival? Is not this program stimulating the lack of management sense and the making of wrong management decisions? Since the market logic is just the opposite - on the market are winning the entrepreneurs, who have forecasted successfully the market trends and satisfy the needs of the consumers in the most effective way.   

Something more, the so called anti-crisis measure, placed under the heading "care about the people", represents actually straight waste of money of the taxpayers. The rhetoric in presenting the idea however, is extremely populist: During temporary difficulties of Bulgarian employers we are ready to react by investing 27 million levs in order to stimulate them to keep their workers and staff at work.  According to the presented calculations this would protect the employment of 16 thousand workers. Firstly, that represents about 0.5% of the employed in Bulgaria and would not have a real effect on the labor market in the country. Secondly, there is no way in which to view these 27 million levs as a long term investment, if they are given to companies in difficult financial conditions. Exactly those companies are at the greatest risk to fail and as a result the effect on employment from temporary bonuses - would be zero and the benefit from spending the funds - negative.

In a recent publication „Are all the sacred cows dead? Implications of the financial crisis for macro and financial policy" analyst from the World Bank reached the conclusion, that under the conditions of a crisis the assistance from the Government for the private companies must be extremely limited and "saving" must be reserved for the most stable companies after they are identified  (on a market principle). Otherwise the stimuli are biased even more a moral risk is created in the economy, while the money of the taxpayers are not spend effectively. This is about to happen in Bulgaria....

It would be the best if the Government would listen to the voice of business

It would be much more useful, if the government would temporarily revoke the increase in the minimal social security threshold for the branch" - this is the comment of Stefko Kolev, Chairman of the Branch Union of the knitwear industry in Bulgaria (Dnevnik).

Instead of giving money for reduced work hours, without clear benefits from this policy to the economy on the long run, let the Government think about reducing the regulations and increasing the flexibility of the labor market. This could take place without costing money to the taxpayers, something even more - when the (quasi)taxes are reduced for everyone and thus it gives a direct stimuli to the working people and the business, but based on the market logic - from this measure would win only the most enterprising and successful companies.