Saturday, 26 July 2008

Directing Welfare Money to Employment Agencies

In just about all rich countries there is a major problem with the ageing population. With the ageing population, it is expected that public health expenditure will rise. As the population gets older, more and more people drop out from the labor force, which means tax revenue decreases at a time when tax revenue is needed to fund rising health expenditure.

One solution to this problem is to encourage more people to work. In Australia a considerable number of people receive welfare. One way I believe the Government can increase labor force participation is to pay employment agencies to put unemployed people in jobs.

Suppose currently the Government pays an unemployed man $10,000 per year. Instead the Government can auction this unemployed person to employment agencies, who bid down the price of getting this man. That is, the starting price is $10,000 and then employment agencies bid down until one employment agency bids, say, $9,000 for the man. Then the employment agency tries to find employment for this man and if they are successful they will receive $9,000. At the auction full details of this unemployed person is given, including education, work experience, computer skills, language skills, etc. Agencies then can evaluate how easily this man can be put into employment and thus bid the right amount for him.

This system would use the power of the market to put people into employment.

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