Leading Article: An imaginative idea, pity about the funding

YESTERDAY'S unemployment figures will encourage hopes that the recession has blown itself out. However, there will be months ahead when the trend appears to be in the opposite direction, so the nearly three million people without jobs should not raise their hopes. In particular, little solace is being offered to the long-term unemployed, of whom 450,000 have been out of work for more than two years.

To them, Norman Lamont offered only a glimmer of hope by setting aside Thatcherite objections to job subsidies. The Chancellor proposed that employers should receive pounds 60 a week for every person they employed who had been on the dole for more than two years. But this Workstart scheme is experimental in four regions, and the subsidy will taper off over time.

None the less, it is an imaginative proposal. To pay people benefits for doing nothing makes little sense. The demoralisation and low self-esteem experienced by those the market rejects is hard for many to bear. Asking them to wait for a change in the global economy turns injury to insult. It is a shame, therefore, that Mr Lamont has been both parsimonious and half-hearted in his plans to draw them into jobs.

The average unemployed person costs the Government about pounds 150 a week, so the Exchequer will make a tidy profit if the subsidy is only pounds 60 and falling. Furthermore, in confining the scheme to those out of work the longest, Mr Lamont may have set himself up to fail. A few late starts by those unaccustomed to setting off at 8am could render their rehabilitation short- lived. One can imagine employers passing on their disdain for Lamont's Recruits.

The Chancellor's caution is understandable. Handing out subsidised jobs to the unemployed offends the more hard-boiled Conservative economic instincts. He wants to help only the most difficult cases. However, research shows that people largely give up the search for work after six months on the dole, and thus cease to play a role in bidding down the price of labour. Putting them back to work by means of a subsidy would have little effect on wage inflation.

The Chancellor's Budget plan is a shadow of more ambitious ideas set out by Dennis Snower, of Birkbeck College. He envisages an employers' subsidy of pounds 150 a week initially, reducing by pounds 1.50 a week over two years. He would like the Government to open its scheme to everyone unemployed for more than six months. The plan would be designed to avoid obvious pitfalls. Strict monitoring could ensure that Lamont's Recruits did not displace those already in jobs. The aim should be to end the pain, not redistribute it, he says.

Professor Snower claims that unemployment could be drastically reduced, an untested and perhaps over-optimistic view. Service industries are well suited to hiring cheaper labour, even when the economy is depressed. However, manufacturing industry cannot easily substitute people for machines. Only increased exports or higher domestic demand will produce new jobs in this sector.

It is clear, however, that a properly funded national scheme would cost the Government nothing beyond the benefits it would in any case be paying. Those who feel wasted and discarded at present might gain some hope. The Chancellor should cast aside his hesitation and commit himself wholeheartedly to putting people back to work.