The government’s “work experience” programme highlights a widespread doublethink about the role of incentives.
On the one hand, participants in the scheme are threatened with a loss of benefits if they leave after more than a week - presumably to incentivize them to stay on it.
On the other hand, though, the government seems unaware of a perverse incentive in the scheme - that firms have little incentive to hire permanent staff if they know they there’s a supply of almost free labour. Iain Duncan Smith says that “of around 1,400 individuals who have taken part in the Work Experience placement at Tesco, more than 300 have been taken on in permanent roles” without telling us how many people Tesco would have employed without the scheme,
What’s going on here is a common theme. Whilst plenty of attention is paid to the incentives that the unemployed need to find work - as if poverty and unhappiness were not incentive enough - the incentives that companies and the rich face don’t get such scrutiny.
And yet their incentives should come under attention, because there’s a decent body of evidence now to suggest that making the rich richer might not work. High pay and bonuses are not just about greed and unfairness, but might also be inefficient. For example:
- Fines can do better at elicting performance than bonuses.
- Bonuses can lead to people free-riding on the efforts of others.
Despite all this evidence, the dominant view amongst the managerialist class seems to still be that bosses need high pay to incentivize them. And this claim does not get the scrutiny it should.
In this sense talk of incentives is highly ideological. The managerialist class decides what’s efficient. And what’s efficient is whatever is in its own interest, regardless of what the science says. As George Carlin said:
Conservatives say if you don't give the rich more money, they will lose their incentive to invest. As for the poor, they tell us they've lost all incentive because we've given them too much money.
Except that it’s not just Conservatives who believe this today.