Article published by José Alberto León Alonso in El Día on 03/1/15.
Venezuela or Denmark. Luis Garicano assures in his book that this is “Spain's dilemma.” In his opinion, either Spain becomes Venezuela, a country with an outdated productive structure, interventionist laws, an ineffective State and a few companies that thrive on cronyism with politicians; or in Denmark, a modern and flexible economy, in which the State guarantees a sustainable Welfare State, legal security and compliance with the laws, and in which public aid is a palliative to get out of a situation of need, and not a way of life. So it is not surprising that, in his presentation as the star economist of the Ciudadanos party, Garicano includes among the economic proposals of this party some measures aimed at the latter.
They call the economic program “sensible change” and that is what their proposals seem like. Sensible and concrete, the complete opposite of those of some smoke peddlers and utopians who promise to “assault the sky.” In the program we find concrete measures, with clear objectives and an explicit philosophy, far from the usual cheap demagoguery and ethereal ideas that others sell. They have only presented their first recipes and only mention their main ingredients, without indicating the exact amounts of each one, but the mixture smells good and refreshes the current aroma in the anodyne, irrational and vulgar Spanish political-economic debate. Garicano admits that "they have no magic solutions" and that their proposals are based on "good policies" that can be extracted from the experiences of other countries, especially those in "northern Europe." It flatly rejects solutions that are "unrealistic or impossible to finance, such as universal income, creating millions of civil servant positions or other subsidies that lead to increased debt and end up being a source of corruption."
The program is committed to a single, indefinite employment contract with increasing compensation, following the FEDEA proposal that Garicano himself endorsed and signed in 2009. This single contract eliminates temporary contracts for new hires, with severance pay that would gradually increase with seniority in the company. In other articles I have had the opportunity to support this measure, since it ends the duality in the labor market, that is, with the different treatment that exists between permanent and temporary workers in terms of protection; facilitates contracting management, by simplifying the enormous current labor administrative complexity into a single contract; and promotes equal opportunities for all groups, including young people, women and immigrants, who are the most affected by the current job rotation.
But the most innovative proposals are three: the Guaranteed Annual Salary Supplement (CSAG), the Insurance against dismissal and a second chance law. Along with them, it includes measures against long-term unemployment which, in my opinion, constitute the most debatable part of the program. In the remainder of the article, given the lack of space, I will focus exclusively on the CSAG as it is the most innovative measure, although also the least detailed.
According to Ciudadanos, households in which they have earned salary income and/or income from self-employment would be entitled to the CSAG, but without reaching a minimum annual amount, which they do not detail. Five million households would receive it and its cost would be around 10,000 million euros per year, which would be offset by the reduction in unemployment expenses. The idea is, on the one hand, to help low-income workers with additional income and, on the other, to create an incentive to bring more workers into the market and take some out of the black economy. It is designed to encourage and reward those who work, since it is received only by those who have worked in the fiscal year, and it does so by ensuring that income is not lost when more hours are worked or more household members find work.
Although it does not specify the conditions of the aid, its structure, relative cost and beneficiaries bear an enormous resemblance to the American model of the Earned Income Tax Credit (EITC), which works very well. If it were the same, a household without children with an income of 12,000 euros per year would receive €496/year as a supplement; with a child, €3,305/year; with two, €4,810; and with three, €5,411/year. The EITC is well studied by the American experience, and the evidence suggests that it even has positive long-term effects on the well-being of the children of the families that receive it. There, in 2013, thanks to this program, 6.2 million people left poverty and the number of poor children was reduced by 25%. Likewise, the program reduced the severity of poverty for 21.6 million people, including 7.8 million children. In the United States it has also been the most successful measure to return new mothers to employment.
Its promoters assure that it has nothing to do with basic income, \"which discourages work\" and costs 200,000 million euros a year; nor with the minimum wage, "which expels less qualified workers from the market." The CSGA encourages workers to work and makes it easier for employment, even if it is part-time, to have a decent remuneration. As, furthermore, most of the beneficiary families would find themselves in an extreme situation of lack of liquidity, they would allocate the salary supplement to consumption, with induced effects on economic activity. In fact, in the United States, 75% of spending on the EITC returns to the economy, which which is not bad at all. I have often complained that our politicians do not seem to inform themselves in economic literature about the impact of their economic policy proposals. It is clear that Garicano does do so. Even without sharing all his proposals, it is good that the good ones get involved in moving the country forward and improving the mediocre level of competition that prevails.
