The Political Economy Review 2017

A number of theoretical limitations and practical implications could limit the effectiveness of the policy. Firstly, deciding on an appropriate rate of subsidies on job creations to correct the market failure requires extensive research and planning. However, due to asymmetric information, it often leads to information failure, as it is challenging to measure the extent of a market failure, which often leads to misallocation of scarce resources, not achieving Pareto efficiency. Instead, under the ‘laissez-faire’ approach, the market should fix the problem itself anyway, to allocate resources efficiently, e.g. if setting up offices or factories in the North is indeed cheaper than the South, along with the benefits of agglomeration economies, firms would rather choose the North, to reduce their costs of operation and benefit from the established area, whilst creating more jobs in the North. Geographical mobility of labour measures the ability of workers to move in order to find new or better jobs. Economic theory of this policy assumes that labour is perfectly geographically mobile. However, if the geographical mobility of labour is low, workers may be reluctant to move to the North to work. There could also be immeasurable opportunity costs for workers to move to the North, e.g. a young family with children has to relocate all of their children’s schools, extra-curricular activities, etc. Along with the upcoming construction of High Speed 2, workers in the South could travel to and work in the North swiftly without moving over, this would not increase the demand for housing in the North, nor decrease the demand for housing in the South. In 2015, for every 12 jobs created in the South, one is lost in the North (Centre for Cities report). A report also suggests that there is a weakening population growth, and more importantly, a declining working population in the North (ONS, 2016). These could imply a declining job market in the North and workers are more inclined to work in the South. Even if there are subsidies on job creations, it may not have much of an effect, as the demand for workers is genuinely weak. Particularly, if job creations are in the manufacturing industry, which the North’s economy relies more on than the rest of the England, as it accounts for 9.5% of the jobs in the North, compared to the national average of 7.6% (ONS JOBS05, 2017), the economy in the North may not grow as much, since manufacturing is seen as a declining industry, with its overall contribution to the UK economy constantly diminishing. The subsidization may then lead to a government failure of unintended consequence. Hence, it would lead to an inefficient allocation of resources. Subsidising job creation involves largely expensive administrative costs, e.g. to measure the appropriate rate of subsidies, pick the industries with the highest growth potential to subsidise in and ensure that the costs are used efficiently by the firms to fund the creation of jobs. Those costs often turn out to be sunk costs. It may be more efficient and cost-saving to use the funds to focus on more direct methods to provide more affordable housing in the South. Inevitably, there will be time lags to create more affordable housing affected by the subsidization of job creation, as it would take time for workers to plan and move from the South to the North, to lower the demand for housing in the South. In light of Brexit, there are vast uncertainties and low consumer confidence surrounding the UK. Remarkably, a recent study also shows that the London housing market is in deepest slump since 2009 (RICS, March 2017). Indeed, until now, it is still hugely unpredictable what Brexit could mean to the UK. It is greatly dependent on whether the UK could bargain for a decent trade deal with the EU after leaving the ‘single market’ and maintain its attractiveness for inward investment. Brexit would also suggest that the North would be losing its Northern Powerhouse funding from the EU Structural Funds, which means the government might have fewer funds to spend on subsidising job creations in the North. One may argue that subsidizing job creation is not sufficient to be the most direct, efficient and cost-saving solution by itself, and it is successful if and only if an appropriate rate of subsidies is set. It also has to factor in geographical mobility of labour, situation of current job market, consumer confidence, etc. Unless it is used in


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