Academics whose institution has no post-Covid future should be laid off

The job subsidies that are in place in many countries as a result of the Covid-19 lockdowns now apply to more than 50 million workers across the world, including probably about half a million in higher education.

The subsidies’ aim is a worthy one: to protect workers from a descent into poverty when their jobs suddenly disappeared as the shutters went up. In higher education, this especially applies to sessional and adjunct teachers, and researchers on short-term contracts. But such massive expenditure is unaffordable in the long term and many job-retention schemes are set to end shortly; the UK’s, for instance, will end in October.

Is there a case for making an exception for colleges and universities? I don’t believe that there is.

Protecting laid-off workers from poverty is why nations have unemployment benefits. So why not rely on that (supplemented, perhaps, by other payments directly to people adversely affected by the coronavirus). If the level of benefit or the eligibility conditions need revision, then so be it. Protecting society against the social costs of additional unemployment and preserving demand are perfectly valid economic arguments for employment subsidies, but there is nothing new in the coronavirus world except the scale of job losses and perhaps increasing average social costs as more jobs are lost. And there is nothing unique to universities that gives them a greater claim to protection than any other employment sector.

Another argument for employment subsidies is that protecting institutions against bankruptcy will allow them to return to normal operations quickly when the coronavirus emergency finally subsides. This argument is strongest where there are specific skills in the workforce or capital that will be lost if the existing employer goes bankrupt and a new employer has to rebuild those specific skills later.

So, in higher education, any government job subsidies need to be carefully focused on those areas of teaching and research where skills and equipment are highly specific. Hence, for instance, there is a greater case for supporting highly specialised medical research capacity than for protecting jobs in mass undergraduate business programmes. Another group with a strong case is the cohort of young academic researchers and online teachers whose specific skills will be greatly damaged by a break from higher education.

But how might such support be targeted when government bureaucracies typically lack the information and incentives to do it?

In the 1970s, Australia had many subsidised and tariff-protected industries which claimed that one day they would grow up and be able to compete in international markets. The problem was that nurturing them was hurting Australian taxpayers and consumers, not just through higher prices for goods and higher taxes, but through resources being locked in unproductive industries, killing incentives for innovation. The government’s response was to cut the subsidies and tariffs to these “infant industries”, forcing them to make their case to commercial banks. Of course, financial markets were and remain imperfect, but the right response remains fixing those markets – supplemented, perhaps, by carefully focused government schemes for limited cases where the markets cannot deliver what is needed.

Accordingly, I suggest that the key to targeting post-coronavirus subsidies is make use of the private information that employers and their bankers have about their post-coronavirus prospects.

The armies of bureaucrats and senior managers that have invaded higher education in recent years argue that their skills are generic. This should disqualify them from any employment assistance. But perhaps their supposedly stellar talents could be demonstrated by their ability to convince the banks to continue to fund their particular institution’s operations.

Universities and colleges with a credible expectation of future income streams from students (including via government funding arrangements) and research activity should be perfectly able to borrow to get through the crisis. And whatever the arguments made in normal times about the social benefits from certain higher education activities, if a higher education institution cannot convince its bank that a loan to get it through the crisis will be repaid, then it should rightly go bankrupt, so that its resources can be released for more productive uses.

Paul Oslington is professor of economics and theology at Alphacrucis College, Australia.