In this paper, the authors consider the impact of inflation and the U.K. Corporation Taxation system on real rates of return to equity in the U.K. There are two main sets of questions that arise in this context – how ought one go about measuring such impacts, particularly with respect to ex-post performance measures; and given that these impacts seem to be substantial, what policy implications follow? I deal with these in turn.

Current unemployment is at unacceptably high levels for both the segment of the population concerned and policy-makers in most industrialised countries. The causes of the rise in world-wide unemployment are usually attributed to the severe supply shocks in the 1970s (the sharp increase in oil and other raw material prices), the associated redistribution of income from countries with high propensities to spend to countries with low propensities to spend, inadequate policy responses and rigidities in industrial economies responsible for slow adjustment to a different environment(‘)• Rigidities seem to be more severe for the countries of the EEC than for Japan and the US and unemployment consequently has risen more sharply in the EEC. The main rigidity can be seen in the high growth of real wage costs. Instead of attenuating the supply shocks through moderate wage increases the effects of these shocks have been accentuated in the EEC by the wage cost explosion of the 1970s. An approximate empirical measure for these effects is provided by the sharp increase of the real wage cost gap in EEC countries which, however, is an underestimate since firms have responded by reducing employment to improve productivity.

The title of the paper presupposes that there is a choice only between investment or employment subsidies in job creation. Perhaps this was not the intention of the author but by the bottom of p.2. it is clear that «first best» remedies for unemployment have been dismissed as undesirable or impractical. Before moving on to discuss the body of the paper I think that an important issue has been brushed aside here. Why not tackle the wage rigidities that are held responsible for the high unemployment directly? Why not dismantle the existing structure of subsidies on capital and taxes on labour as a first step? Perhaps then the nature of the unemployment problem will be more clearly seen. Determination to remove factor price distortions which arise either because of tax-subsidy arrangements or restrictive labour practices can overcome the objection that this strategy will take too long.

It is plain that even if one accepts the raison d’être of the paper there is also a lack of information with which to apply a Marginal Employment Subsidy (MES). The natural rate of unemployment is unobservable and hence only approximately known. Also there is the problem of structural unemployment caused by a mis-match of skills of the unemployed with vacancies created by an MES. It is difficult to see a 55 year old male steel-worker being re-employed as an assistant in a sweet shop, but something of this sort is implied by the analysis. Also, there are the risks associated with an MES. The first is the risk of creating an artificial situation of excess labour demand for certain skills or in certain industries causing an increase in real wages which would be readily mimicked by other sectors of the economy. Second, there is the risk that in creating a further distortion to factor prices on the pretext of a short-term remedy, the subsidy would, like its predecessors, become a permanent feature and prevent desirable labour market adjustments taking place in future years. Third, there is the risk of giving expanding firms a cost advantage in their industry which, as their market share grows, becomes self-perpetuating.