policy

Tax Breaks for Hiring Older Workers

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Any business that hires older workers between the ages of 45 and 60 “will be exempt from taxes to a certain extent,” Georgian President Mikheil Saakashvili declared during a cabinet meeting held in Batumi on 26 October.

The dual aim of this initiative is to decrease unemployment and to increase opportunities for self-realization of people who fall within the 45-60 age group. “In the late 1980s and early 1990s, this was a lost generation. This generation had no chance to achieve success in their lives,” the President said.

According to the National Statistics Office of Georgia, the unemployment rate in 2010 for workers between the ages of 15 and 45 was 25.2 percent. The corresponding indicator for workers between the ages of 45 and 65 was 8.6 percent, on average. The highest unemployment rate – 38.3 percent – was among people under the age of 25, whereas the lowest rate – 0.7 percent – was among people aged 65 or older.

During the period between 2007 and 2010, unemployment among people under the age of 45 increased by 16.6%, as compared to the rate for those older than 45. Nevertheless, the government has initiated the benefit only for older workers. One reason for this seemingly counterintuitive move may be found in the results of recent surveys which show that people in the 45-60 age group are most active in elections.

Among different age groups, the free market chooses employees with the best chance of achieving success. Preferential treatment of any age category upsets the natural balance in the labor market. In the long term, this produces adverse effects: People hired strictly on the basis of age and not merit will replace more productive and qualified personnel. Consequently, the overall employment rate will remain the same. Moreover, the employment rate may not even increase within the targeted age group. The tax break is only offered for recruitment of new employees. That could actually incentivize businesses to fire existing older employees to make way for new hires from the same age group.

Businesses do not need any incentive to hire qualified people, irrespective of age. Successful expansion of any business depends directly on proper selection and management of personnel.

At the end of the day, everyone loses with this scheme: job-seekers in other age categories who are disadvantaged in a noncompetitive environment; the state which loses income tax revenues; businesses which lose productivity if employees are recruited on the basis of age alone.

The President’s initiative acknowledges the risk posed to business and envisages assistance in retraining older workers. Other details of the initiative have yet to be released, including the extent of the tax benefit. It is not clear whether the entire business will be exempt from income tax or only the wages of new hires who fall within the 45-60 age group. It also is not known how this tax break will be administered.

According to the Ministry of Finance of Georgia, this initiative is still in the conceptual stage with a written plan to be worked out at the Ministry.

 

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