Estimating the impacts of job subsidies on the distribution of unemployment : reshuffling the queue? / by Ralph E. Smith.

Abstract

This paper provides estimates of the direct impacts of Australia's Special Youth Employment Training Program (SYETP) on the eligible population and on young people not eligible for the subsidy. The workers whose wages have been subsidised are mainly teenagers who had been unemployed for at least four months. The specific issues addressed are: ? Has the subsidy resulted in less long-term unemployment of young people than otherwise would have been incurred? ? If so, have the long-term unemployment reductions been achieved at the expense of increases in short-term youth unemployment? ? What has been the net impact on youth unemployment rates? These issues are central to the assessment of any targeted employment subsidy program. In the United States, which has an employment subsidy for young people from low-income families, critics have argued that it is difficult to induce employers to participate in narrowly targeted subsidy programs and that most of the subsidised jobs would have existed without the subsidy. Thus, the theoretical macroeconomic and distributional benefits of such subsidies are not achieved. This debate has been hampered by the absence of convincing estimates of the actual impacts of specific targeted employment subsidies. The relatively high proportion of the youth labour force whose employment has been subsidised under SYETP, along with the availability of monthly participation data over a six-year period in which there was considerable variation in subsidy participation rates, provide a good opportunity to estimate this subsidy's direct impacts. The Australian subsidy experience demonstrates, at a minimum, that it is possible to induce employers to hire members of a disadvantaged group with a subsidy. The preliminary estimates reported here, based on t ime set i es anaiysis of the irnpact s of the variation i n subsi ay participation rates rates on long-term and short-term teenage unemp1oyment rates, suggest: -- Higher subsidy participation is associated with lesslong- term unemployment for young people. ? Some of this is at the expense of increased short-term youth unemployment, so that the net impact on youth unemployment is slightly less than the program's impact on long-term unemployment. These results are consistent with the findings of surveys of participating employers which suggest that SYETP has been effective in increasing employment opportunities for the target group. Whether the benefits exceed the costs (the current subsidy rate is $75 per week for Standard SYETP) cannot be determined from this analysis. One issue raised is whether targeted employment subsidies might be used to a greater extent for other disadvantaged groups. Given the strong tradition of comparative wage justice in Australia, an approach that provides differential costs to employers while maintaining the existing wage structure has much to commend it. Show more