The 2020-21 budget includes a big new program the government claims “will support around 450,000 jobs for young people”.
It’s a hiring credit, meaning firms will get up to $200 a week to employ someone. The $200 rate applies if the person is aged between 16 and 29 and $100 a week is available to hire someone aged 30 to 35. The person has to work at least 20 hours a week.
The program took pride of place in Treasurer Josh Frydenberg’s speech to parliament: “This budget is all about jobs.”
It suddenly seemed a lot smaller when I cracked open the budget documents. A $4 billion spending program over three years pales next to a tax cut that costs $18 billion in one year. (The budget was actually all about tax cuts.)
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But traditionally a $4 billion spending program is significant, so we should ask: is this program a good idea? Will it work?
Luckily for anyone asking this question, Melbourne University labour economics professor Jeff Borland has just updated his study of hiring credits.
“A wage subsidy is more likely to be paying for jobs that would have been created anyway when there are buoyant macroeconomic conditions,” he says in his note on the topic, dated August this year.
The economy may not seem buoyant right now, but it has stopped sinking.
Starting up a hiring credit program just when business is expected to be hiring anyway guarantees at least some of the money will be “wasted”. In this sense, the program is a little bit like the JobKeeper program that continued to support businesses to employ people even after their revenues returned to health.
The money goes to the bottom line. All businesses in Australia will be eligible, except the major banks.
Note carefully the terminology the government used. It described the program as “supporting” 450,000 jobs. Supporting does not mean creating, and it certainly does not mean those jobs would not have existed without it.
“The increase in employment is generally short‐term and much less than the number of subsidised jobs due to offsetting effects (such as subsidies paying for jobs that would have been created anyway) being substantial,” Borland says.
That said, moving people into work sooner rather than later is a good idea. Young people who spend time out of the labour market have worse long-term employment outcomes. They call this “scarring”.
Avoiding scarring is especially important for young people trying to move into the labour market for the first time. They need an opportunity to build job skills and to prove themselves to the employer, in the hope they will be retained even when the subsidy runs out. (Each new position created will be subsidised for a year.)
To help target the hiring credit at people who might not have been hired anyway, they must have been on youth allowance or JobSeeker in the preceding months to be eligible. Targeting the scheme at people who have been on JobSeeker is a good idea, Boland said.
“For jobseekers who are job-ready but who need an opportunity to demonstrate their capabilities to an employer, a hiring credit program that allows them to obtain employment can improve their longer‐term employment outcomes,” he says.
Employers in the new scheme need to prove that the person they are hiring is “additional”, meaning they can’t fire the people they have on staff and hire them back. Companies that shrank during COVID-19 may, however, be able to take advantage of the hiring credit as they return to their former size.
Overall it’s an expensive program that would never withstand scrutiny in normal times, but in these unusual times as we try to wean the country off JobKeeper it is probably a step in the right direction — a direction where most businesses eventually stand once again on their own two feet.