The Impact of Wage Subsidies on Jobseekers’ Outcomes and Firm Employment

Key Results

Impacts on jobseekers

Receiving a wage subsidy improves labour market outcomes for recipients, with impacts still evident after 72 months. Improvements are evident as greater employment and income, and lower benefit dependence. The benefits are evident for a wide range of recipients.

• Subsidised jobs usually last longer than the subsidy. About 60 percent of subsidised jobs continue after the subsidy ends, with 33 percent lasting up to 6 months more and 19 percent lasting 12 months more. Jobs are more likely to continue after a longer subsidy spell. Following a 6-month subsidy, 40 percent of jobs last a further 12 months.
• Those who start a subsidised job are much more likely to be in unsubsidised employment and less likely to be receiving main benefits

over the subsequent 3 years than those who do not start a subsidised job. Differences between participants and the matched comparisons decline over time. Impacts on employment are larger than on subsequent benefit receipt.

• Twelve months after starting a subsidy, participants are 26 percent more likely to be employed and 24 percent less likely to be receiving benefit.2
• Three years after starting a subsidy, participants are 13 percent more likely to be employed and 10 percent less likely to be receiving benefits.
• During the 3-year period following a subsidy start, participants spend 6 more months employed, 5 fewer months receiving benefit, and earn $20,200 more than matched comparisons.
• A subset of jobseekers are observed 7 years after starting a subsidy. At that point, participants are 8 percent more likely to be employed and 5 percent less likely to be receiving benefits. During the 7-year period, they spend 11 more months employed, 9 fewer months receiving benefit, and earn $34,900 more than matched comparisons.

The favourable impacts of subsidies are evident for a wide range of sub-groups defined by demographic characteristics (age, gender, and ethnicity), the type of benefit received, and benefit duration.

• Those who had been on-benefit for 4 years or more experience much greater benefits than those who had been on-benefit for less than 6 months.
• Jobseekers aged over 45–64 experience greater benefits than those aged under 45.
• Subsidies were very effective for those receiving Domestic Purposes, Sickness, or Invalid’s benefits, including long-term recipients.

Impacts on firms

Patterns of subsidy use by firms

For most firms, taking on a subsidised worker is an isolated event. Most firms hire only one new subsidised worker at a time, and employ only a few subsidised workers during the 2003-2007 period.

Firms that hire subsidised workers:

•  are larger than the average comparison firm
•  have higher employment growth, higher turnover, and are slightly younger
•  have a higher share of their workforce who are young or male, or have monthly earnings below the lower quartile.

Subsidy use is relatively low in agriculture and in professional and technical services industries, and relatively high in construction services, food and beverage services, and food product manufacturing.

Employment impacts of wage subsidy use by firms

Firms hiring a subsidised worker generally increase employment at the time of hiring. Subsidised workers do not replace existing workers but we cannot determine whether the subsidised jobs would have existed in the absence of the subsidy.

•  Firms hiring subsidised workers increase their total employment relative to matched comparison firms.
•  The impact on employment is generally larger than the number of subsidised workers hired. On average, firms with 50 or fewer employees hire 1.1 subsidised workers and increase their total employment by 1.4.
•  The exception is that very small firms (5 or fewer employees) expand employment by slightly less than the number of subsidy hires. Overall, there is little evidence that employers are claiming subsidies to fill routine vacancies.
•  Subsidised workers are disproportionately hired into expanding firms. We are unable to determine how big the expansion would have been in the absence of subsidies, and therefore cannot isolate whether subsidies stimulate employment growth.
•  Subsidised firms continue to have higher employment levels than matched comparison firms for at least 36 months after a subsidy hire, though the size of the difference declines over time. The retention of subsidised workers after the end of their subsidy contributes significantly to the employment effect.