Employment services measures

Budget Review 2020–21 Index

Matthew Thomas

The centrepiece of the Government’s measures intended to increase employment growth in the
post-COVID-19 environment is the JobMaker Hiring Credit—a wage subsidy program for people up to 35 years of age, expected to cost $4.0 billion over three years from 2020–21 (Budget Measures: Budget Paper No. 2: 2020–21, p. 162).

The JobMaker Hiring Credit

Under the JobMaker Hiring Credit, eligible employers who are able to demonstrate that a new employee is additional (by proving a higher employee headcount and payroll) will receive a credit of up to $200 per week for employees aged 16 to 29 years and $100 per week for an employee aged 30 to 35 years. The credits, which are claimed quarterly in arrears by the employer, are paid for a period of up to 12 months. In order to qualify for a credit, a job seeker must have worked a minimum of 20 hours per week, averaged over a quarter, and have been in receipt of a working age income support payment for at least one month out of the three months prior to their being hired. Job seekers are able to be employed on a permanent, casual or fixed-term basis.

Unlike other wage subsidy programs, which are administered by the Department of Education, Skills and Employment and jobactive employment services providers, and which are largely paid out of the Employment Fund, the JobMaker Hiring Credit is to be delivered by the Australian Taxation Office (ATO). There are two main likely reasons for this. The first is that the program is targeted more broadly than existing wage subsidies in that it is not restricted to job seekers using jobactive services. The second is that the program will rely heavily on ATO payroll data to ensure that positions attracting a subsidy are additional.

Rationale for the program and its focus

The stated objective of the JobMaker Hiring Credit is to help ‘accelerate growth in the employment of young people during the COVID-19 recovery. This will improve their economic, health and social outcomes and reduce the scarring from long term unemployment’. The Government hopes to encourage the creation of additional jobs and reduce the risk of young people becoming dependent on income support by providing an incentive to employers to bring forward their recruitment decisions and fill new positions with young people.

The targeting of the JobMaker Hiring Credit towards young people is also in recognition of the fact that this group has been disproportionately affected by the impact of the COVID-19 pandemic, compared with other age groups. Young people have experienced the biggest increase in their unemployment rate, with the sectors in which they work having been among those hardest hit by the COVID-19-related economic downturn. For a sectoral analysis of the economic effects of COVID-19, see the relevant Budget Review article.

Some commentators have criticised the program’s focus on young people. For example, Professor Gary Martin of the Australian Institute of Management has argued that the youth-specific subsidy will disadvantage older workers, and that the criteria based on age should be extended ‘to include eligibility based on the length of time the individual has been unemployed’. ACT Council of Social Service chief executive Emma Campbell has similarly called for the subsidy to be extended to people of all ages who have been unemployed for a year or longer. However, labour market economist Jeff Borland is reported as having suggested that the program is right to target young job seekers, given that they have been hardest hit by the COVID-19-related economic downturn and are likely to be the worst affected if the current recession drags on and becomes more broad-based.

General issues associated with wage subsidies and how to address them

Perhaps the main issue associated with wage subsidy programs like the JobMaker Hiring Credit is that they can potentially have distortionary displacement effects. For example, subsidies may be associated with ‘deadweight effects’, as employers hire job seekers with a wage subsidy that they would have hired anyway. Another problem is that wage subsidies can result in worker substitution, with job seekers eligible for the subsidy being hired at the expense of other job seekers who are not eligible for a subsidy. In relation to the JobMaker Hiring Credit program, some have expressed concerns that the program could be ‘rorted’, with businesses replacing older workers with young job seekers to take advantage of the subsidy. The abovementioned additionality criteria are intended to deal with this potential problem.

Sometimes wage subsidies are used with the primary objective of achieving equity objectives and in these instances the substitution effect is less of a concern. However, in the case of the JobMaker Hiring Credit, the key objectives are additionality—the creation of new positions—and ensuring that young people do not remain on income support. A further issue with wage subsidies is that they may lead to employers who do not take advantage of wage subsidies losing business to those that do.

If a wage subsidy program is to yield positive outcomes—in this case the creation of additional, lasting employment at a reasonable cost to government—then it is important that the program should be well designed. Jeff Borland has argued that, among other things, wage subsidy programs need to:

  • have subsidies that are matched to the state of the macro-economy (typically with higher subsidies in worse economic conditions)
  • target those job seekers who are hardest hit in times of economic downturn (in this case, primarily young people who, as a result of their lack of employment experience, often have lower levels of initial productivity)
  • be of sufficient duration to ensure that job seekers have an opportunity to gain work experience and skills and demonstrate their value to employers
  • be structured to safeguard against potential employer exploitation
  • impose minimum and maximum hours per week for which a subsidy would be paid and
  • be as simple as possible to administer so as to maximise employer take-up.

Likelihood of program success

The key issue determining whether or not the JobMaker Hiring Credit is likely to prove successful in increasing employment relates to the state of the macroeconomic environment and if businesses are in a position to, or are willing to, hire young job seekers. The other crucial issue has to do with the trade-off between ensuring that additional jobs are being created and maximising take-up of the subsidy. Should take-up prove to be a problem, or macroeconomic conditions change, then it may be necessary to adjust the program accordingly. Such changes could include things like changing the size or conditions of the payment.

Judging by the slow take-up of the Youth Jobs PaTH program (p. 16), under which young job seekers are offered internship placements, and host businesses given up-front payments and a wage subsidy, the JobMaker Hiring Credit could struggle to meet its anticipated target of 450,000 positions. In light of this slow take-up, the Government has made the Youth Jobs PaTH program demand driven as a part of the Budget, replacing the previous capped funding arrangements.

Another potential issue with the program that is likely to affect take-up is if the qualifying criteria for job seekers prove too restrictive. The program could exclude highly disadvantaged young people who have been in insecure work and not accumulated the requisite minimum 20 hours per week, averaged over a quarter, or who have not been in receipt of income support.

Other employment services measures

The Budget also provides relatively small amounts of funding for various other employment services initiatives (Budget Paper No. 2, pp. 74–78, 230–231). For the most part, the funding expands access to, and support provided by, existing programs and employment services. The Government anticipates making significant savings over the forward estimates period (around $1.4 billion) largely through the earlier than originally anticipated nation-wide rollout of online employment services for job-ready job seekers.

The Government introduced a Bill to establish the JobMaker Hiring Credit into the Parliament on 7 October.


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