JobMaker is smart policy addressing an urgent problem



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Jeff Borland is Truby Williams Professor of Economics at the University of Melbourne.  His main research interests are analysis of labour markets in Australia, program and policy evaluation and design, and Australian economic history. Jeff is a Fellow of the Academy of Social Sciences in Australia, and in 2010 he was the Visiting Professor of Australian Studies at Harvard University.  In 2018 he was a member of the expert panel appointed by the Commonwealth Minister for Jobs and Small Business to review the employment services system in Australia.

University of Melbourne Truby Williams Professor of Economics and member of CEDA's Board of Directors, Jeff Borland, says the JobMaker program announced in the 2020 Federal Budget is a well-designed wage subsidy aimed at some of the people currently most in need.
 

In a budget that could have done more for job creation, the JobMaker hiring credit is a definite hit: the timing is right, the target group is right and it is reasonable to think that the program will work.
 
A hiring credit program must be judged on the likelihood it will create extra jobs. For that to happen, the credit must be taken up by employers and must go towards jobs that would not otherwise have been created. The design of JobMaker looks well-crafted for achieving both these goals. 
 
Getting employer take-up depends primarily on the subsidy rate of the hiring credit. JobMaker offers $200 per week to employers who hire eligible jobseekers aged 15 to 29 and $100 per week for jobseekers aged 30 to 34. The amount of $200 per week implies a subsidy rate of just above 50 per cent for an employee working 20 hours at the minimum wage, which should give a decent extra incentive for hiring. 
 
Of course, the subsidy rate decreases proportionately as earnings increase, but for most young people the subsidy should still represent a sizable proportion of their weekly earnings. According to the 2019 ABS Characteristics of Employment Survey, two-thirds of employees aged 15-24 who worked more than 20 hours per week had weekly earnings below $1000. Hence, for that two-thirds of young employees, the subsidy rate from JobMaker would be at least 20 per cent.
 
The fact that the subsidy is a flat dollar amount, and that therefore the subsidy rate decreases as weekly earnings increase, is a good feature. It means that the greatest incentive to hire young workers exists for those who are low skill, which is the group generally found to be worst affected during recessions.
 
The checks and balances in JobMaker should ensure that, to the greatest extent possible, it will be spent on adding new jobs. First, credits are only available for jobs that are additional to existing employment – that is, for a business to claim the hiring credit, a job must be additional to its headcount on September 30 and increase its payroll above that of the quarter prior to September 30. Second, businesses receiving JobKeeper cannot receive a hiring credit. That means it is not possible for businesses receiving JobKeeper to use the credit to rehire workers who had been laid off but are now available to be rehired as normal business resumes. 
 
Two criticisms of JobMaker in initial commentary following the budget are that it is unfairly privileging the young, and that it will do nothing to create full-time jobs that are sustainable beyond the 12 months of the program.
 
JobMaker is targeting the right group: young people with a recent history on income support payments. Young people have been worst affected by the initial impact of COVID-19. In August, actual hours worked were 12 per cent below March for individuals aged 15-24 years and 6.9 per cent below for those aged 25-34 years. This compares with 2.8 per cent and one per cent respectively for persons aged 35-54 and 55-plus years. Furthermore, history tells us that if the recession persists, it will also be young people who are worst affected in that phase. Young people bear the brunt of falls in new hiring, given they are making the transition from education to work. 
 
Further, the program is not only targeting the young; it is specifically aimed at young people who have difficulty finding work. Eligibility is based on age and requires having been on an income support payment (such as JobSeeker) for at least one of the past three months. 
 
To criticise JobMaker for not doing more to create long-term and full-time jobs is to put the cart before the horse. During a recession, policies that increase the number of jobs, even in the short-term, can have several benefits. One is to reduce the negative impact on the job readiness and skills of jobseekers that would otherwise occur. Another is to provide macroeconomic stimulus. 
 
Importantly, JobMaker does offer a serious opportunity for developing skills by providing a substantive amount of work experience. The duration of one year is longer than most hiring credit programs and the credit is only available for employees who work on average at least 20 hours per week.  Having a threshold of 20 hours may give an incentive for employers to offer shorter duration jobs, but when you consider the objectives of JobMaker, giving work experience to two jobseekers by creating two jobs of 20 hours per week each, is arguably better than creating one job with 40 hours per week.
 
The main risk to the success of JobMaker is if economic recovery falters. For employers to consider hiring, they must believe there is a chance of an increase in demand for their output. If recovery falters, and they don't see this likelihood, then even with the subsidy, they won't be willing to take a chance on hiring.

 
Read Professor Borland's paper on wage subsidies in CEDA's recently released publication Labour market policy after COVID-19


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