Evaluation of the Australian Wage Subsidy Special Youth ...

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Abstract
The job subsidy Special Youth Employment and Training Program (SYETP) was
introduced in Australia with the aim of improving the movement into work. In 1984, the
SYETP was a flat rate subsidy of A$75 a week paid to employers for 17 weeks,
equivalent in value to half the average teenage wage, and was available to youths aged
15-24 who had been claiming unemployment benefits and not studying full-time for at
least 4 of preceding 12 months.
A review of theoretical literature indicates they can give no proof of employment gains
for wage subsidies. The empirical ambiguity of employment gains is concluded
unresolved, in both recent overseas and Australian literature. A contributing factor is the
insufficiency of the evaluation methods. Appraisal of the micro-evaluation evidence for
SYETP and other Australian wage subsidies is also found to suffer these deficiencies.
The inadequacies of past analyses of SYETP contribute three themes to address: suitable
modelling of selection to account for the influence of observables or unobservables,
dealing with non-response in the observational data, and appropriate control for the
differences between the SYETP and comparison groups.
Past evaluation by Richardson (1998), modelling the Heckman selection bivariate probit,
using the Australian Longitudinal Survey of Youths 1984-1987 found a very large
positive employment effect for SYETP participants 26 months after taking part. A key
issue with the results is that no account of sample attrition was made. Theory indicates
bias to be a potentially serious problem with results. Two evaluation methods are
explored – the Heckman selection bivariate probit model, and matching methods, in
particular propensity score matching. Both identify a parameter corresponding to the
mean effect of treatment on the treated, which can be used to decide whether the
programme leads to employment gains. However each method uses different assumptions
to achieve this. Selection on unobservables is assumed by the Heckman bivariate probit,
while selection on observables is assumed by matching methods.
A series of empirical studies assesses a number of questions – what happens to the
evaluation outcome if selection is assumed to be based on observables instead of
unobservables; what is the importance of sample reduction to the evaluation outcome;
and how sensitive is the employment impact to variation in modelling. To provide a
foundation for useful comparison Richardson (1998) is first replicated successfully. The
more recently popular propensity score matching method (PSM) is then applied. The
PSM results reduce the size and significance of the employment effect found. The effects
of attrition are examined and then accounted for, and the impact on evaluation discussed.
The results are found to be smaller and have lower statistical significance. Correctly
accounting for weights is found to be important in applying PSM.
The Heckman and the PSM method both make strong but very different assumptions
about the selection into SYETP. A comparison of the employment impacts found under
each method is undertaken, together with a discussion of the most suitable assumptions
for this evaluation. The value of replication is validated and advocated. The research
confirms that careful accounting for data and modelling problems is important. External