Evaluation of the Australian Wage Subsidy Special Youth ...

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The first study presented in Chapter 3 is replication of the Richardson (1998) evaluation
using Heckman bivariate modelling. Following this, propensity score matching (PSM) is
applied in Chapter 4, with the observed differences between the SYETP and comparison
group examined initially to establish the prospective value for propensity score matching.
A number of variations to the specification are presented. In Chapter 5, data reduction is
examined in detail and weights developed. The weights are then applied in Chapter 6 to
both the Heckman bivariate probit model, and PSM. In the final empirical study, in
Chapter 7, sensitivity of the two modelling approaches are examined. Chapter 8
concludes, drawing together the themes of the research.
1.1 General introduction
The central focus of this research is the Australian wage subsidy titled the Special Youth
Employment and Training Program (SYETP).
Wage subsidies are one of the two major forms of labour market programs, the other
being training. Labour market programs are a form of government intervention into the
labour market with the express aim of benefiting a target group. Theoretical evidence
suggests that wage subsidies may play a useful role in raising the employment prospects
of the unemployed, especially when targeted at those disadvantaged in the labour market.
However as this chapter will show, the theoretical models do not conclusively prove that
wage subsidies can improve employment. The resolution of this theoretical ambiguity is
at least one motivating force for empirical evidence that seeks to gather proof of the
consequences of wage subsidies. Empirical evidence is also not conclusive but remains
suggestive that wage subsidies raise employment of the target group.
Wage subsidies 1 are generally held in high regard in real-world policy-making as a useful
tool in labour market and social policy for the problem of the unemployed. Labour
market policy, consisting of programs of job creation, are promoted by the OECD as
‘active’ policies for the alleviation of unemployment, as opposed to the ‘passive’
1 Wage subsidies are also sometimes termed employment subsidies, recruitment subsidies, or benefit
transfers (Snower, 1994), and these terms are applied to subsidies only in private sector jobs, not the public
sector.