Evaluation of the Australian Wage Subsidy Special Youth ...

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earnings between juniors and adults in the private sector. However, this provides no
modelling evidence that these wage differentials were important factors influencing youth
unemployment.
More formal modelling by Lewis (1983) examined the role of relative wages in the
substitution between young and adult workers in Australia. It was concluded that for
young males, demand was not particularly elastic to any other group except adult females,
while young females had high demand elasticity relative to any adult workers. Thus it
was suggested a change in labour costs would have a significant effect on young women
and unskilled young men. The SYETP wage subsidy would introduce such a change in
the relative costs for the eligible groups. The main restriction on substitutability foreseen
by Lewis (1983) was reasoned to be skills and work experience.
Miller and Volker (1987) examined skills and work experience as the determinants of
youth earnings. They found that education and experience were major determinants of
youth earnings. They also found that recent unemployment did not have a strong
influence on earnings for youths. They reasoned that this was due to institutional features
and trade union effects on wages and “…while the unemployment record appears to be
used as a cheap screen at the hire stage, it does not have much impact on wage
determination” (Miller and Volker (1987): 35). A wage subsidy like SYETP can help
address the screening problem by allowing a low cost trial period for unemployed. As
SYETP operated in the period they analysed, it could have contributed to the weak
influence of unemployment on wages by influencing human capital of participants
through on the job training.
Daly (1991) examined the returns to experience in a comparison of formal education and
on-the-job training by modelling earnings in Australia 1981. It was found that the
experience profiles of different formal education groups converged. The conclusion
drawn was that formal education and on-the-job training were to some extent
substitutable methods for the accumulation of human capital, and thus they were
substitute and not complementary activities. Wage subsidies, while not ostensibly