Activity 12(g)

1.  Employers could receive a wage subsidy for each new job they created when they hired an eligible employee, over the 12 months from October 2020. The subsidy applied to a new employee aged 16 to 35 years old who had received JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one of the previous three months at the time of hiring. A payment of $200 a week for employees aged 16 29 and $100 a weck for employees aged 30 to 35 years was made available for up to 12 months.

2. Through subsidising one of their largest expenses — the cost of labour – the subsidy should serve to reduce the cost of production for those businesses taking advantage of the scheme.This can increase the willingness and ability of businesses to increase output, and result in a larger productive capacity and an increase in aggregate supply.

3. By reducing the average cost of production for businesses it will therefore increase productive efficiency (in the short term) given that existing production volumes can occur at lower will help to further reduce prices, lower term competitiveness which stimulates aggregate demand and cconomic growth, helping to reduce the rate of unemployment towards the full employment (NAIRU) level approximately 4.5%. It might help to improve allocative efficiency to the extent that young people do not experience significant scarring during the pandemic, maintaining a connectedness to the workplace and resulting in better overall outcomes during their lifetime. [Note however, that like any subsidy,productive efficiency in the long term.]

4. The scheme effectively reduces the relative price of ‘young labour’ (compared to older members of the labour force), which therefore encourages businesses to increase the demand for young labour and reduce demand for older labour.

5. Student research

6. There are a number of weaknesses associated with the delivery of these types of aggregate supply policies. This includes the potential that the opportunity costs associated with the subsidies have not been minimized. In addition, there is always the possibility that political influence has played a part such that the decision to provide the subsidies were focused less on what was in the best interests of Australia and more on political considerations. In addition,there are possible implementation and impact lags associated with the provision of these subsidies, including the possibility that some businesses will break the law and replace older workers with the younger subsidized employees. There is also the point made in the response to question 3 that subsidies can lead to ineffic long run if they are maintained for too long. Further, any government spending that is not matched by a corresponding increase in government revenue will need to be financed, which has the potential to crowd out the private sector as the Issuing of debt to finance the deficit exerts upward pressure on interest tates.