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Well intentioned but fiscally ludicrous

Alexander Philipatos | 15 February 2013

alex-philipatosWell, the fiscal chickens have come home to roost. The government’s Wage Connect policy has proven so successful in finding businesses with their hands out that the ALP has been forced to place the program on hold until 1 July.

Wage Connect is a program designed to assist job seekers, who have little to no recent work experience, get back into a job. The program is restricted to those who have been unemployed for over two years.

Employers who offer full-time positions to inexperienced staff, providing them with on-the-job training, can receive subsidies to the tune of $5,900 per employee for six months to assist with training costs. This averages out to roughly $230 per week, equivalent to that of the Newstart Allowance.

The government had originally committed $85 million out of the 2011-12 budget to fund the program over the next four years. But since the budget, long-term unemployment has grown by 23,000 people to a total 253,000. Predictably, Wage Connect has proven popular with businesses eager to get their hands on some easy money.

The program has laudable objectives. The long-term unemployed often lack the skills and experience necessary to find even entry-level jobs, so any program that increases their chances of gaining employment ought to be considered. However it was entirely foreseeable that this program would burn a hole through its budget.

Many businesses in low-skilled industries regularly employ inexperienced staff. Offering these businesses subsidies simply pays them to hire employees they might already have hired.

Of course, many of these subsidies would have gone to the intended recipients; businesses weary of hiring inexperienced staff would have seen the subsidy as a just reward for taking a risk on inexperienced staff.

But there is a better way to get the long-term unemployed back into jobs, with no impact whatsoever on the government’s budget.

To give businesses a greater incentive to take on the long-term unemployed, the government could provide a six-month exemption from the minimum award wage.

This would give businesses six months to provide training, without the cost pressures imposed by minimum award wages. After six months – the same duration as the Wage Connect subsidy – the employee’s wage would go back up to its regular level.

This way, the long-term unemployed would have higher job prospects, employers would have an incentive to hire them, and the government would reduce the number of long-term unemployed job seekers drawing income support.

Scrapping Wage Connect subsidies in favour of a minimum wage exemption should be a no-brainer for any government wanting to stem the growth in long-term unemployment, particularly one struggling to produce a budget surplus.

Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.