Public Sector & Private Sector Employment Programs as Competing Solutions to Unemployment

The object of this paper is to examine private sector wage subsidies and public sector job creation as competing solutions to unemployment. This has been undertaken firstly, by critically evaluating the general arguments adduced for the respective programs. Secondly, consideration is given to the outcomes from examples of such programs. In this case the Special Youth Employment Training Program (SYETP) and the Regional Employment Development Scheme (REDS) were selected as relevant examples of private and public sector employment programs conducted in Australia. It was found that SYETP had difficulty fulfilling its twin objectives of providing training for those disadvantaged in the labour market and fulfilling their transition to unsubsidised employment. Wage subsidies have a major administrative flaw in that it is extremely difficult to determine whether a subsidy results in either net job creation, i.e., creating a position which would not exist in absence of the subsidy, or the substitution of subsidised for non‐subsidised labour. The operation of wage subsidies results in a degradation of the labour market, or substitution of permanent for casual, high turn‐over positions. Public sector job creation is subject to certain benefits that do not accrue to private sector schemes. It is argued that RED type schemes have a greater capacity to incorporate more intensive formal skills training, and can more readily manipulate tax and employment multipliers. An attempt has been made to compare the cost efficiency of SYETP and REDS in creating employment. One important, though tentative result of this exercise is that the effectiveness of wage subsidies as a job creation mechanism is dependent upon economic growth. Consequently there is a paradox in the use of wage subsidies whereby they are most effective when they are least needed and most needed when they are least effective.