In a recent Independent Review, it was established that – given uncertainty about COVID and the effectiveness of potential policy interventions – JobKeeper was an effective policy. However, are there lessons from JobKeeper about whether wage subsides would be a useful tool in a future economic slowdown?
A wage subsidy’s key advantage over other economic policies is its potential to maintain hard to replace, valuable, job matches. Looking at JobKeeper we find that:
- the match value of jobs saved by JobKeeper was similar to other available jobs in the economy,
- half of all job matches saved by JobKeeper no longer existed by March 2023,
- income growth has been weak for individuals who were tied to firms in the later stages of the scheme.
These facts indicate that the benefits of such schemes are limited when alternative jobs are available – and that there are real costs associated with tying individuals to unproductive firms, which increase the longer the scheme is in place.
During a future demand driven recession, policies that focus on boosting demand and supporting workers transition to new jobs are likely to be better than tying workers to jobs by introducing a new wage subsidy.