Evaluation of the Australian Wage Subsidy Special Youth ...

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coefficients in the model. As before the elasticity of labour demand and labour supply,
but now also the replacement ratio, will affect the effectiveness of the employment gain
due to the subsidy.
V
v*
∆L
L -
b/c σ
L
Figure 1.2 Employment effect of the subsidy,
Snower (1994) Figure 1 p67
All of these theoretical models provide evidence but do not offer unequivocal proof that
the wage subsidy can increase employment, as they retain unknown parameters in their
final solutions. The ambiguity that these empirically unknown parameters introduce then
leads to the conclusion that there is theoretical potential for employment gains of
subsidies. This infers the need to empirically assess the employment gains from wage
subsidies in practice. It is in this context that the importance of empirical analysis of
wage subsidy programs arises.
1.3 Introduction to evaluation of programs
In examining the evidence for whether a wage subsidy program improves the
employment prospects for the individual, it is necessary to conduct an evaluation. Several
recent surveys of evaluation and evaluation techniques exist in the economic literature –