The welfare lobby is up in arms over the Abbott government's decision to pause and review Wage Connect, Labor's subsidy scheme designed to help the long-term unemployed get back into work.
Under the scheme, if an employer hires a job seeker who has been unemployed and on income support payments for at least two years, they will receive $5,900 for this employee over six months. This averages to roughly $230 per week, almost as much as Newstart Allowance.
Groups like the National Welfare Rights Network point to Senate Estimates showing 47% of Wage Connect clients (employees) were in paid employment at the end of the six month program. Although this fact is used to try and justify expanding the program, employers could simply be keeping Wage Connect employees on the books for the required six months before moving them on. It is much more telling to know what the status is after 12 or 18 months, when the program has past completion.
The problem with the scheme, despite its reported success, is that it is far too costly, and, according to the new government, not targeted well enough. This is the second time the scheme has been paused because the funding allocated has simply not been enough to meet demand. The previous government committed $86 million over the next four years, yet if all 35,000 subsidies are utilised, the government will be looking at a $206.5 million bill.
A better, and cheaper, alternative is for employers hiring long-term job seekers to be exempt from the minimum wage requirements for six months.
This alternative would improve job prospects for the long-term unemployed and provide employers with an incentive to hire and train new workers. Importantly, it would not blow another hole through the Commonwealth budget.
Take the example of a minimum wage earner. A long-term job seeker hired on the minimum wage ($622.20 per week) under Wage Connect would cost the government $230 per week in wage subsidies.
By contrast, consider the example of a minimum wage exemption where the employee is earning half the minimum wage ($311.10 per week). Unlike the Wage Connect employee, this employee would still receive some of their Newstart Allowance, but the cost to the government would be just $92 per week.
The cost to the government per worker under a minimum wage exemption program would be 60% less over the life of the program – a significant saving for a government looking for cuts.
But an equally important advantage is that there are no limits on the program. Theoretically, all long-term unemployed workers could be hired under the program, moving off welfare, acquiring new skills and achieving a measure of financial independence.
While a review of Wage Connect is a step in the right direction, the government should also consider less orthodox programs, such as minimum wage exemptions.
Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.
Home > Commentary > Opinion > Minimum wage exemptions for long-term unemployed
Minimum wage exemptions for long-term unemployed
Under the scheme, if an employer hires a job seeker who has been unemployed and on income support payments for at least two years, they will receive $5,900 for this employee over six months. This averages to roughly $230 per week, almost as much as Newstart Allowance.
Groups like the National Welfare Rights Network point to Senate Estimates showing 47% of Wage Connect clients (employees) were in paid employment at the end of the six month program. Although this fact is used to try and justify expanding the program, employers could simply be keeping Wage Connect employees on the books for the required six months before moving them on. It is much more telling to know what the status is after 12 or 18 months, when the program has past completion.
The problem with the scheme, despite its reported success, is that it is far too costly, and, according to the new government, not targeted well enough. This is the second time the scheme has been paused because the funding allocated has simply not been enough to meet demand. The previous government committed $86 million over the next four years, yet if all 35,000 subsidies are utilised, the government will be looking at a $206.5 million bill.
A better, and cheaper, alternative is for employers hiring long-term job seekers to be exempt from the minimum wage requirements for six months.
This alternative would improve job prospects for the long-term unemployed and provide employers with an incentive to hire and train new workers. Importantly, it would not blow another hole through the Commonwealth budget.
Take the example of a minimum wage earner. A long-term job seeker hired on the minimum wage ($622.20 per week) under Wage Connect would cost the government $230 per week in wage subsidies.
By contrast, consider the example of a minimum wage exemption where the employee is earning half the minimum wage ($311.10 per week). Unlike the Wage Connect employee, this employee would still receive some of their Newstart Allowance, but the cost to the government would be just $92 per week.
The cost to the government per worker under a minimum wage exemption program would be 60% less over the life of the program – a significant saving for a government looking for cuts.
But an equally important advantage is that there are no limits on the program. Theoretically, all long-term unemployed workers could be hired under the program, moving off welfare, acquiring new skills and achieving a measure of financial independence.
While a review of Wage Connect is a step in the right direction, the government should also consider less orthodox programs, such as minimum wage exemptions.
Alexander Philipatos is a Policy Analyst at The Centre for Independent Studies.
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