Five Keys to Wage Subsidy Design

To create jobs and opportunities for struggling jobseekers, one of the most impactful tools available is a wage subsidy program. Below are five key areas of design to consider in making a program have maximum impact for jobseekers, employers and the state.

1. Targeting Job Seekers. Decide who in your workforce you most want to impact and balance this with cost. Does your state want to serve claimants who need the most help getting a job (likely to exhaust) or all claimants; claimants who are low, middle or high income; claimants who are in other categories; or some combination of criteria? Example methods of targeting include: 1) prior wage level of claimants and 2) profiling score.

2. Meeting Employer Demand. Determine how attractive the program must be to gain momentum with employers. Attractiveness of program design can affect: 1) how much the state must spend on marketing to employers and 2) how likely the subsidy is to actually incentivize an employer to provide a new opportunity and training, rather than simply seeking a subsidy for hiring a jobseeker they would have hired without the subsidy. Primary attractiveness factors are:

  • Cash flow – does the subsidy paid match the employer’s payroll timing;
  • Subsidy amount – assuming targeted job seekers are those who lack required skills and/or experience to be hired, is the subsidy sufficient to make the employer’s risk and investment worthwhile;
  • Flexibility – does the program offer greater subisidies (e.g. more weeks) to employers with positions that are more complex or difficult to train; and
  • Simplicity – how simple is the subsidy, e.g. : 1) how much paperwork is involved, 2) how many variables are in the calculation of subsidy payments and 3) does employer participation involve mandates with chilling effects that aren’t strongly outweighed by their impact on ultimate outcomes.

3. Controlling Costs. The net cost of a wage subsidy program can determine whether it becomes a legacy or a loser. The biggest drivers of net costs are: 1) who is targeted (e.g. are they likely long term claimants); 2) when the program is offered (e.g. how much of the jobseeker’s claim time remains to be saved); and 3) whether the claimant has had some time to prove their need for the program (e.g. many UI claimants find work on their own in the first three weeks of a claim).

Other cost drivers are dependent upon: 1) how well job development activities are structured to harmonize rather duplicate current other job development efforts, 2) how well the program features, e.g. subsidy amount, sell themselves rather than depend on state marketing budgets to sell the program and 3) whether a fixed goal is set for staff to manage the average subsidy amount.

4. Targeting Volume. All wage subsidy programs have a sweet spot that lies beyond a point of critical mass and short of pushing up hill to the point of saturation. Evaluating and setting this target volume in advance can maximize impact on employer adoption and job seeker motivation by providing a real safety net for those who fail to find work on their own. Experience suggests this can be between 2-10% of a population, depending on the pool served.

5. Establishing Measures. What gets measured gets done. How soon basic measures are set and how they are communicated impacts strongly how well the program goals are managed. Measures often include: 1) cost per participant vs. funds saved by lowering claims, 2) efficiency of the referral process and 3) employer and participant satisfaction.

Since the Works Projects Administration of the 1930s, the US has experimented sucessfully with a number of subsidized work programs, from WIA to WOTC to TANF to TAA and all the acronyms in between. Careful design can tap synergies between them and make a powerful one stop opportunity for job seekers who need a fresh start.

To truly provide a hand up, we recommend three strategies: 1) For those who can get a job – work search tools and encouragement; 2) For those who need on-the-job training – a wage subsidy paid to the employer; 3) For those who need a foot in the door – a volunteer training opportunity.

For wage subsidies, consider Texas’ Back to Work program, which won the US Dept of Labor’s 2010 Innovation Award. For volunteer training, consider the Georgia Works program, which won our 2008 Full Employment Award.

Case Studies and Papers