An analysis of the Jobs Credit Scheme using a simple model

Abstract

We estimated the effect of the Jobs Credit Scheme (JCS) – a temporary wage subsidy programme – in protecting local workers from retrenchment using a one-period Cobb–Douglas production function under five scenarios of economic contractions in 2009: optimistic (−2%), actual (−3.1%), expected (−5%), pessimistic (−10%) and catastrophic (−20%). The JCS had a substitution effect that could save 32,000–50,000 local jobs, but would be less effective in serious economic contractions. Our model's prediction was biased upwards because of adjustment costs. The main effect of the programme was a wealth transfer to firm owners which could be inequitable. The deadweight loss at 1.62% of the programme cost was small. The alternative policy of simultaneously taxing foreign workers and transferring a lump sum to firms could achieve the same outcome with a smaller wealth transfer.

Keywords:

• wage subsidy
• Cobb–Douglas production function
• substitution effect