Youth Employment Toolkit: wage subsidies and youth employment

Blog posts

5 Jul 2023

Alexandra Nancarrow, Research Fellow

Youth Futures Foundation (YFF) commissioned IES and the Centre for Evidence and Implementation to lead evidence synthesis to inform the development of a Youth Employment Toolkit of effective practices for improving employment outcomes amongst young people, particularly those who face marginalisation in the labour market. There is a wealth of evidence to suggest improving the outcomes for this group would bring a range of individual and societal economic and social benefits and avoid substantial costs. Two main reviews were conducted, one of which reviewed was the use of financial subsidies to employers to take on young people in the workplace.

This research aimed to address two central questions:

1: What impact do wage subsidies have on helping marginalised or disadvantaged young people entering into non-subsidised employment?

2: What impact do wage subsidies have on helping marginalised or disadvantaged young people entering into education?

To initially gather available literature on the subject, a rapid evidence assessment was completed. Specifically, the rapid evidence assessment investigated the effects of wage subsidies on non-subsidised, paid youth employment in high-income countries, with a focus on jobs for marginalised or disadvantaged young people.

In particular, the assessment guidelines specified young people between 16 and 30 years old. In the United Kingdom, young people are required to attend full-time education up to the age of 16 years (and in England, this is extended to 18 years but also includes part-time education that takes place along with volunteering, working or work-based training such as traineeships or apprenticeships). The age of 30 years was selected as the upper cut-off because the definition of ‘youth’ provided by the Department of Work and Pensions (DWP) and the Department for Education (DfE) include people up to the age of 30. The full-text screening of the rapid evidence assessment led to a total of 19 studies that were then assessed for their suitability for inclusion in a meta-analysis. Of these 19 studies, four were determined as fitting our criteria for the meta-analysis.

Following the rapid evidence assessment, a meta-analysis examined four wage subsidies programmes in the UK, the Netherlands and Sweden, including the New Deal for Young People (UK), Future Jobs Fund (UK), subsidised employment programmes in the Netherlands and Youth Practice (Sweden). The meta-analysis examined whether participating in these programmes had an impact on young people’s entry into non-subsidised employment or education. All four studies were used in the employment outcome analysis but only the studies from the Netherlands and Sweden were used in the education outcome analysis. The meta-analysis results demonstrated a significant positive impact on employment entry but no significant impact on education entry.

It is important to also note the limitations of the extant literature on wage subsides programmes for young people in high-income countries. There is quite a limited number of studies available on this topic that use robust designs such as randomised controlled trials (RCTs). Thus, the meta-analysis included quasi-experimental designs (QEDs) such as difference-in-differences, which do not account for general equilibrium effects (i.e. how the programmes impact the wider population). There is a dearth of outcomes in the existing literature as well; for example, in addition to entry into non-subsidised employment and education, other useful outcomes to explore include job quality, employability, and job-related behaviour outcomes such as greater confidence. In addition, all of the studies included in the meta-analysis were published before the year 2013, which leads to the question of how applicable these studies are to the present sociopolitical climate and the post-Covid labour market.

There was also limited information provided in the literature about the costs of wage subsidies programmes in high-income countries. However, the extant costs information suggests that the benefits tend to outweigh the costs of wage subsidy programmes. In general, this research demonstrated that wage subsidy programmes for unemployed marginalised or disadvantaged young people tend to improve their ability to enter into nonsubsidised employment. However, some of the evidence examining the New Deal for Young People and the Future Jobs Fund suggests that young people who are less disadvantaged than their peers (i.e. better employability skills or closer to being ready for work) often reap more benefits from these programmes.