The 'Prepare - trial - hire' initiative aims to reduce youth unemployment

An important measure in the Australian Federal Budget is the so called PaTH initiative. It replaces 'Work for the dole' for young people (although that is available after a year of unemployment).

The PaTH initiative (it stands for Prepare, Trial and Hire) is a supply-side policy initiative to try to tackle the problem of structural unemployment among young workers.

Structural unemployment arises because of a mismatch between the skills workers have and the skills needed to fill job vacancies. Young workers have the disadvantages of no experience and no in-work skills. Training workers is expensive and is therefore a cost of employment. If the cost of employing workers can be reduced somehow then firms will hire more of them.

The chart clearly shows unemployment among young workers is higher than over 25's

The ultimate goal of this policy is to shift the Aggregate Supply curve to the right. The policy does this by increasing the supply of skilled workers. It does not assume that all young unemployed workers have no skills, but does assume that the lack of current skills means that some unemployed are not really employable and so not truly part of the workforce (or labourforce/labour supply) available to the economy.

The scheme works by paying the young unemployed  $100 a week extra on their benefits to take part in the early stages of the scheme. This is important because they need an incentive. If there was no additional payment the disadvantages of travel to work costs and getting up early each day etc. would mean many would prefer to stay out of work.

After the first two stages of the scheme employers receive help for six months to pay the wages of the young workers they hire - anothVCEer incentive. This is in addition to $1000 paid to firms at the early stage of the scheme. This payment, of between $6,500 and $10,000 helps offset the training costs of the new workers. With hope after six months of employment the new worker is adding more than the value of their wages to the firms revenue and will keep their job.

Will this work? We don't know until we try it. The incentives on both sides of the market have to be enough to fill the 30,000 places a year. It is clear not all 30,000 will go on to full time permanent jobs, but some should. Overall this measure should help to contribute to Australia's economic growth and lower unemployment. However it will do so only slowly.

The Age explains the scheme in detail here

This article relates to an important measure in the Australian Federal Budget 2016. VCE students need to know the details (plenty in The Age article). IB students can use it as an example of supply-side policy and should be able to analyse the effects in the AD/AS model.