An analysis of the Jobs Credit Scheme using a simple model

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.