Blog, Policy hub
Making wage subsidies work for young people
Oct 16, 25
At Labour Party conference, the Chancellor pledged to abolish “long-term youth unemployment”, announcing a ‘targeted backstop’ guaranteeing paid work for every young person who has not been earning or learning for 18 months.
This is intended to strengthen the Government’s Youth Guarantee, which aims to provide access to further education, apprenticeships, or one-to-one support to find work for 18 -21-year-olds. To make this offer to young people a reality, Government will need to collaborate with employers through a wage subsidy scheme.
With nearly a million young people in the UK not in education, employment or training, the Chancellor’s commitment to strengthen support is welcome. A wage subsidy scheme was a core part of the Youth Employment Group’s 2023 “Young Person’s Guarantee” – a set of ambitious evidence-backed policy proposals which inspired the concept of Government’s local trailblazer-led Youth Guarantee.
What are wage subsidies and why do they matter?
Wage subsidy schemes offer financial support to employers to take on people who might otherwise find it hard to get a job. Government funding covers part or all of wages and hiring costs for a defined period.
When a scheme is targeted at young people, it means a young person gets a job opportunity and an employer gets a young employee at a reduced cost. A well-known UK example was the Kickstart Scheme, which Government launched during the COVID-19 pandemic to create new job opportunities at a time when youth unemployment was high.
Recently, wage subsidy schemes have attracted broad cross-sector support with proposals from the TUC, the Centre for Social Justice, the Learning and Work Institute, and the British Chambers of Commerce. It reflects growing recognition of their potential to incentivise employers to hire young people amid a softening labour market with falling vacancies and slower hiring rates.
At Youth Futures Foundation, we have brought together comprehensive international evidence on what makes wage subsidies effective through our Youth Employment Toolkit and a major new review of youth employment interventions. Overall, the evidence suggests wage subsidies can help when they are designed well. The Kickstart evaluation found that for every 100 participants, 11 more were in unsubsidised jobs two years later compared to a similar group. While this may seem modest, the impact is meaningful at scale and crucially, stronger for marginalised young people facing the biggest barriers.
“A well-designed wage subsidy scheme can be exactly the opportunity many marginalised young people locked out of the labour market need - giving them the chance to prove themselves and helping employers see their potential. But to truly work, it must be grounded in evidence of what works: well-targeted, long enough to matter and backed by wraparound support.”
Peter Wilson, Youth Futures Foundation
Designing a scheme that delivers for young people
Wage subsidies work by reducing perceived hiring risk for employers and creating a proving ground for young people. Once on a subsidised placement, the young person can show what they bring to the job, leading to the chance to stay on once the placement is done. In addition, they can develop and gain experience, building workplace habits and skills on the job and through additional training courses.
As the Government continues to develop the details of its plan in the coming months, our evidence highlights the importance of getting the design of wage subsidy schemes right to foster meaningful outcomes. We have found that schemes with the best outcomes meet three criteria:
- Well targeted to marginalised young people who would benefit most. There are strong moral and economic reasons to target interventions at those furthest from the labour market. Evidence shows that wage subsidy schemes are most effective for young people facing the greatest barriers to work. Schemes should therefore prioritise those who would benefit most, namely:
The long-term unemployed: These young people see the worst outcomes as the scarring effects of unemployment grow and evaluations show they also see greater positive impacts from such schemes.
Those without Level 2 qualifications: These young people have a higher risk of becoming NEET. Evaluation of the Kickstart scheme showed the biggest gains were for this group. Their unsubsidised employment rates were 17% higher two years later, compared to just a 3% uplift for graduates.
Marginalised groups: Young people with experience in the care system or with special educational needs face a much higher risk of becoming NEET. International evidence shows employment schemes have their biggest impacts on these groups.
- Provide wraparound employability and skills training. Wage subsidies embedded within a package of wider support deliver stronger results than when they are standalone. Training is the most critical addition. To be most effective, a scheme should include both on-the-job and off-the-job training to build skills and prepare young people for sustained employment.
- Placements are long enough to matter. Placement duration significantly affects outcomes. Evidence indicates that to be most effective, they should last six months or longer. This gives employers enough time to see a young person’s potential, supports meaningful skill development, and increases the chance of conversion to a permanent role.
A long-term tool to support youth employment ambitions
The Government has demonstrated a welcome commitment to improving outcomes for young people while emphasising fiscal constraints. This context makes it even more important to target every public pound where it matters most. Building any wage subsidy scheme around the three criteria above will help.
Beyond short-term support, there is also a broader opportunity. A well-designed wage subsidy scheme should be part of a more systemic approach to tackling youth unemployment. Ideally, it could be permanent and adjust automatically with the economy – expanding in downturns and scaling back in better times – so it’s ready to respond quickly to economic shocks without starting from scratch.
What’s next?
At the What Works Centre for Youth Employment, we want to turn evidence into action that ensures every young person can access good work. As the Government’s strengthened Youth Guarantee offer takes shape, we’ll continue to work with policymakers and our partners to help ambition turn into measurable impact for young people.
Looking ahead, you’ll see more from us on wage subsidies in our forthcoming Youth Employment Outlook 2025, alongside new and additional evidence in a refreshed Youth Employment Toolkit in 2026. Both are designed to support policy makers, employers, practitioners and wider decision-makers with insight on what works best to help young people into employment.
To learn more on high-quality evidence on the impact of wage subsidy schemes and other employment interventions, read our latest review.
