Under what institutional and incentive conditions do skill-development subsidies outperform direct wage support in improving long-term labour market outcomes in India?

Governments seeking to raise labour productivity face a persistent policy dilemma between providing direct wage support and subsidising skill development. While wage support can stabilise incomes and boost labour supply in the short term, skill-development subsidies are often promoted as a means of enhancing long-term employability and productivity, though their effectiveness varies widely across contexts. This paper asks: under what institutional and incentive conditions do skill-development subsidies outperform direct wage support in improving long-term labour market outcomes? Using a comparative policy analysis based on secondary data from OECD, World Bank, and ILO evaluations, the paper examines how labour market incentives, employer participation, and institutional capacity shape policy performance. The analysis finds that skill-development subsidies generate superior long-term outcomes when programs are closely aligned with labour market demand, supported by credible employer involvement, and implemented by institutions capable of enforcing targeting and quality standards. In the absence of these conditions, direct wage support often delivers more predictable short- to medium-term results. The paper contributes to the labour economics literature by emphasising the conditional nature of policy effectiveness and by identifying design principles for integrating income support with human capital investment.