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Can active labour market policy work? Some theoretical considerations

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  • Richardson, J.

Abstract

Persistent high unemployment in Europe has led to renewed interest in Active Labour Market Policy. However, most existing theory suggests that its effects are ambiguous at best. We argue that job search assistance and wage subsidies are more appropriately modelled as a transition rather than the state-based approach of existing theory. This eliminates the ambiguity. We present two main models, one in which negative duration dependence in unemployment arises from state dependence, the other where it is due to heterogeneity. In both cases policy is unambiguously effective provided it is targeted on those who are, or are most likely to become, long-term unemployed. Some crude estimates suggest that Active Labour Market Policies could have a significant, though not spectacular, effect in reducing unemployment.

Suggested Citation

  • Richardson, J., 1997. "Can active labour market policy work? Some theoretical considerations," LSE Research Online Documents on Economics 20354, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20354
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    References listed on IDEAS

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    Cited by:

    1. João Tovar Jalles, 2017. "Forecasting performance of private sector’s unemployment forecasts in advanced economies," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(6), pages 707-733, November.
    2. Pieter Serneels, 2002. "The added worked effect and intra household aspects of unemployment," CSAE Working Paper Series 2002-14, Centre for the Study of African Economies, University of Oxford.
    3. J Richardson, 1997. "Wage Subsidies for the Long Term Unemployed: A Search Theoretic Analysis," CEP Discussion Papers dp0347, Centre for Economic Performance, LSE.
    4. repec:eee:labchp:v:3:y:1999:i:pc:p:3085-3139 is not listed on IDEAS
    5. Berthold Norbert, 2000. "Mehr Beschäftigung, weniger Arbeitslosigkeit: Setzt sich das ökonomische Gesetz gegen (verbands-)politische Macht durch?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 51(1), pages 231-260, January.

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    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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