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Labor market programs, the discouraged-worker effect, and labor force participation

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Author Info
Johansson, Kerstin (IFAU - Insitute for Labour Market Policy Evaluation)
Abstract

This paper estimates the macroeconomic effect of labor market programs on labor force participation. Labor market programs could counteract business-cycle variation in the participation rate that is due to the discouraged-worker effect, and they could prevent labor force outflow. An equation that determines the participation rate is estimated with GMM, using panel data (1986-1998) for Sweden's municipalities. The results indicate that labor market programs have relatively large and positive effects on labor force participation. If the number of participants in labor market programs increases temporarily by 100, the labor force increases immediately by around 63 persons. The effect is temporary so the number of participants in the labor force returns to the old level in the next period. If the number of participants in programs is permanently increased, the labor force increases by about 70 persons in the long run. Programs are reducing the business-cycle variation in labor force participation because the effect is positive and programs are counter-cyclical and they counteract the discouraged-worker effect in the long run. The results indicate that programs could prevent labor force outflow; participants who would have left labor force in the abscence of programs are may now be participating because of the programs. Wages and vacancies have positive long- and short-run effects on participation rate. Open unemployment, the job destruction rate, and proportions of persons between ages 18-24 and 55-65 have negative long run effects on the participation rate.

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Paper provided by IFAU - Institute for Labour Market Policy Evaluation in its series Working Paper Series with number 2002:9.

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Length: 50 pages
Date of creation: 30 May 2002
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Handle: RePEc:hhs:ifauwp:2002_009

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Related research
Keywords: Labor supply; labor market programs; dynamic panel data;

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Find related papers by JEL classification:
E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June. [Downloadable!] (restricted)
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  3. Calmfors, Lars & Forslund, Anders & Hemström, Maria, 2002. "Does active labour market policy work? Lessons from the Swedish experiences," Working Paper Series 2002:4, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
  4. Holmlund, Bertil & Linden, Johan, 1993. "Job matching, temporary public employment, and equilibrium unemployment," Journal of Public Economics, Elsevier, vol. 51(3), pages 329-343, July. [Downloadable!] (restricted)
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  5. Dahlberg, M. & Forslund, A., 1999. "Direct Displacement Effects of Labour Market Programmes: the Case of Sweden," Papers 1999:22, Uppsala - Working Paper Series.
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  6. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies. [Downloadable!]
  7. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies. [Downloadable!]
  8. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  9. repec:rus:hseeco:10108 is not listed on IDEAS
  10. Forslund, Anders & Kolm, Ann-Sofie, 2000. "Active labour market policies and real-wage determination - Swedish evidence," Working Paper Series 2000:7, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hesselius, Patrik, 2003. "Does Sick Absence Increase the Risk of Unemployment?," Working Paper Series 2003:15, Uppsala University, Department of Economics. [Downloadable!]
  2. Öckert, Björn, 2002. "Do university enrollment constraints affect education and earnings?," Working Paper Series 2002:16, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  3. Andrén, Thomas & Gustafsson, Björn, 2002. "Income effects from labor market training programs in Sweden during the 80's and 90's," Working Paper Series 2002:15, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
  4. Boone, Jan & Fredriksson, Peter & Holmlund, Bertil & van Ours, Jan, 2002. "Optimal unemployment insurance with monitoring and sanctions," Working Paper Series 2002:21, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
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