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Do Active Labor Market Policies Increase Employment?

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  • Marcello M. Estevão

Abstract

Using panel data for 15 industrial countries, active labor market policies (ALMPs) are shown to have raised employment rates in the business sector in the 1990s, after controlling for many institutions, country-specific effects, and economic variables. Among such policies, direct subsidies to job creation were the most effective. ALMPs also affected employment rates by reducing real wages below levels allowed by technological growth, changes in the unemployment rate, and institutional and other economic factors. However, part of this wage moderation may be linked to a composition effect because policies were targeted to low-paid individuals. Whether ALMPs are cost-effective from a budgetary perspective remains to be determined, but they are certainly not substitutes for comprehensive institutional reforms.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/234.

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Length: 30
Date of creation: 01 Dec 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/234

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Keywords: Unemployment; Consumption; employment; labor market; employment rates; labor market policies; job creation; unemployed; unemployment rate; employment rate; labour; labour market; employment protection; labor force participation; public employment; labor force; labor demand; active labor; public employment services; active labor market; employment services; labor market policy; training programs; unemployment compensation; labor costs; temporary employment; subsidized employment; active labor market policy; direct job creation; unemployment rates; effect on employment; unemployed adults; labour market policy; unemployed workers; jobs; regular employment; unemployment benefits; unemployed persons; job-search; labor market programs; labor market performance; active labour; labour market training; active labor market policies; labor market training; active labour market; labour market policies; total unemployment; employment creation; labor market variables; bargaining system; employment agencies; total employment; aggregate employment; affected employment; labor economics; unemployment insurance; collective agreement; active employment; jobless; public sector employment; employment programs; labor market institutions; active labour market policies; labor utilization; average wages; skilled workers; labor productivity; labor market developments; job creation programs; unemployment insurance system; employment growth; unemployment benefits duration; private employment; female labor force participation; open unemployment; bargaining power; unemployment statistics; average employment; labour market reforms; labor market rigidities; labor force survey; female labor force; active labor market programs; average employment rate; labor market model; labour market institutions; labour market programs; determining employment; rate of unemployment; employment outlook; job-seekers; labor market outcomes; self- employment; unemployment compensation payments; labor market expenditure; combating unemployment; temporary unemployment; labors; active labour market programs; full employment; labor compensation; unemployment benefit; job vacancies; unemployed individuals; jobless workers; labor market flexibility; part-time employment; labor force characteristics; employment equation; employment performance; net job creation;

References

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  1. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  2. Lars Calmfors & Anders Forslund & Maria Hemström, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," CESifo Working Paper Series 675, CESifo Group Munich.
  3. R. Jackman & R. Layard & S. Nickell, 1996. "Combatting unemployment: is flexibility enough?," LSE Research Online Documents on Economics 47446, London School of Economics and Political Science, LSE Library.
  4. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
  5. Calmfors, Lars & Lang, Harald, 1995. "Macroeconomic Effects of Active Labour Market Programmes in a Union Wage-Setting Model," Economic Journal, Royal Economic Society, vol. 105(430), pages 601-19, May.
  6. repec:fth:iniesr:429 is not listed on IDEAS
  7. Calmfors, Lars & Skedinger, Per, 1995. "Does Active Labour-Market Policy Increase Employment? Theoretical Considerations and Some Empirical Evidence from Sweden," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 91-109, Spring.
  8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, September.
  9. repec:fth:prinin:343 is not listed on IDEAS
  10. Marcello M. Estevão & Nigar Nargis, 2002. "Wage Moderation in France," IMF Working Papers 02/151, International Monetary Fund.
  11. Martin, John P. & Grubb, David, 2001. "What works and for whom: a review of OECD countries' experiences with active labour market policies," Working Paper Series 2001:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  12. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  13. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  14. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
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Citations

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Cited by:
  1. Estevão, Marcello & Nargis, Nigar, 2005. "Structural Labor Market Changes in France," IZA Discussion Papers 1621, Institute for the Study of Labor (IZA).
  2. Marcello M. Estevão, 2005. "Product Market Regulation and the Benefits of Wage Moderation," IMF Working Papers 05/191, International Monetary Fund.
  3. Marcello M. Estevão, 2004. "Why is Productivity Growth in the Euro Area so Sluggish?," IMF Working Papers 04/200, International Monetary Fund.
  4. Bukowski, Maciej & Lewandowski, Piotr & Koloch, Grzegorz & Baranowska, Anna & Magda, Iga & Szydlowski, Arkadiusz & Bober, Magda & Bieliński, Jacek & Zawistowski, Julian & Sarzalska, Malgorzata, 2008. "Employment in Poland 2007: Security on flexible labour market," MPRA Paper 14284, University Library of Munich, Germany.
  5. Loughrey, Jason & Donnellan, Trevor & Hanrahan, Kevin & Hennessy, Thia, 2013. "Agricultural Labour Market Flexibility in the EU and Candidate Countries," Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152329, International Agricultural Trade Research Consortium.
  6. Tvrdon, Michal, 2007. "Labour Market Flexibility: the Case of Visegrad Countries," MPRA Paper 12314, University Library of Munich, Germany.
  7. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, EconWPA.
  8. John P. Martin, 2014. "Activation and Active Labour Market Policies in OECD Countries:Stylized Facts and Evidence on their Effectiveness," Working Papers 201409, Geary Institute, University College Dublin.

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