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Evaluating the Dynamic Effects of Active Labour Policies in Italy

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Author Info
Carlo Altavilla
Floro Ernesto Caroleo

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Abstract

This paper analyses whether active labour market programmes (ALMP) have differing effects on unemployment and employment dynamics according to the particular region in which they are implemented. To this end, it analyses alternative theoretical and econometric models thought to capture the possible effects of active labour market policies on labour force dynamics. The econometric methodologies implemented are the generalized method of moment (GMM) and the panel vector autoregression (P-VAR). The evidence yielded by the GMM models suggests that the effects of different ALMP on unemployment are dissimilar across the Italian regions. It follows that some active programmes are likely to have a greater effect in the South than in the North. The results of the P-VAR models estimated are synthesised by impulse response analysis and forecast error variance decomposition. The impulse response analysis suggests that an increase in total ALMP gives rise to (i) a decrease in the unemployment rate and (ii) a significant increase in labour force participation. More interestingly, the results obtained from the error variance decomposition analysis show that unemployment movements are not driven by shocks in the ALMP and that, especially in the northern regions, atypical contracts shocks account for a substantial portion of unemployment dynamics.

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Paper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 8_2006.

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Date of creation: 15 Apr 2006
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Handle: RePEc:prt:dpaper:8_2006

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Related research
Keywords: ALMP GMM P-VAR

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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  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. Floro Ernesto Caroleo, Francesco Pastore, 2004. "La disoccupazione giovanile in Italia. La riforma dei sistemi d'istruzione e di formazione professionale come alternativa alla flessibilità numerica per accrescere l'occupabilità," CELPE Discussion Papers 83, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
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  6. 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!]
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  7. R Jackman & C Pissarides & S Savouri, 1990. "Labour Market Policies and Unemployment in the OECD," CEP Discussion Papers 011, Centre for Economic Performance, LSE.
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  10. Hujer, Reinhard & Caliendo, Marco, 2000. "Evaluation of Active Labour Market Policy: Methodological Concepts and Empirical Estimates," IZA Discussion Papers 236, Institute for the Study of Labor (IZA). [Downloadable!]
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  13. Calmfors, L. & Skedinger, P., 1995. "Does Active Labour Market Policy Increase Employment? Theoretical Considerations and Some Empirical Evidence from Sweden," Research Institute of Industrial Economics Working Papers 429, Research Institute of Industrial Economics.
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  14. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-62, December. [Downloadable!] (restricted)
  15. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  16. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  17. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February. [Downloadable!] (restricted)
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