Fiscal Policy Instruments for Inclusive Labor Markets: A Review

This paper critically reviews fiscal policy instruments—including active labor market policies, social protection measures, care policies, and tax reforms—focusing on their differentiated impacts on underrepresented groups and their potential to foster labor market inclusivity. Our review reveals that empirical studies often overemphasize the capacity of individual policies to mitigate inequalities, neglecting the complex interdependencies among various mechanisms and policies. Instead, we argue for a systematic approach to ensure equitable access to good jobs and address disparities across labor market groups. Although sector‐specific training and reskilling are essential, their effects often take time to materialize, highlighting the necessity of complementary labor demand measures, such as public works schemes, and employment subsidies, to address immediate challenges and promote inclusive growth. Care policies remain central to improving female labor market participation by alleviating their unpaid care burdens. The review also identifies critical research gaps, including the need for longitudinal studies on long‐term policy impacts, an exploration of regional disparities in labor market inequalities, and sector‐specific effects of fiscal measures.