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Active labour-market policies and output growth: Is there a causal relationship?

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  • Goulas, Eleftherios
  • Zervoyianni, Athina

Abstract

While the labour-market impact of ALMP interventions has been extensively studied, an issue that has not been widely addressed in the literature is to what extent active labour-market policies have beneficial effects for the whole economy at the macroeconomic level. This paper addresses this issue by examining how additional resources allocated to active labour-market policies relate to output-growth rates. It also examines the sensitivity of the growth-ALMP relationship to the business cycle. Based on a structural model, we find that whether or not additional resources allocated to ALMPs contribute to raising output growth is a priori unclear. However, using data from OECD countries during 1991–2011 and GMM estimation to account for potential endogeneities, we find evidence suggesting a net positive output-growth differential due to implementing active labour-market policies in normal times of between 0.004 and 0.006 percentage point. This differential becomes larger during economic upturns when market conditions are improving relative to trend.

Suggested Citation

  • Goulas, Eleftherios & Zervoyianni, Athina, 2018. "Active labour-market policies and output growth: Is there a causal relationship?," Economic Modelling, Elsevier, vol. 73(C), pages 1-14.
  • Handle: RePEc:eee:ecmode:v:73:y:2018:i:c:p:1-14
    DOI: 10.1016/j.econmod.2017.11.019
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    Keywords

    Output growth; Labour-market policy; Cyclical influences;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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