Fighting long-term unemployment: Do we have the whole picture?

Theoretical literature on active labour market policies underlined as targeted policies can have unplanned consequences (i.e. displacement and postponed hiring effects) on individuals outside the target group. These consequences mostly affect the hiring of those that are more often used in the control group when a counterfactual approach is used to evaluate a policy. They may imply a misestimation of policy effect. Surprisingly, few empirical analysis took into account of this possibility. We tried to fill this gap in the literature evaluating Law 407/90, a hiring subsidies policy targeting long-term unemployed and implemented in one of the most critic European labour markets: the italian ones. Using administrative data, we applied a regression discontinuity design to determine policy effectiveness. To select the bandwidth we introduced a new methodology motivated by the time-varying forcing variable. We furthermore checked for the presence of displacement and postponed hiring effects using a counterfactual approach. The results show the policy had a positive and significant impact. Moreover, no displacement and postponed hiring effects were detected.