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Strategic Interaction among EU Governments in Active Labor Market Policy-making

Author

Listed:
  • Robert J. Franzese Jr.

    (University of Michigan, USA)

  • Jude C. Hays

    (University of Illinois, USA)

Abstract

The European Union (EU) recently committed to becoming ‘the most competitive and dynamic knowledge-based economy in the world.’ Active labor market (ALM) policies are a critical part of the European Employment Strategy (EES) – the plan designed to achieve this objective. ALM policies entail several possible externalities that, spilling across national boundaries, may create incentives for European governments to free ride off the efforts of their neighbors. We provide empirical evidence that the national best-response functions for ALM spending (worker-training programs in particular) are indeed downward sloping; an increase in expenditures in one country decreases equilibrium expenditures in its neighbors. Therefore, levels of ALM spending may well be too low, notwithstanding the mildly increasing coordination fostered through the EES framework. Stronger enforcement procedures may be necessary if the European Union is to achieve its EES objectives.

Suggested Citation

  • Robert J. Franzese Jr. & Jude C. Hays, 2006. "Strategic Interaction among EU Governments in Active Labor Market Policy-making," European Union Politics, , vol. 7(2), pages 167-189, June.
    • Handle: RePEc:sae:eeupol:v:7:y:2006:i:2:p:167-189
    DOI: 10.1177/1465116506063705
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    References listed on IDEAS

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    Cited by:

    1. Brian Burgoon & Panicos Demetriades & Geoffrey Underhill, 2008. "Financial Liberalisation and Political Variables: a response to Abiad and Mody," Discussion Papers in Economics 08/30, Division of Economics, School of Business, University of Leicester.
    2. Kemmerling, Achim, 2006. "Diffusion und Interaktion in der Arbeitsmarktpolitik? Positive und negative Ansteckungseffekte am Beispiel zweier Reformdiskussionen," Discussion Papers, Research Unit: Labor Market Policy and Employment SP I 2006-119, WZB Berlin Social Science Center.
    3. Burgoon, Brian & Demetriades, Panicos & Underhill, Geoffrey R.D., 2012. "Sources and legitimacy of financial liberalization," European Journal of Political Economy, Elsevier, vol. 28(2), pages 147-161.

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