Can Active Labour Market Policy Work? Some Theoretical Considerations
Persistent high unemployment in Europe has led to renewed interest in Active Labour Market Policy. However, most existing theory suggests that its effects are ambiguous at best. We argue that job search assistance and wage subsidies are more appropriately modelled as a transition rather than the state-based approach of existing theory. This eliminates the ambiguity. We present two main models, one in which negative duration dependence in unemployment arises from state dependence, the other where it is due to heterogeneity. In both cases policy is unambiguously effective provided it is targeted on those who are, or are most likely to become, long-term unemployed. Some crude estimates suggest that Active Labour Market Policies could have a significant, though not spectacular, effect in reducing unemployment.
|Date of creation:||Feb 1997|
|Date of revision:|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Holmlund, Bertil & Linden, Johan, 1993.
"Job matching, temporary public employment, and equilibrium unemployment,"
Journal of Public Economics,
Elsevier, vol. 51(3), pages 329-343, July.
- Holmlund, B. & Linden, J., 1991. "Job Matching, Temporary Public Employment, and Equilibrium Unemployment," Papers 1991l, Uppsala - Working Paper Series.
- Manning, Alan, 1993.
"Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations,"
Royal Economic Society, vol. 103(416), pages 98-118, January.
- Alan Manning, 1992. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," CEP Discussion Papers dp0062, Centre for Economic Performance, LSE.
- 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.
- Korpi, Tomas, 1995. "Effects of Manpower Policies on Duration Dependence in Re-employment Rates: The Example of Sweden," Economica, London School of Economics and Political Science, vol. 62(247), pages 353-71, August.
- Warr, Peter & Jackson, Paul, 1987. "Adapting to the unemployed role: A longitudinal investigation," Social Science & Medicine, Elsevier, vol. 25(11), pages 1219-1224, January.
- Outi Aarnio, 1993. "Temporary active labour market programmes - potential effects on unemployment," Finnish Economic Papers, Finnish Economic Association, vol. 6(1), pages 13-24, Spring.
- Bishop, John & Haveman, Robert, 1979. "Selective Employment Subsidies: Can Okun's Law be Repealed?," American Economic Review, American Economic Association, vol. 69(2), pages 124-30, May.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005.
"Unemployment: Macroeconomic Performance and the Labour Market,"
Oxford University Press, number 9780199279173, March.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
- Layard, P R G & Nickell, S J, 1980. "The Case for Subsidising Extra Jobs," Economic Journal, Royal Economic Society, vol. 90(357), pages 51-73, March.
- Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-28, February.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Calmfors, Lars & Forslund, Anders, 1991. "Real-Wage Determination and Labour Market Policies: The Swedish Experience," Economic Journal, Royal Economic Society, vol. 101(408), pages 1130-48, September.
When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0331. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.