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How Effective Are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence

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  • McKenzie, David

    () (World Bank)

Abstract

Jobs are the number one policy concern of policymakers in many countries. The global financial crisis, rising demographic pressures, high unemployment rates, and concerns over automation all make it seem imperative that policymakers employ increasingly more active labor market policies. This paper critically examines recent evaluations of labor market policies that have provided vocational training, wage subsidies, job search assistance, and assistance moving to argue that many active labor market policies are much less effective than policymakers typically assume. Many of these evaluations find no significant impacts on either employment or earnings. One reason is that urban labor markets appear to work reasonably well in many cases, with fewer market failures than is often thought. As a result, there is less of a role for many traditional active labor market policies than is common practice. The review then discusses examples of job creation policies that do seem to offer promise, and concludes with lessons for impact evaluation and policy is this area.

Suggested Citation

  • McKenzie, David, 2017. "How Effective Are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence," IZA Discussion Papers 10655, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10655
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    References listed on IDEAS

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    Cited by:

    1. Martin Abel & Rulof Burger & Patrizio Piraino, 2017. "The value of reference letters," Working Papers 06/2017, Stellenbosch University, Department of Economics.
    2. Clemens, Michael A. & Postel, Hannah M., 2017. "Deterring Emigration with Foreign Aid: An Overview of Evidence from Low-Income Countries," IZA Policy Papers 136, Institute for the Study of Labor (IZA).
    3. Girum Abebe & Stefano Caria & Marcel Fafchamps & Paolo Falco & Simon Franklin & Simon Quinn, 2017. "Anonymity or Distance? Job Search and Labour Market Exclusion in a Growing African City," SERC Discussion Papers 0224, Spatial Economics Research Centre, LSE.
    4. Brown, Annette N. & Wood, Benjamin Douglas Kuflick, 2017. "Which tests not witch hunts: a diagnostic approach for conducting replication research," Economics Discussion Papers 2017-77, Kiel Institute for the World Economy (IfW).
    5. Girum Abebe & Stefano Caria & Marcel Fafchamps & Paolo Falco & Simon Franklin & Simon Quinn & Forhad Shilpi, 2017. "Matching Firms and Workers in a Field Experiment in Ethiopia," SERC Discussion Papers 0225, Spatial Economics Research Centre, LSE.
    6. Pavcnik, Nina, 2017. "The Impact of Trade on Inequality in Developing Countries," CEPR Discussion Papers 12331, C.E.P.R. Discussion Papers.
    7. Livia Alfonsi & Oriana Bandiera & Vittorio Bassi & Robin Burgess & Imran Rasul & Munshi Sulaiman & Anna Vitali, 2017. "Tackling Youth Unemployment: Evidence from a Labour Market Experiment in Uganda," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers eopp64, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    8. Nina Pavcnik, 2017. "The Impact of Trade on Inequality in Developing Countries," NBER Working Papers 23878, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    active labor market policy; jobs; wage subsidies; vocational training; job search;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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