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Evaluating the Dynamic Effects of Active Labour Policies in Italy

  • Carlo Altavilla
  • Floro Ernesto Caroleo

This paper analyses whether active labour market programmes (ALMP) have differing effects on unemployment and employment dynamics according to the particular region in which they are implemented. To this end, it analyses alternative theoretical and econometric models thought to capture the possible effects of active labour market policies on labour force dynamics. The econometric methodologies implemented are the generalized method of moment (GMM) and the panel vector autoregression (P-VAR). The evidence yielded by the GMM models suggests that the effects of different ALMP on unemployment are dissimilar across the Italian regions. It follows that some active programmes are likely to have a greater effect in the South than in the North. The results of the P-VAR models estimated are synthesised by impulse response analysis and forecast error variance decomposition. The impulse response analysis suggests that an increase in total ALMP gives rise to (i) a decrease in the unemployment rate and (ii) a significant increase in labour force participation. More interestingly, the results obtained from the error variance decomposition analysis show that unemployment movements are not driven by shocks in the ALMP and that, especially in the northern regions, atypical contracts shocks account for a substantial portion of unemployment dynamics.

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Paper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 8_2006.

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Date of creation: 15 Apr 2006
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Handle: RePEc:prt:dpaper:8_2006
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  1. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
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  10. Floro Ernesto Caroleo & Francesco Pastore, 2004. "La disoccupazione giovanile in Italia. La riforma dei sistemi d'istruzione e di formazione professionale come alternativa alla flessibilità numerica per accrescere l'occupabilità," CELPE Discussion Papers 83, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
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  13. Hujer, Reinhard & Caliendo, Marco & Zeiss, Christopher & Blien, Uwe, 2002. "Macroeconometric evaluation of active labour market policies in Germany - a dynamic panel approach using regional data," ERSA conference papers ersa02p225, European Regional Science Association.
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  15. Robert G. Fay, 1996. "Enhancing the Effectiveness of Active Labour Market Policies: Evidence from Programme Evaluations in OECD Countries," OECD Labour Market and Social Policy Occasional Papers 18, OECD Publishing.
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