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Substitution and crowding-out effects of active labour market policy


  • Jahn, Elke J.
  • Wagner, Thomas


The search model contains two matching technologies, the public employment service (PES) with its type-specific registers for workers and vacancies, and the search market where firms advertise vacancies and unemployed who have not been placed by the PES search for jobs. The placement activity of the PES increases the bargained wages, reduces active job search, decreases the number of advertised vacancies, but - compared with the laissez- faire regime - increases employment and per capita consumption. Of all the instruments of ALMP, the probabilities of a match, the portion of unskilled not interested in a job, and the hiring subsidies generate crowding-out effects. The productivity of the unskilled, (re-employment)bonuses, penalties for violations of the search rule, and the stringency of the search rule cause crowdingin effects. Assistance for problem groups is less effective than promoting active job search.

Suggested Citation

  • Jahn, Elke J. & Wagner, Thomas, 2000. "Substitution and crowding-out effects of active labour market policy," Discussion Papers 2, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  • Handle: RePEc:zbw:faulre:2

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    References listed on IDEAS

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    9. repec:hhs:iuiwop:429 is not listed on IDEAS
    10. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
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    More about this item


    Matching model; active labor market policy; PES; search market; heterogeneous unemployment pool; ranking;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy


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