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Active labour-market policies and output growth: Is there a causal relationship?

Eleftherios Goulas () and Athina Zervoyianni ()

Economic Modelling, 2018, vol. 73, issue C, 1-14

Abstract: While the labour-market impact of ALMP interventions has been extensively studied, an issue that has not been widely addressed in the literature is to what extent active labour-market policies have beneficial effects for the whole economy at the macroeconomic level. This paper addresses this issue by examining how additional resources allocated to active labour-market policies relate to output-growth rates. It also examines the sensitivity of the growth-ALMP relationship to the business cycle. Based on a structural model, we find that whether or not additional resources allocated to ALMPs contribute to raising output growth is a priori unclear. However, using data from OECD countries during 1991–2011 and GMM estimation to account for potential endogeneities, we find evidence suggesting a net positive output-growth differential due to implementing active labour-market policies in normal times of between 0.004 and 0.006 percentage point. This differential becomes larger during economic upturns when market conditions are improving relative to trend.

Keywords: Output growth; Labour-market policy; Cyclical influences (search for similar items in EconPapers)
JEL-codes: E60 E23 J08 E30 (search for similar items in EconPapers)
Date: 2018
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