The net effect of unemployment benefits, sanctions and training on regular employment

Bruno Van der Linden and Eric Dor ()

No 2003-ECO-01, Working Papers from IESEG School of Management

Abstract: This paper measures the impact of labor market policies (LMPs) on regular employment. Contrary to previous empirical studies, we conduct an econometric analysis based on sound theoretical foundations. The specification is based on an equilibrium job search model where LMPs affect tightness on the labor market. The impacts of a comprehensive set of LMPs on the regular employment rate and on wages are jointly estimated. Taking care of the endogeneity of LMPs, our results for Belgium indicate that unemployment benefits have a positively and small impact on wages and a negative one on the employment rate. The rate of sanctions has a small negative effect on wages. Their impact on the employment rate is however negative. This can be understood if the efficiency of the sanctioned in the matching process is sufficiently lower than the one of the insured unemployed. Training programmes have a small negative effect on wages and a small positive one on employment. Our analysis also shows that the results can be sensitive to the choice made about the exogeneity of LMPs.

Keywords: evaluation; labor market policies; wage bargaining; equilibrium unemployment; equilibrium search (search for similar items in EconPapers)
JEL-codes: J63 J64 J65 J68 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-10
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