Do Active Labor Market Policies Increase Employment?

Marcello Estevão

No 2003/234, IMF Working Papers from International Monetary Fund

Abstract: Using panel data for 15 industrial countries, active labor market policies (ALMPs) are shown to have raised employment rates in the business sector in the 1990s, after controlling for many institutions, country-specific effects, and economic variables. Among such policies, direct subsidies to job creation were the most effective. ALMPs also affected employment rates by reducing real wages below levels allowed by technological growth, changes in the unemployment rate, and institutional and other economic factors. However, part of this wage moderation may be linked to a composition effect because policies were targeted to low-paid individuals. Whether ALMPs are cost-effective from a budgetary perspective remains to be determined, but they are certainly not substitutes for comprehensive institutional reforms.

Keywords: WP; ALMPs Affect Employment; labour market; expenditure; Unemployment; employment rate; labor market policies; wages; bargaining; ALMP expenditure; employment protection index change sign; creation effect; employment protection law; effect of ALMPs; job-search efficiency; replacement rate; employment creation; employment rate specification; labour market training; expenditures in labor market policy; label of active labor market policies; Employment; Active labor market policies; Labor market policy; Europe (search for similar items in EconPapers)
Pages: 30
Date: 2003-12-01
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Citations: View citations in EconPapers (18)

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