Do Active Labor Market Policies Increase Employment?

Author/Editor:

Marcello M. Estevão

Publication Date:

December 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2003/234

Subject:

Active labor market policies Employment Employment rate Labor Labor market policy Wages

Frequency:

Annually

English

Publication Date:

December 1, 2003

ISBN/ISSN:

9781451875645/1018-5941

Stock No:

WPIEA2342003

Pages:

30

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