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Active Labor Market Programs: Employment Gain or Fiscal Drain?

Author

Listed:
  • Brown, Alessio J. G.

    (Centre for Population, Development and Labour Economics (POP))

  • Koettl, Johannes

    (World Bank)

Abstract
This paper provides a new perspective by classifying active labor market programs (ALMPs) depending on their main objectives and their relevance and cost-effectiveness during normal times, during a crisis, and during recovery. We distinguish ALMPs that provide: (i) incentives for retaining employment, (ii) incentives for creating employment, (iii) incentives for seeking and keeping a job, (iv) incentives for human capital enhancement, and (v) improved labor market matching. Reviewing evidence from the literature, we discuss direct and indirect effects of various interventions, their cost-effectiveness, and draw lessons for transition and developing countries. The paper concludes by providing a systematic overview of how, why, when and to what extent specific ALMPs are effective. In particular, the paper shows that ALMPs retaining employment, like work sharing schemes, should be applied in severe recessions for a limited time period of time only. ALMPs creating employment, like hiring subsidies, perform much better on cost-effectiveness and strengthen the outsiders' position in the labor market, especially during recoveries. In-work benefits and public works are not very cost-efficient in terms of raising employment, but might be cost-efficient in reducing poverty and inequity. Policies readjusting distorted employment incentives, such as activation and sanction measures, have proven to provide cost-effective results during normal times.

Suggested Citation

  • Brown, Alessio J. G. & Koettl, Johannes, 2012. "Active Labor Market Programs: Employment Gain or Fiscal Drain?," IZA Discussion Papers 6880, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6880
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    More about this item

    Keywords

    active labor market programs; short work; subsidies; training; workfare; activation; sanctions; job search assistance; intermediation; counseling; cost-effectiveness;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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