How Effective are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence

32 Pages Posted: 10 Apr 2017

See all articles by David J. McKenzie

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

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Abstract

Jobs are the number one policy concern of policymakers in many countries. The global financial crisis, rising demographic pressures, high unemployment rates, and concerns over automation all make it seem imperative that policymakers employ increasingly more active labor market policies. This paper critically examines recent evaluations of labor market policies that have provided vocational training, wage subsidies, job search assistance, and assistance moving to argue that many active labor market policies are much less effective than policymakers typically assume. Many of these evaluations find no significant impacts on either employment or earnings. One reason is that urban labor markets appear to work reasonably well in many cases, with fewer market failures than is often thought. As a result, there is less of a role for many traditional active labor market policies than is common practice. The review then discusses examples of job creation policies that do seem to offer promise, and concludes with lessons for impact evaluation and policy is this area.

Keywords: active labor market policy, jobs, wage subsidies, vocational training, job search

JEL Classification: O15, J08, J68

Suggested Citation

McKenzie, David John, How Effective are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence. IZA Discussion Paper No. 10655, Available at SSRN: https://ssrn.com/abstract=2949071

David John McKenzie (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
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Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
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