What Works and for Whom: A Review of OECD Countries' Experiences with Active Labour Market Policies

Abstract

This paper first reviews trends since 1985 in public spending on labour market programmes, both active and passive. It then reviews the main findings from recent evaluations of labour market programmes. At first sight evaluation findings are not very encouraging, but there are some success stories. Counselling and job-search assistance appear to be particularly cost-effective; significant impacts are often estimated for self-employment programmes, although these are appropriate for only a limited proportion of the unemployed; and hiring subsidies help their participants, although they suffer increasingly from dead-weight and substitution effects as they are expanded. At the same time, an evaluation focus on the post-programme impacts of active measures tells only part of the story. 'Motivation' effects on individuals that do not participate in programmes can be significant. Regular public employment service (PES) interventions such as job-search monitoring, intensive interviews, and referrals to vacant jobs are not often rigourously evaluated. Activation strategies which combine high-quality help with finding work and pressure on unemployed people to accept job offers tend to achieve more rapid returns to work, although this sometimes comes at the cost of lower re-employment earnings. The paper highlights the importance of good PES management and describes some novel attempts at improving its effectiveness through performance measurement and quasi-competitive mechanisms. Although active policies might give rise to displacement effects in the short run, this need not be case over the medium run of a few years: declines in structural unemployment rates achieved by many OECD countries in the 1990s give some reasons for optimism in this respect.

Keywords: Job search, wage subsidues, labour market training

JEL Classification: J38, J64, J68