Do Active Labor Market Policies Increase Employment?

30 Pages Posted: 28 Dec 2003

See all articles by Marcello M. Estevão

Marcello M. Estevão

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: December 1, 2003

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: Unemployment, employment rate, labor market policies, wages, bargaining

JEL Classification: D2, E2, J23

Suggested Citation

Estevao, Marcello M., Do Active Labor Market Policies Increase Employment? (December 1, 2003). IMF Working Paper No. 03/234. Available at SSRN: https://ssrn.com/abstract=481182 or http://dx.doi.org/10.2139/ssrn.481182

Marcello M. Estevao (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th St., NW
HQ1-10-115
Washington, DC 20431
United States
202-623-6038 (Phone)
202-589-6038 (Fax)

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