The Threat Effect of Active Labour Market Programmes*

In this paper, we estimate the threat effect of active labour market programmes (ALMPs) for a sample of unemployed men in Denmark. Threat effects of such programmes capture the impacts of a system of ALMPs prior to actual participation. Rational economic agents make search decisions based on the expected discounted value of unemployment, and the perceived risk of future participation in programmes may affect job‐search behaviour early in the unemployment spell. We find a strong and significant threat effect, which is shown to reduce average unemployment duration by two and a half weeks.     

Flexicurity Labour Market Performance in Denmark

Unemployment is at a low and stable level in Denmark. This achievementis often attributed to the so-called flexicurity model combiningflexible hiring and firing rules for employers with income securityfor employees. Whatever virtues this model may have, a low andstable unemployment rate is not automatically among them sincethe basic flexicurity properties were also in place during the1970s and 1980s where high and persistent unemployment was prevalent.Labour market performance has changed due to a series of reformsduring the 1990s, the main thrust of which was a shift froma passive focus of labour market policies to a more active focuson job search and employment. The policy tightened eligibilityfor unemployment benefits and their duration as well as introducedworkfare elements into unemployment insurance and social policiesin general. Thereby, policy makers attempted to strengthen theincentive structure without taking resort to general benefitreductions. We argue that the workfare policies have playedan important role running primarily via motivation/threat andwage effects. However, active labour market policies are resourcedemanding, and although the workfare reforms have improved costeffectiveness, there is still an issue as to whether the resourcesgoing into active labour market policies are used efficiently.(JEL codes: J30, J40, J60, H53)     

The Effectiveness and Efficiency of Active Labour Market Policies in Poland

Following the predominance of macroeconomic stabilisation policies and passive income support schemes in the first phase of transition, active labour market policies (ALMPs) have now come to play a more important role in transition economies. This paper looks at the Polish experience and provides empirical evidence on the effectiveness of ALMPs. We use the Polish Labour Force Survey of August 1994 in combination with its Supplement on the Evaluation of Labour Market Policies together with data on ALMP expenditure at the regional (voivodship) level. The macroeconometric analysis of the relationship between labour market flows and ALMP expenditure shows no significant effects. The microeconometric analysis reveals that ALMPs are not particularly well targeted at the problem groups in the labour market. That is, women and people with basic vocational education do not receive enough attention. As to the effectiveness of ALMPs, the paper shows that former participants cannot expect to find employment more easily than their peers who have been unemployed but have not been in a programme. Subjective evaluations of former participants also suggest that ALMPs, but especially works programmes, have not improved their chances to find a job. This revised version was published online in July 2006 with corrections to the Cover Date.     

Market Rigidities and Labour Market Flexibility: An International Comparison

The effects of product and labour market rigidities on labour market dynamics are analysed using a panel of two-digit ISIC level data for seven OECD countries. As expected, employment protection was found to slacken labour market flows. Centralized wage bargaining also reduced the degree of job turnover, although a priori the effect of centralized wage bargaining on labour market flexibility is not clear. Industry subsidies have a positive impact on job reallocation by increasing job creation. The labour market dynamics are also compared in detail for two economies regarded as extremes in terms of regulations, the U.S. and Norway.     

Duration-Specific Unemployment Outflow Rates and Labour Market Programs

A matching function approach is used to investigate the macroeconomic effects of labour market program (LMP) commencements on unemployment outflows in Australia using unpublished data that classify commencements and outflows by duration of unemployment. The results indicate that LMPs have had significant effects on outflows from long-term unemployment. However, the net impact of programs on these outflows suggests that the substitution and displacement effects associated with programs are high. These results are consistent with recent microeconomic research into the effects of LMP participation on individual transitions out of unemployment.     

Direct Displacement Effects of Labour Market Programmes*

Using a panel of 250 Swedish municipalities over the period 1987–1996, we examine the direct displacement effects of active labour market programmes (ALMPs). Compared to earlier studies on this topic, we have more and better data. Based on our GMM estimations, we find that there are direct displacement effects from subsidised employment (in the order of approximately 65%), but that there seem to be no (significant) displacement effects from training. This result seems to be robust to several alternative specifications.     

Profit Sharing,Credit Market Imperfections and Equilibrium Unemployment*

We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options, increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options, this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections—measured by the bargaining power of trade unions—are sufficiently strong and the benefit–replacement ratio is sufficiently high. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.     

The political economy of public employment programs

What are the welfare implications of a political equilibrium where the choice of active labor market programs (ALMPs) have to please the employed majority? This issue is examined in an equilibrium model featuring matching frictions and worker–firm wage bargaining. It turns out that the welfare consequences depend on the nature of ALMPs and the political weight attributed to firm interests. If firm values carry little political weight and programs contribute to wage pressure, the employed will opt for excessive program activity.     

Employment Protection and Unemployment Benefits: On Technology Adoption and Job Creation in a Matching Model

We analyse the effects of different labour‐market policies (employment protection, unemployment benefits, and payroll taxes) on job creation and technology choices in a model where firms are matched with workers of different productivity and wages are determined by ex post bargaining. The model is characterized by two intertwined sources of inefficiency, namely a matching externality and a hold‐up externality associated with the bargaining strength of workers. The results depend on the relative importance of the two externalities and on worker risk aversion. “Flexicurity”, meaning low employment protection and generous unemployment insurance, can be optimal if workers are sufficiently risk‐averse and the hold‐up problem is relatively important.     

Displacement Effects of Active Labour Market Policy: The Youth Labour Market in Finland

In 1994 the number of workers participating in active labour market programmes in Finland was 299,000. On average there where 125,000 workers in these programmes at any one time, the average length of participation in a programme being about 5 months. In relation to the 2.5 million-strong Finnish labour force, these figures are proportionally large. In 1994 the total expenditure on unemployment amounted to 6.7 per cent of GNP of which the share spent on active labour market programmes was about 25 per cent. The study investigates the displacement effects of active labour market programmes in the youth labour market in Finland. The two age groups analysed are 15-19-year-olds and 20-24-year-olds. The results, based on a VAR analysis of quarterly data from the period 1981.1-1995.2, suggest that the displacement effects of job-creation programmes may be substantial. The study cannot, however, provide any robust estimates of the likely size of such displacement effects on youth employment in Finland. This revised version was published online in July 2006 with corrections to the Cover Date.     

Labour market outliers: Lessons from Portugal and Spain

Spain has the highest unemployment rate (22.2%) of any European Union country, Portugal one of the lowest (7.3%). Superficially, these countries share many labour market features: the toughest job security rules in the OECD, an apparently similar architecture of wage bargaining, and comparable generosity of their unemployment insurance systems, at least since 1989. We address the puzzle by examining Portuguese and Spanish labour market institutions, in particular job security, unemployment benefits and the system of wage bargaining. We then conduct empirical analysis of Spanish and Portuguese unemployment outflows and wage distributions, using micro data. We find differences in unemployment benefits (non-existent in Portugal until 1985, and less generous nowadays), differences in wage flexibility (wage floors by category established by collective agreements are set at a lower relative level in Portugal), and, in practice, higher firing costs in Spain. A key explanation of the difference in Portuguese and Spanish unemployment rates is the wage adjustment process. Generous benefit levels may have been necessary for the path Spanish unions took, but this was not the sole explanation of different wage setting in Spain and Portugal.     

Prices,Productivity and Wage Bargaining in Open Economies*

According to the standard union bargaining model, unemployment benefits should have big effects on wages, but product‐market prices and productivity should play no role in the wage bargain. We formulate an alternative strategic bargaining model, where labour and product‐market conditions together determine wages. A wage equation is derived and estimated on aggregate data for four Nordic countries. Wages are found to depend not only on unemployment and the replacement ratio, but also on productivity, international prices and exchange rates. There is evidence of considerable nominal wage rigidity. Exchange rate changes have large and persistent effects on competitiveness.     

Employment Status Persistence in the Japanese Labour Market

The growth of non‐standard employment has become a cause for concern for policy‐makers trying to boost output and keep unemployment low while also maintaining job security. This paper estimates a dynamic unobserved effects model using the Keio Household Panel Survey, an individual‐level panel data set, to investigate the effects on future employment opportunities of employment in Japan's non‐standard employment and regular employment sectors. I find strong evidence of persistence within the labour market, suggesting that past employment experience has a significant impact on future labour market outcomes.     

Does the unemployment invariance hypothesis hold for Romania?

This article questions whether the unemployment invariance hypothesis of Layard et al. (2005), which states that movements in labour force do not significantly affect unemployment rates, holds true for Romania. Using quarterly labour force data for the 1996–2012 period, we explore the time-series properties of the two variables. We find that unemployment rates and participation rates have unit roots, and that they are not cointegrated, meaning that no significant long-term relationship exists between them. The analysis carried out on the first differences of unemployment rates and participation rates shows discouraged and added worker effects for Romania’s female labour force. This conclusion diverges from findings that point out to a stable, long-term relationship between unemployment and participation in several developed countries (Japan, Sweden, USA) and shows that Romanian labour market is highly adaptive, where changes in labour force participation do not lead to increases in unemployment. This finding can help model the influence of adverse developments such as ageing and emigration, and show their true impact beyond demographic doom scenarios. It also points out the role played by labour demand in shaping the evolution of the Romanian labour market.     

Schooling, Literacy, Numeracy and Labour Market Success

The present paper uses data from the 1996 Australian Aspects of Literacy survey to examine the effects on labour market outcomes of literacy, numeracy and schooling. The survey includes a range of literacy and numeracy variables that are highly intercorrelated. A 'general to specific' approach identifies the most relevant literacy and numeracy variables. Including the others adds little explanatory power. Among males and females separately, approximately half of the total effect of schooling on labour force participation and on unemployment can be attributed to literacy and numeracy (the indirect effect) and approximately half to the direct effect of schooling. There is apparently no indirect effect of labour market experience through literacy and numeracy on participation or unemployment. The direct and total effects of experience are the same. Similarly, the direct and total effects of literacy and numeracy are reasonably similar to each other.     

Labour Taxation in a Unionised Economy with Home Production

The impact of payroll taxes on unemployment and welfare are examined in a model with household production and union–firm wage bargaining. The analysis shows that unemployment typically falls as the payroll tax rate in the market sector for household substitutes (the service sector) is reduced. This holds even when the payroll tax rate in the non-service sector is raised in order to maintain a balanced government budget. Welfare improves with a reduced-service-sector payroll tax rate only if unions are equally strong and firms are equally labour intensive across the sectors.
JEL classification : E 24; H 21; J 22; J 51     

Effectiveness of sequences of classroom training for welfare recipients: what works best in West Germany?

Sequences of active labour market programmes (ALMPs) may be part of an intensified activation strategy targeting hard-to-place unemployed individuals. Such sequences are very common among welfare recipients in Germany, but most studies only evaluate either single ALMPs or unemployed individuals’ first ALMP. I analyse the effects of different sequences of classroom training for West German men and women on different labour market outcomes. Using rich administrative data and a dynamic causal model, I can control for dynamic selection problems that occur during a sequence. The results show that two classroom trainings are more effective than two periods of welfare receipt in helping welfare recipients find regular employment, especially among West German women. Moreover, immediately assigning individuals to classroom training is more effective than waiting and assigning them to classroom training in the second period. However, in some cases, avoiding participation in multiple programmes is preferable.

Abbreviations: ALMP, active labour market programme; CIA, Conditional Independence Assumption; CSR, Common Support Requirement; DATET, dynamic average treatment effect on the treated; IEB, Integrated Employment Biographies; IPW, inverse probability weighting; LHG, UBII-Receipt History (Leistungshistorik Grundsicherung); MSB, mean standardized absolute bias; SUTVA, Stable Unit Treatment Value Assumption; UBII, unemployment benefit II; UBI, unemployment benefit I; WDCIA, Weak Dynamic Conditional Independence Assumption     

Financial Market Imperfections, Labour Market Imperfections and Business Cycles

A Greenwald–Stiglitz (1993a) style rational expectations business cycle model is introduced in which uncorrelated productivity shocks or monetary shocks generate autocorrelated employment fluctuations due to financial constraints. The propagation mechanism is carefully modelled: because of capital market imperfections (only standard debt contracts are traded), firms' labour demand changes in response to changes in their balance-sheet position; because of labour market imperfections (efficiency wages), employment and unemployment fluctuate in response to shifts in labour demand. The virtue of the model is its simplicity. Despite the fact that unemployment is endogenous, the dynamic behaviour of the model under rational expectations can be characterised analytically.
JEL classification : E 32     

Inflation Adjustment and Labour Market Structures: Evidence from a Multi‐country Study*

The impact of labour market structures on the response of inflation to macroeconomic shocks is analysed empirically. Results based on a 20‐country panel show that if labour market coordination is high, the effect on inflation of movements in unemployment, import prices, tax rates and productivity is dampened, both on impact and dynamically. In contrast, monopoly power in labour supply, measured by the percentage unionisation of the workforce, appears to amplify the response of inflation to its reduced‐form determinants. These findings are attributed to the behaviour of wages following movements in demand‐ and supply‐side conditions.