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Can Active Labour Market Policy Work? Some Theoretical Considerations

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  • J Richardson

Abstract

Persistent high unemployment in Europe has led to renewed interest in Active Labour Market Policy. However, most existing theory suggests that its effects are ambiguous at best. We argue that job search assistance and wage subsidies are more appropriately modelled as a transition rather than the state-based approach of existing theory. This eliminates the ambiguity. We present two main models, one in which negative duration dependence in unemployment arises from state dependence, the other where it is due to heterogeneity. In both cases policy is unambiguously effective provided it is targeted on those who are, or are most likely to become, long-term unemployed. Some crude estimates suggest that Active Labour Market Policies could have a significant, though not spectacular, effect in reducing unemployment.

Suggested Citation

  • J Richardson, 1997. "Can Active Labour Market Policy Work? Some Theoretical Considerations," CEP Discussion Papers dp0331, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0331
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    References listed on IDEAS

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    Cited by:

    1. D R Fletcher, 1998. "The Effectiveness of Active Labour-Market Policies: Latest Evidence from the National Development Programme," Environment and Planning C, , vol. 16(5), pages 573-589, October.
    2. João Tovar Jalles, 2017. "Forecasting performance of private sector’s unemployment forecasts in advanced economies," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(6), pages 707-733, November.
    3. Galina Vereshchagina, 2005. "Between-Firm Redistribution of Profit in Competitive Industries: Why Labor Market Policies May Not Work," CERGE-EI Working Papers wp268, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Pieter Serneels, 2002. "The added worked effect and intra household aspects of unemployment," CSAE Working Paper Series 2002-14, Centre for the Study of African Economies, University of Oxford.
    5. Richardson, J., 1997. "Wage subsidies for the long term unemployed: a search theoretic analysis," LSE Research Online Documents on Economics 20337, London School of Economics and Political Science, LSE Library.
    6. J Richardson, 1997. "Wage Subsidies for the Long Term Unemployed: A Search Theoretic Analysis," CEP Discussion Papers dp0347, Centre for Economic Performance, LSE.
    7. repec:eee:labchp:v:3:y:1999:i:pc:p:3085-3139 is not listed on IDEAS
    8. Brian Bell & Richard Blundell & John Reenen, 1999. "Getting the Unemployed Back to Work: The Role of Targeted Wage Subsidies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 339-360, August.
    9. Berthold Norbert, 2000. "Mehr Beschäftigung, weniger Arbeitslosigkeit: Setzt sich das ökonomische Gesetz gegen (verbands-)politische Macht durch?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 51(1), pages 231-260, January.

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