Job-search assistance
Empirical analyses suggest that job search assistance (job broking, counselling) is a cheap and effective ALMP measure. Best results are achieved when agency and advisory services are addressed to people who have been out of employment for a relatively short period of time (see Weber, Hofer 2005), whereas for the long-term unemployed, more complex programmes that combine guidance with other forms of assistance seem to be more effective. Job search assistance and career guidance may lower the level of unemployment not only by reducing the time needed to find a job but also by improving the fit between employees and jobs and thus increasing the durability of jobs created (see Crepon et al. 2005).
Labour market training
Training programmes are the most popular and at the same time one of the most costly ALMP measures. Considerable diversity of training programmes (in terms of content, duration, method, etc.) makes the assessment of their effectiveness unequivocal. Some empirical analyses suggest that they are highly effective in shortening unemployment spells (this applies in particular to short pro-
grammes as well as those with well-defined target-groups), whereas other suggest exactly the opposite thing, namely that the impact of training programmes on the chances of their beneficiaries to find a job is close to zero or even negative (see Appendix).
This low effectiveness of training programmes may result from the deadweight loss effect, especially if training programmes are run on a large scale and participants are selected in a way to maximise the share of people brought back to employment after completing a given programme.
Moreover, research suggests (see Fitzenberger, Speckesser 2005) that positive effects of trainings usually show after a couple of years. Due to the fact that most microeconometric analyses focus on short-term effects (usually 1-2 years after the programme), it is impos- sible for them to fully capture the positive impact of trainings on the situation of participants and their results reflect above all the negative lock-in effect (see Calmfors et al. 2002).
It is also worth emphasising that even if trainings do not increase the chances of their participants to find a job, they may be increas- ing the stability of jobs created (i.e. lowering the scale of repeated flows to unemployment) because they improve the fit of worker qualifications to employer requirements (see Boone i Van Ours, 2004).
At the same time, imposing on the unemployed the obligation to participate in training programmes after a certain period in unem- ployment may serve as a test of the availability for and willingness to work. What is more, the threat of programme participation may provide a stimulus for some of the unemployed to increase their job search activity and/or lower reservation wages in order to find a job before the programme starts.. A series of empirical analyses (see Rosholm, Svarer 2004, Geerdsen 2006) stress the significance of this ”threat effect” for shortening the average spells of unemployment.
To sum up, microeconometric research indicates that training programmes can exert positive impact if they:
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are addressed to a narrow groups of recipients (women re-entering the labour market, long-term unemployed, qualified immigrants) to reduce the deadweight loss and substitution effects;•
are short- rather than long-term;•
are designed in cooperation with employers and involve elements of on-the-job training, and thus provide participants with skills that are sought after by local employers;•
produce a certificate recognised by employers;•
do not re-qualify participants for unemployment benefits, which prevents the so-called “carousel effect” (see Calmfors et al. 2002), cycling between unemployment and programme participation;•
compel participants to contact employment services on a regular basis throughout the programme duration and re-affirm their availability for and willingness to work in order to minimise the lock-in effect.Private sector incentive programmes
Subsidised employment is directed primarily to individuals from “high-risk” groups in the labour market, for instance, the long-term unemployed or the unskilled. Participation in such programmes helps them maintain ties with the labour market and thus prevents their qualifications from becoming obsolete and minimize the risk they will become economically inactive. Employment subsidies are often also addressed to people re-entering the labour market, i.e. women returning from maternity leave (see Martin, Grubb, 2001). Most microeconometric analyses suggest that participation in supported employment programmes has positive effects on the prob- ability of finding unsubsidised employment in the future (see Appendix). When assessing the effects of this policy from the macr- oeconomic perspective, it should be borne in mind, however, that it may be accompanied by strong indirect effects (substitution and displacement effects)6 and upward pressure on wages.7 This is particularly the case for large-scale programmes and this is why employ- ment subsidies should only be directed to selected groups of beneficiaries, who can benefit the most from them.
Supported employment also includes self-employment grants (or loans) as well as advice on business management (business plan preparation, financial and accounting guidance). Hitherto research suggests that start up grants are an effective form of assistance for a relatively small group of unemployed individuals, above all for qualified men. Carling and Gustafson (1999) proved however that although micro-loans help a relatively limited group of the unemployed, businesses set up thanks to such assistance provide more sta- ble employment than jobs created under traditional wage subsidy schemes. Nevertheless, it should be borne in mind that this policy carries a high risk of deadweight loss because many companies would be set up even without assistance under ALMP.8
6 Martin and Grubb (2001) indicate that in the Netherlands, Belgium and Ireland these effects amount to approx. 90 percent. This means that out of 100 employed (and subsidized) workers
only 10 would not have been employed if there had been no subsidy.
7 Pressure on wage growth may be particularly strong in case of subsidising employment of individuals, whose labour supply is inelastic (see Cahuc Zylberberg, 2004). In such a case, growing
labour demand resulting from a subsidy will primarily translate into higher wages and not employment. The above argument may serve as an explanation for the ineffectiveness of subsidies targeting prime-age male workers and as a justification for granting subsidies to groups characterised by relatively more elastic labour supply (young and elderly people, low-skilled workers, women, etc.).
8 Auer et al. (2005) indicate that 56 percent of the unemployed who obtained grants under start-up incentive programmes in Canada would also start up companies without public sup-
Direct job creation in the public sector
Temporary employment programmes in the public sector and in non-governmental organisations are usually addressed to people whose situation in the labour market is the most difficult. Nevertheless, as indicated by relevant research (see Appendix), participation in such programmes does not increase the employability and sometimes even exert an adverse impact on employment prospects , among others, as a result of stigmatisation of programme participants in the eyes of potential employers.
Therefore, application of this policy measure may only be justified in the case of short programmes targeting individuals who are the most vulnerable to social exclusion. This is so because temporary work in the public sector let programme participants maintain social ties as well as constitutes a crucial source of income – it thus counters poverty. Moreover, the obligation to take part in a programmes may be a test of availability to undertake employment.
Youth measures
In the light of existing microeconometric empirical research, the effects of ALMP measures targeted to the youth are by no means unambiguous. Both training programmes and supported employment do not improve considerably the situation of the youth in the labour market (see Appendix).
In order to increase the effectiveness of ALMP measures targeting the youth, the programmes should:
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be directed exclusively to disadvantaged youth, who experience severe difficulties with social integration and finding a suitable job;•
influence – frequently negative – attitudes of the youth towards education and work (e.g. through mentoring programmes);•
cover not only young people but also their families and social environment;•
open up further education opportunities;•
combine general education with professional training and work experience;•
be designed in cooperation with employers and dedicated to professions securing relatively high wages.Nevertheless, international experience shows (see Grubb 1999, Heckman 2006) that ALMP are a much less effective tool in countering unemployment and social exclusion of the youth than measures in the area of education, including above all securing equal educa- tion opportunities to children from disadvantaged families, developing pre-school education, adjusting education syllabuses to labour market needs and preventing early drop-out from education. Heckman (2006) proves that assistance to children of preschool or pri- mary school age may bring returns of 15-17 percent, which means that it greatly exceeds profits from traditional ALMP programmes.