Aggregate impact analysis of active labour market policy

Abstract

The paper discusses the various models that can be used to analyse the aggregate impact of active labour market policy (ALMP) on labour market outcomes. The aggregate approach to policy evaluation is important. Contrary to evaluations based on micro data, it takes substitution, displacement and other indirect effects into account. The most promising framework for analysing the aggregate impact of ALMP is offered by a flow model approach of the labour market. However, other approaches such as VAR models are also treated in the paper. After discussing the theoretical models the paper gives a review of the empirical literature, in which these models are used to measure the aggregate impact of ALMP. On the basis of the results we are bound to conclude that ALMP makes a big difference to the level of unemployment. There is some evidence that disadvantaged groups benefit more from this type of policy than other groups. The fact that the impact is small on average may hide considerable variation between regions and sites. Future research should concentrate on attempting to relate this variation to differences in implementation. Then we might be able to identify the factors that are decisive for the success or failure of programmes which could then be used to improve ALMP.