Macroeconomic Evaluations of Labour Market Programs

Abstract

Labour market programs are time honoured microeconomic policies, which offer different solutions to different policy makers. Some advocate them to moderate wage inflation and thus complement macroeconomic demand expansion. For others, they are advanced as a second-best, but politically feasible, substitute for reducing real wages. For many, they are regarded as an equity measure to assist the very long-term unemployed. All these goals are macroeconomic, for the policy maker is interested in the number and type of people displaced from employment as a result of the labour market programs. However, despite this, the macroeconomic field of labour market program evaluations is surprisingly thin. Few direct measures exist in Australia and overseas on the aggregate employment effects of such programs and the inference from related works finds little consistent evidence that they increase aggregate employment. Furthermore, there is a lack of macroeconomic assessments of the equity effects.