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HOW EFFECTIVE ARE ACTIVE LABOUR MARKET POLICIES LIKE THE NEW DEAL?
Do active labour market policies like the New Deal programme in
the UK and the Workforce Investment Act in the United States actually
increase the wages or employment of the people they seek to help?
According to new research by Professors James Heckman and Jeffrey
Smith, published in the latest issue of the Economic Journal, programmes
of this kind make almost no difference to the level of unemployment
or the wage rates of those gaining employment. What is more, many
official evaluations overstate the effectiveness of such policies
because they assume unrealistically that nothing would have happened
without the programmes.
How should we evaluate the effectiveness of programmes like the
UKs New Deal and the US Workforce Investment Act, which provide
job search assistance, job matching services and skills training
to people looking for work? Heckman and Smith argue that the trick
is to figure out what would have happened to unemployed people if
they had not participated. At first glance, it seems natural to
think that nothing would have happened - that they would have remained
unemployed. But using unique data from an experimental evaluation
of the Job Training Partnership Act (JTPA) programme in the United
States, the researchers reveal that this natural assumption is incorrect.
In the experiment, people who applied to and were eligible for
the JTPA programme were assigned at random to two groups. One group
was allowed to receive the programmes services and the other
was excluded from them. The excluded group indicates what would
have happened to unemployed people had they not participated:
In contrast to the intuition that without the programme, participants
would remain out of work, the JTPA data reveal that the unemployed
and the disadvantaged find work almost as well - and for male youth,
better - without the programme as with it.
For most groups, the difference in employment rates is just a few
percentage points.
Differences in average earnings are similarly small.
These findings shed new light on the high placement rates often
cited by programme officials - placement rates that implicitly (and
incorrectly) assume that participants would not find work without
the programme.
Heckman and Smith also show that many traditional approaches to
evaluation fall down because they make incorrect assumptions about
what would happen to the peoples earnings if they did not
participate. Many evaluations of government programmes compare the
earnings of participants just before and just after participation
and attribute the difference to the programme.
The experimental data reveal that participants experience a dip
in earnings prior to the programme, but that their earnings would
rebound and grow beyond pre-programme levels even without any programme
services. Official evaluations falsely attribute such earnings growth
to the programme and thereby produce overly-positive estimates of
the effect of the programme.
Note for Editors: The Pre-Programme Earnings Dip and the
Determinants of Participation in a Social Programme: Implications
for Simple Programme Evaluation Strategies by James Heckman
and Jeffrey Smith is published in the July 1999 issue of the Economic
Journal. Heckman is Professor of Economics at the University of
Chicago; Pack is Professor of Economics at the University of Western
Ontario.
For Further information: contact RES Media Consultant Romesh Vaitilingam
on 0117-983-9770 or mobile 0468-661095 (email: romesh@compuserve.com);
RES Media Assistant Niall Flynn on 0171-878-2919 (email: nflynn@cepr.org);
James Heckman on 001-773-702-2722 (email: jjh@uchicago.edu); or
Jeffrey Smith on 001-519-661-3079 (email: jsmith@julian.uwo.ca).
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