‘NEW DEAL’-STYLE POLICIES FAIL TO ACCELERATE UNEMPLOYED PEOPLE’S RETURN TO WORK

Active labour market programmes such as the UK’s New Deal seem to have little effect in reducing the length of unemployment spells, according to new research by Professors Rafael Lalive, Jan van Ours and Josef Zweimüller, published in the January 2008 issue of The Economic Journal.

The researchers use two statistical methods to evaluate the effectiveness of three active labour market programmes: training programmes; employment programmes; and subsidised jobs. Both methods find that training and employment programmes do not affect the speed by which unemployed workers find permanent jobs. The results for subsidised jobs are mixed, with one method indicating that workers doing temporary subsidised jobs do find other work more quickly than if they were unemployed.

Active labour market programmes are used throughout Europe, and include the New Deal in the UK. The aim of these policies is to improve the functioning of labour markets by bringing the unemployed back to work more quickly. But the consensus of economic research suggests they are rarely effective.

But it is not easy to establish the effectiveness of active labour market policies. The main problem is that unobservable characteristics of those who participate in programmes may differ from those who do not, and so results from any simple comparison could be biased.

It could be that more motivated workers enter programmes, or it could be that programme administrators that are more informed about the quality of the unemployed decide to send particular types of unemployed to programmes.

This research report is one of the first studies that tries to counter this problem by directly comparing two evaluation methods:

• The ‘matching’ method assumes that after accounting for many observable characteristics of unemployed workers (including individuals’ past labour market performance). Selectivity is no longer an issue.


• The ‘timing of events’ method explicitly models the selection process allowing for unobservable characteristics to affect the inflow into labour market programmes.

So the main difference between the two evaluation methods is the way these unobservables are accounted for. The researchers argue that there is no reason to be particularly optimistic about active labour market policies since training and employment programmes appear to have no effect.

They also note that we should be wary of different evaluation methods as they can lead to different results for the effectiveness of subsidised jobs: one method finds positive effects; the other method finds no effects.

ENDS

Notes for editors: ‘The Impact of Active Labour Market Programmes on the Duration of Unemployment in Switzerland’ by Rafael Lalive, Jan van Ours and Josef Zweimüller is published in the January 2008 issue of The Economic Journal.

Rafael Lalive is at University of Lausanne. Jan van Ours is at Tilburg University. Josef Zweimüller is at the University of Zurich

For further information: contact Rafael Lalive on +41 21 692 34 31 (email: Rafael.Lalive@unil.ch); Jan van Ours on +31 13 466 2880 (email: vanours@uvl.nl); Josef Zweimüller on 044 634 37 24 (email: zweim@iew.uzh.ch); or Romesh Vaitilingam on 07768 661095 (email: romesh@compuserve.com).