June 1, 2000

The impact of active labour market policies; an AGE analysis for the Netherlands

In this publication we study the impact of active labour market policies (ALMPs) in the context of an applied general equilibrium model for the Dutch labour market.

By using a calibrated general equilibrium model we try to narrow down the possible range of the net effect of various ALMPs. We consider the impact of publicly provided relief and training programs and subsidies in the private sector for low-productive workers (vouchers) on the steady state of the labour market (the 'long-run').

Our findings are:

  • Relief jobs reduce unemployment and increase production in the public sector. However, higher wage and search costs crowd out private sector employment and production. Overall production falls.
  • Training programs reduce unemployment more than relief jobs. Individuals that participate in training programs (re-)gain (lost) skills. In this way training programs speed up the process by which workers move into private sector employment. Search costs for firms fall. However, additional wage pressure leaves a negative net effect on private sector employment. Production is hardly affected though, due to the training effect on average labour productivity.
  • Vouchers for low-productive workers reduce labour costs and hence increase private sector employment and production. Unemployment falls by less than under the relief and training programs.

All programs lead to a rise in the budget deficit, especially the relief and training program. The voucher program is less expensive, as there are substantial savings on transfers, whereas the tax base rises. We further report some sensitivity analyses on assumptions for which we have a weak empirical basis. The numerical outcomes are quite sensitive to some parameters in the wage-bargaining model and the effect of training on an individual's productivity level. However, qualitatively the results are unaffected.


E.van Gameren
Johan Graafland

Read more about