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Table 2 The effectiveness of ALMPs

From: Active labor market programs - employment gain or fiscal drain?

ALMP Policy Effective objective Positive effects Negative effects Impact in normal times Role during crisis and recovery Cost-effectiveness
Incentives for retaining employment Work sharing/Short work Reduce outflow from employment Temporarily prevent layoffs Substantial deadweight, substitution and displacement effects. → Increased LM segmentation Useful temporarily at beginning of severe recessions Very costly and potential negative longer-term impacts.
→ Increase in unemployment prone groups, lower productivity
Negative competition, wage effects and no effect on temporary jobs. → Inhibits efficient labor reallocations Needs to be in place before Only useful for a very limited time for existing schemes at onset of severe recessions
→ Reduced outflow from unemployment Might obstruct recovery if not phased out swiftly
Wage subsidies Continued employment of insiders Locking-In effects, skill acquisition disincentives and retaining low-productivity workers → Increased LM persistence, long-term unemployment Potentially useful temporarily at beginning of severe recessions Cost-ineffective and potential negative longer-term impacts.
→ Skill attrition, lack of adaption Might obstruct recovery if not phased out swiftly
Incentives for creating employment Increase outflow from un-employment Employment of Outsiders Substantial deadweight, and displacement effects. → Skill attrition, lack of adaption  
Negative competition, wage effects
Locking-In effects, skill acquisition disincentives
Hiring subsidies   Very significant transition and screening effects. Potentially sizeable short-run displacement effects. → Cost-effective countercyclical automatic stabilizer to increase outflow from unemployment Important stabilizer to support recoveries. Cheapest and most cost-effective measure.
→ Increase of LM flows, reduction of persistence
Competition effects. Limited deadweight and substitution effects, displacement → Strengthen LM attachment Keep LM attachment in recessions. As automatic stabilizer: target disadvantaged, especially long-term unemployed worker for limited period.
→ Promote adaptability
  Self-employment incentives   Potentially large transition and screening effects. Potentially high deadweight and displacement effects. → Increase of LM flows, reduction of persistence Support recoveries. Cost-effective, but restricted applicability
→ Strengthen LM attachment, reducing LTU
Competition effects. → Promote adaptability
Incentives for seeking a job and working In-work benefits and subsidies Create employment incentives Positive screening, wage and competition effects. Substantial deadweight, substitution and displacement. → Increased LM persistence, long-term unemployment Cost-effective redistributive instrument to soften income shortfalls. Cost-ineffective: costly and no long-run positive employment effects.
Reduce inequality and in-work poverty Very limited transition effects. Sizeable skill acquisition disincentives and incentives for low-productivity work. → Increase in unemployment prone groups, lower productivity Temporary use in crises together with demand side policies Cost-effective redistribution policy in crises, but targeting Issues.
Locking-In and asymmetric information effects → Skill attrition, lack of adaption
Public works No transition effects. Strong stigmatizing and locking-in effects, skill acquisition disincentives → Lower employment probabilities Temporary safety-net in MICs during crises. Cost-ineffective: costly and no long-run positive employment effects.
Threat effect. Infrastructure provision, Safety-net → Skill attrition, lack of adaption Employment of last resort in LICs during crises. Safety-net role in crises
Activation and workfare Make unemployment more costly Threat effects and wage effects. Locking-in effects → Increase in employment incentives No special role during crises, but can support recovery in tandem with demand side policies. Cost-effective policy in shifting towards active income support.
→ Increase of LM flows, reduction of persistence, shorter unemployment durations
Sanctions Make unemployment more costly Threat effects and wage effects.   → Increase in employment incentives No special role during crises, but can support recovery in tandem with demand side policies. Cost-effective policy in shifting towards active income support.
→ Increase of LM flows, reduction of persistence, shorter unemployment durations
Incentives for human capital formation On-the-job training Enhance labor supply by adapting and increasing skills Strong screening, competition and transition effects Sizeable deadweight costs as well as cream-skiming and locking-in effects. → Effective in increasing long-run employability and earnings through skill upgrading In recessions to counter disadvantages of work sharing schemes, to strengthen LM attachment, and upgrade skills. On the job-training targeted at long-term unemployed workers are particularly cost-effective in the long-run!
→ Strengthen LM attachment
Classroom training → Increase productivity, employability and earnings Weak screening, competition and transition effects Small wage effects. → Promote adaptability, Most effective in strengthening recoveries. Important: training focus, involving employers, providing formal qualifications, targeting.
→ Increase of LM flows, shorter unemployment durations.
Improved labor market matching Job search assistance Increase job search and matching efficiency Competition Effects Deadweight and cream-skimming effects potentially strong. → Increase outflow from unem-ployment, job search incentives, Strong role in supporting the recovery Cost-effective policy, essential for LM functioning with short-run impact.
Employer intermediation service → Strengthen LM attachment,
Counseling, monitoring Threat Effects combined with sanctions Also displacement, wage and churning effects. → Increase of LM flows, shorter unemployment durations, Search assistance: proven strong impacts on employability, esp. for disadvantaged workers.
→ Promote adaptability.