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International Monetary Fund

directly and to increase job search efficiency. These policies have been grouped under the label of “active labor market policies” (ALMPs). 25 Indeed, during the second half of the 1990s, employment performance improved appreciably in several European countries, especially in France, raising the presumption that such policies actually worked. 34. This chapter evaluates the aggregate effect of ALMPs on employment and wages and finds a positive correlation between spending on ALMPs as a percentage of GDP and the employment rate in the business sector in the 1990s, but

Mr. Marcello M. Estevão
Using panel data for 15 industrial countries, active labor market policies (ALMPs) are shown to have raised employment rates in the business sector in the 1990s, after controlling for many institutions, country-specific effects, and economic variables. Among such policies, direct subsidies to job creation were the most effective. ALMPs also affected employment rates by reducing real wages below levels allowed by technological growth, changes in the unemployment rate, and institutional and other economic factors. However, part of this wage moderation may be linked to a composition effect because policies were targeted to low-paid individuals. Whether ALMPs are cost-effective from a budgetary perspective remains to be determined, but they are certainly not substitutes for comprehensive institutional reforms.
Mr. Marcello M. Estevão

Front Matter Page European Department Authorized for distribution by Luc Everaert Contents I. Introduction II. Why Might ALMPs Increase Employment? III. Identification Issues and a Critical Look at Previous Studies IV. Empirical Identification of the Effect of ALMPs on Employment Rates V. ALMPs and Wage-Setting Behavior VI. Final Remarks Figures 1. How Might ALMPs Affect Employment? 2. Expenditure on Active and Passive LMPs, and Business Employment Rate Tables 1. Active Labor Market Policy and Employment 2. Robustness Check

Mr. Marcello M. Estevão

methodology used here addresses four key shortcomings of previous macroeconomic studies of the effect of ALMPs on the labor market, which have generally been inconclusive. First, the specification used in many of these studies tends to overestimate the effect of ALMPs on the unemployment rate. Second, none of the previous work has focused on the most appropriate measure of labor market performance, the business employment rate. Third, many studies use either pooled cross-country regressions or panel data with random effects, with no (or very little) within-country variation

Mr. Marcello M. Estevão

under the label of “active labor market policies” (ALMPs). 2 Indeed, during the second half of the 1990s, employment performance improved appreciably in several European countries raising the presumption that such policies actually worked. This paper evaluates the aggregate effect of ALMPs on employment and finds a positive correlation between spending on ALMPs as a percentage of GDP and the employment rate in the business sector in the 1990s, but not in the late 1980s, when such expenditure was still relatively small. Among all the ALMPs, direct subsidies to job

International Monetary Fund

offset the adverse effects of demographics and sustain trend growth in the medium term. Contents II. Employment and Wage Effects of Active Labor Market Policies A. Introduction B. Why Might ALMPs Increase Employment? C. Identification Issues and a Critical Survey of Previous Studies D. Empirical Identification of the Effect of ALMPs on Employment Rates E. ALMPs and Wage-Setting Behavior F. Expenditures on ALMPs in France G. Final Remarks Appendix I: Synthesis of the Relevant Literature Appendix II: The OECD Labor Market Policies Database

International Monetary Fund
This Selected Issues paper first explains the recent increase in trend growth and then discusses how labor market and tax policies could best sustain it. This study calculates French trend growth estimating simultaneously a Cobb–Douglas production technology and total factor productivity. The main conclusion is that French trend growth indeed increased during the second half of the 1990s to an average annual rate of 2.1 percent, from 1.8 percent in 1993. This was not owing to a recovery of total factor productivity growth.
International Monetary Fund
This Selected Issues paper examines Israel’s monetary policy regime with an eye toward developing some understanding of why breaches have been occurring and how to address them. The paper provides a brief history of Israel’s experience with inflation and inflation targeting. It examines several institutional aspects of inflation targeting and compares Israel with other emerging market regimes. Various procedural issues associated with implementing an inflation-targeting regime in Israel are examined. The paper also analyzes active labor market policies in Israel.
International Monetary Fund. Research Dept.
This is the first issue of IMF Staff Papers published under a special partnership between the IMF and Palgrave Macmillan. Very little will change with regard to the journal's visual appearance, though significant service quality enhancements (e.g., an on-line interactive edition) will rollout before the end of 2007. For more information and regular updates, please access http://www.palgrave-journals.com/imfsp/index.html.
International Monetary Fund. European Dept.

. Theoretically, the positive effect of ALMPs on improving the job matching process may be partially offset by substitution and displacement effects on non-participants. Arranz et al (2013) estimate a dynamic panel model and find that employment incentives in the form of incentivized contracts had a positive, but small, impact on transitions from unemployment to employment and from temporary to permanent employment during the period 1987–2010, though stronger for the sub-period 1997–2010 following the 1997 reform. 4 , 5 Job creation programs and vocational training were