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.
significantly different from zero for 1985-1992 (column (2)), but it is 1.88 (and highly significant) for 1993-2000 (column (3)). Thus, for the 1993-2000 sub-sample, a 1 percentage point increase in ALMP spending (as a share of GDP) is associated with an increase in the business employment rate of 1.9 percentage points (for the 1993–2000 sub-sample). 14
Table 1. Active Labor Market Policy and EmploymentDep. Var.: Share of the Working Age Population Working in the Business Sector
Time period Estimation method
(1) 1985-2000 OLS
(2) 1985-1992 OLS
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.