Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy
Do labor market programs affect labor force participation?
Abstract: This paper estimates the macroeconomic effect of labor
market programs on labor force participation. Labor market programs could
counteract businesscycle variation in the participation rate that is due to
the discouraged-worker effect, and they could prevent labor force outflow.
An equation that determines the participation rate is estimated using panel
data (1986-1998) for Sweden’s municipalities. The results indicate that
labor market programs have relatively large and positive effects on labor
force participation. If the number of participants in labor market programs
increases temporarily by 100, the labor force increases by around 63
persons. The effect is temporary so the number of participants in the labor
force returns to the old level in the next period. If the number of
participants in programs is permanently increased, the labor force
increases by around 70 persons. The results indicate that programs prevent
labor force outflow because participants who would have left the labor
force in the absence of programs are now participating because of the
programs. Income and vacancies have positive long- and short-run effects on
participation rate. Open unemployment, job destruction rate, and proportion
of persons be-tween ages 18-24 and 55-65 have negative long-run effects on
the participation rate.
Keywords: labor supply; labor market programs; dynamic panel data; (follow links to similar papers)
JEL-Codes: E64; J22; J68; (follow links to similar papers)
23 pages, January 30, 2002
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- This paper is published as:
Johansson, Kerstin, (2001), 'Do labor market programs affect labor force participation?', Swedish Economic Policy Review, Vol. 8, No. 2, pages 215-234
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