Working Paper Series, Department of Economics, Uppsala University
No 2002:16:
Labor Market Programs, the Discouraged-Worker Effect, and Labor Force Participation
Kerstin Johansson ()
Abstract: This paper estimates the macroeconomic effect of labor
market programs on labor force participation. Labor market programs could
counteract business-cycle 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
with GMM, 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 immediately 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 about 70 persons in the
long run.
Keywords: Labor supply; Labor market programs; Dynamic panel data; (follow links to similar papers)
JEL-Codes: E64; J22; J68; (follow links to similar papers)
50 pages, May 15, 2002
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