Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 1999:7: Direct displacement effects of labour market programmes: the case of Sweden

Matz Dahlberg () and Anders Forslund ()
Additional contact information
Matz Dahlberg: IFAU - Office of Labour Market Policy Evaluation, Postal: Labour Market Policy Evaluation, P O Box 513, SE-751 20 Uppsala, Sweden
Anders Forslund: IFAU - Office of Labour Market Policy Evaluation, Postal: Labour Market Policy Evaluation, P O Box 513, SE-751 20 Uppsala, Sweden

Abstract: Using a panel of 260 Swedish municipalities over the period 1987-1996, this paper investigates the direct displacement effects of active labour market programmes (ALMPs). Compared to earlier studies on this topic, we have more and better data. From our GMM estimations, we find that (i) there are direct displacement effects from those ALMPs that generate subsidised labour (in the order of approximately 65 percent), but there seems to be no (significant) displacement effects from training, (ii) most ALMPs seem to increase labour force participation, and (iii) the adjustment to the optimal level of employment seems to be sluggish. A consequence of (ii) is that the earlier studies have overstated the displacement effects (since they nomalised with the labour force).

Keywords: Labour market programmes; Displacement effects; GMM estimation

JEL-codes: J30

40 pages, October 1, 1999

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