Scandinavian Working Papers in Economics

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

No 2002:4: Does active labour market policy work? Lessons from the Swedish experiences

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

Abstract: The Swedish experiences of the 1990s provide a unique example of how largescale active labour market programmes (ALMPs) have been used as a means to fight high unemployment. This paper discusses the mechanisms through which ALMPs affect (un)employment and surveys the empirical studies of the effects of ALMPs in Sweden. The main conclusions are (i) there is hardly any evidence for a positive effect on matching efficiency; (ii) there are some indications of positive effets on labour force participation; (iii) subsidised employment seems to cause displacement of regular employment, whereas this appears not to be the case for labour market training; (iv) it is unclear whether or not ALMPs raise aggregate wage pressure in the economy; (v) in the 1990s, training programmes seem not to have enhanced the employment probabilities of participants, whereas some forms of subsidised employment seem to have had such effects; and (vi) youth programmes seem to have caused substantial displacement effects at the same time as the gains for participants appear uncertain. On the whole, ALMPs have probably reduced open unemployment, but also reduced regular employment. The overall policy conclusion is that ALMPs of the scale used in Sweden in the 1990s are not an efficient means of employment policy. To be effective, ALMPs should be used on a smaller scale. There should be a greater emphasis on holding down long-term unemployment in general and a smaller emphasis on youth programmes. ALMPs should not be used as a means to renew unemployment benefit eligibility.

Keywords: active labour market policy; unemployment; employment

JEL-codes: E24; J23

72 pages, January 10, 2002

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