Working Paper Series,
Uppsala University, Department of Economics

Abstract: In this paper we study the consequences of endogenous active labor market policies. In particular it is assumed that all viable policies have to please the employed majority. The main objective is to seek the answer to the following question: In what sense does the political equilibrium deviate from the welfare optimum? We find that the political process yields excessive program activity under highly plausible circumstances. Thereason for this deviation from constrained efficiency is that active labor market policy inflicts costs on firms that are ignored by the employed.

Keywords: Political economy; labor market programs; efficiency

JEL-codes: D78; H21; J41

39 pages, January 25, 1997

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Peter Fredriksson, (1999), 'The Political Economy of Public Employment Programs', Journal of Public Economics, vol 72, pages 487-504

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