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Impacts of Active Labor Market Programs: New Evidence from Evaluations with Particular Attention to Developing and Transition Countries

Author: G Betcherman and A Dar
Date: 2004
Size: 94 pages (977 KB)

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Summary

What is the impact of active labour market programmes (ALMPs) on reducing the risk of unemployment and increasing the earning capacity of workers in developing and transition countries? This report, published by the World Bank, claims that ALMPs generally have a positive impact on the employment prospects of participants, however, there are mixed results in many cases. Successful interventions require a comprehensive package of services and carefully targeted programmes that are oriented towards labour demand and linked to real workplaces.

Active labour market programmes are implemented to enhance labour supply, increase labour demand and improve the functioning of the market. ALMP interventions include employment services, training, wage and employment subsidies, public works and self-employment assistance. ALMPs are often targeted at the long-term unemployed, workers in poor families and particular groups with labour disadvantages. Proponents argue that ALMPs are a useful instrument for dealing with unemployment and social exclusion. In contrast, opponents argue that these programmes are a waste of public resources and that any benefits for the participants are achieved at the expense of other workers. Recent evaluations indicate that:

• ALMPs are becoming more popular in developing countries, however, they are not a panacea for large-scale unemployment.
• Employment services are the most cost-effective intervention for improving employment prospects and earnings potential. However, employment services are of limited use in situations where structural unemployment is high or where there is a lack of demand for labour.
• Training has a positive impact if targeted at the long-term unemployed, however, training programmes for unemployed or disadvantaged youths and retraining in cases of mass redundancy are less successful.
• Wage and employment subsidies, which are designed to subsidise the cost of hiring for employers, do not appear to have a positive impact on the employment prospects or earning potential of participants, particularly in developing and transition countries.
• Public works programmes, which offer low-wage, short-term employment in construction, rural development and community services, are largely ineffective for improving employment prospects and there may be stigma attached to participation.
• Micro-enterprise assistance offers a mixed picture in relation to future earnings.

Programmes that provide mentoring and business counselling in addition to financial aid are more effective in assisting unemployed workers to start their own business. Despite the mixed success of active labour market programmes, governments have little choice but to use these programmes as an instrument to tackle unemployment and poverty in the labour force. Developing countries need to implement programmes on the basis of strategies that work domestically and in other countries. ALMPs are more successful if the economy is growing and interventions should be well-designed, properly targeted and linked to labour demand and real workplaces. Policy-makers should undertake further research on the impact of ALMPs in developing and transition countries in order to:

• Track the post-programme outcomes of ALMPs to determine whether the benefits for participants dissipate or emerge over a long-term period.
• Assess the general equilibrium impact of programmes by evaluating the deadweight, substitution and displacement effects of ALMPs on the labour market. This also involves analysing the impact on non-participants.
• Identify whether these programmes are cost-effective. This is vital to ensure economic efficiency by guaranteeing that social returns exceed costs.
• Understand the circumstances and design features that account for the positive outcomes for specific groups. This helps to explain why certain programmes are successful for specific groups and assists in the future design of ALMPs.

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Source: Betcherman, G., Olivas, K. and Dar, A., 2004, ‘Impacts of Active Labor Market Programs: New Evidence from Evaluations with Particular Attention to Developing and Transition Countries’, Social Protection Discussion Paper Series no. 0402, World Bank, Washington