Long term effects of active labour market policies
Short run effects of active labour market programs, measured 1 to 2 years after the start of the program, are only modestly positive. This small short run effect can be explained by the lock-in effect: during training, the job search efforts of unemployed individuals decrease or even seize, thereby causing an initial drop in the probability of employment for those attending training programs.
We show that in the long run (4 to 7 years after the start of a program) all programs have a positive and long-lasting impact on the probability of employment. After 7 years the productivity gains are larger than after 4 years, and generally positive. However, the cost-effectiveness over the period of 4 to 7 years depends on the magnitude of the initial lock-in effect. This lock-in effect is larger for UI recipients (compared to welfare recipients) and programs starting in an economic upturn (compared to programs starting in an economic downturn). For programs which increase the job search efforts of participants during the program, like placement services, no lock-in effect is observed. In the long run only placement services and short-term training courses are cost-effective.
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