Academic journal article International Labour Review

Active Labour Market Policies in Spain: A Macroeconomic Evaluation

Academic journal article International Labour Review

Active Labour Market Policies in Spain: A Macroeconomic Evaluation

Article excerpt


Using aggregate panel data on Spain's 17 regions for the period 1987-2010, the authors present a macroeconomic assessment of a variety of active labour market policies, including employment subsidies for permanent contracts, job-creation schemes and vocational training programmes. Their results suggest that employment subsidies for permanent contracts had no notable effect on aggregate levels of permanent or temporary employment. However, they do appear to have had a small positive effect on transitions from unemployment to employment, and from temporary to permanent employment, particularly since the 1997 labour reform. Better targeted subsidies, the authors conclude, would have incurred fewer deadweight and substitution effects.

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The term "active labour market policies" (ALMPs) is used generically to refer to programmes providing support and guidance to the unemployed, public employment services, vocational training services, and employment subsidies for firms recruiting unemployed persons. It is essential to assess these programmes in order to ascertain not only the degree to which their objectives have been met but also how effective they have been; in other words, whether ALMPs - as designed and implemented - have had any net effect on specific labour market indicators. Their design can then be improved accordingly, to achieve better results.

The effects of ALMPs can be studied and assessed at the micro or macro level. Microeconomic analysis is used to establish whether a given scheme helps the targeted individuals improve their employment prospects (e.g. the transition from unemployment to employment), while macroeconomic ana- lysis is concerned with verifying whether ALMPs have any effect on specific aggregate indicators, such as the employment rate, the unemployment rate or transitions from unemployment to employment.

Microeconomic studies have the advantage of being based on a large number of observations, since the unit of analysis is the individual.1 But they have two disadvantages: first, they are unable to consider possible indirect effects - i.e. effects other than those affecting programme participants - and, second, they require a control group with which to compare the results of the treatment group, which is not always possible.

Macroeconomic studies have the advantage of being concerned with general equilibrium, and they also take into account the indirect effects often generated by the programmes, i.e. deadweight, substitution and displacement.2 Deadweight effects occur where subsidized workers would have been hired or would have set up their own business, with or without the ALMP. Substitution effects occur where workers participating in ALMP programmes replace nonsubsidized workers, with no net effect on employment. And displacement effects occur where firms employing subsidized workers can out-compete other firms because of their lower wage costs, causing those other firms to reduce employment.

However, macroeconomic studies also have disadvantages: they use a smaller number of observations (since the unit of analysis is usually the country, although some are based on regional data); they generally deal with all training and job-creation programmes in an aggregate manner; and, most importantly, they present problems of simultaneity and endogeneity. This is a classic methodological concern in the social sciences: in order to estimate a possible causal relationship between two variables, one must isolate the effects of other factors on the dependent variable (explained variable), and consider the possible endogeneity of the independent variables (explanatory variables). In the study reported here, it is difficult to isolate the effects of public policies from those of other factors affecting aggregate labour market outcomes (economic cycle, institutions, etc.), which in turn can influence decisions taken with regard to ALMPs. …

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