An evaluation of active and passive labour market policy

This paper reports results of an empirical study on the effectiveness of labour market policy. Data from Austria, France, Germany, Great Britain, Sweden and the United States are used to apply a simultaneous equation model with wages and employment being the endogenous variables. In order to explain employment, the amount of unemployment benefits per unemployed (passive labour market policy) and payment for wage subsidies and training per employed and unemployed person (active labour market policy) are used in addition to real wages and output. Wages and output have their expected impact on total employment. It turns out that passive labour market policy has a negative, and active labour market measures a positive, effect on the number of persons employed.