Active labor market policies (ALMPs) are massively used to improve labor market outcomes of individuals out of work. Table 1 lists the percentage of Gross Domestic Product that is allocated toward ALMPs in various OECD countries in 2011 (see OECD 2013). In addition, it lists the fraction of the labor force enrolled in ALMP programs in 2011. These programs include job search assistance measures, training programs, and subsidized jobs. Unemployment benefits, youth apprenticeships, and adult education measures are excluded. As is clear from the table, there is substantial variation across countries, and some of this reflects variation in institutional designs and in definitions of what constitutes an ALMP and what constitutes ALMP participation or exposure. However, it is clear that ALMPs take up a substantial fraction of public expenditure and that sizeable fractions of unemployed individuals are enrolled at some point in their spell out of work.
During the past decades, studies have been published in which specific programs were evaluated. The prototype evaluation study uses individual-level observational data to compare labor market outcomes of ALMP participants (or those treated) to nonparticipants (or controls), in order to assess the effectiveness of ALMP participation. Many surveys and overviews have been published in which the available empirical evidence is summarized. Aggregating over all the findings, it seems that job search assistance measures have somewhat positive effects on the probability of becoming employed, whereas the evidence for positive effects of training is rather slim. Subsidized jobs seem to have positive effects, but it is generally acknowledged that this measure is costly and may have negative crowding-out effects on other individuals.
The general outlook for ALMPs is rather grim. On the whole, evaluations have not shown these programs to be particularly effective. With regard to the difficulties of entering the job market, and considering the amount of effort that has gone into improving the process, the few positive results obtained in terms of employment seem meager indeed. In addition, many recent assessments have been unable to implement cost-benefit evaluations. Not only do the ALMPs seem less effective than might have been expected, but we do not really know if these programs are in fact an expense rather than a gain. Also, our knowledge about how ALMPs impact other outcomes such as health, family, or criminality is very spotty.
The possible existence of equilibrium effects on the efficiency of the programs seems quite real. Several recent studies show that improvements for beneficiaries are often achieved to the detriment of nonbeneficiaries. One might be tempted to conclude that ALMPs are mitigating inequalities in the labor market rather than providing an overall solution to the problem of unemployment.
That many studies reveal diversified results is grounds for hope: For some subpopulations, the effects are more marked than for others. Furthermore, not a lot is known to date about the effects of assignment rules for the target population and the underlying mechanisms. In this sense, there is a scope for new randomized controlled trials focusing on those issues. This also applies to the assessment of policies for socially excluded nonemployed youth who are at a large distance from the regular labor market and policies for individuals who are ill-informed about their labor market conditions.
Designing ALMPs that achieve their goal of unemployment reduction remains a challenge. There is a need to identify how unemployed people, firms, and those producing and offering ALMP services behave and are incentivized by features of ALMPs.