Swedish active labour market programmes in the 1990s: overall effectiveness and differential performance

The Ñ“wedish model' of active labour market programmes is investigated in relation to some crucial institutional features with two aims: examining how successful it has been in the context of the high unemployment atypically experienced by Sweden in the 1990s and trying to derive some general lessons as to which type of programme works best. The effectiveness of the programmes in improving the labour market prospects of unemployed participants is assessed in terms of their impact on individual employment probability and collection of unemployment benefits over time. The evidence as to the overall effectiveness of the programmes is rather mixed, with individuals joining a programme subsequently enjoying higher employment rates but also a higher probability of drawing unemployment benefits over time than if they had searched longer in open unemployment. The renewed eligibility to unemployment compensation following participation in a programme appears to be a most critical driving force behind these results. In fact, when comparing the programme effects for individuals entitled to unemployment benefits to the programme effects for non-entitled individuals, the positive effect on participants' employment prospects disappears, being instead replaced by a much higher probability of benefit collection. Still, the various programmes may have differential effects, making it interesting to quantify the relative performance of the six main types of Swedish programmes that were available to adult unemployed workers en Titled to unemployment benefits in the 1990s: labour market training, workplace introduction, work experience placement, relief work, trainee replacement and employment subsidies. The best performer is by far employment subsidies, followed by trainee replacement. The main finding that those programmes most similar to regular employment rank unambiguously highest has however to be appraised in the light of the macroeconomic literature, which has documented large and negative displacement and dead-weight effects exactly for these types of programme.

An evaluation of the Swedish system of active labour market programmes in the 1990s

The low unemployment rates traditionally enjoyed by Sweden have often been attributed to the country's extensive system of active labour market programmes, which have thus frequently been regarded as a model for other countries to emulate. However, unemployment grew enormously in Sweden when the country was hit by a most severe recession in the early 1990s. This paper investigates how effective the Swedish labour market programmes have been in improving the opportunities of unemployed individuals over the last decade. The analyses look at the performance of the Swedish system in its entirety, combining all the programmes into one and focusing in particular on the interactions between the unemployment benefit system and the programme system. In fact, a labour market programme in Sweden effectively comes as a bundle of two conflicting components: it is intended to equip job-seekers with marketable skills which should improve their opportunities on the labour market, but at the same time it allows to renew eligibility to generous unemployment compensation, thus reinforcing the work disincentive associated with the unemployment insurance system. Using extensive information on the labour market history of more than 110,000 individuals followed for five years, the presence of short- and long-term programme effects is investigated in terms of a number of outcomes, including employment and unemployment benefit collection. More specifically, the analyses relate to how unemployed individuals joining a programme per-form, on average, compared to a hypothetical state where they would have waited longer job-searching in open unemployment. Overall, the impact of the programme system is found to have been mixed. Unemployed individuals who go sooner on a programme (compared to later or never), though remaining initially locked-in in the unemployment system for around six months, subsequently enjoy a higher probability of being in employment for up to at least five years. By contrast, the fact that programme participation en Titles individuals to renewed unemployment compensation creates strong incentives to remain within the official unemployment system. Individuals who have joined a programme are thus found to be more likely to return to benefit-compensated un- employment, to re-enter more programmes in the future, or to alternate between benefits and program participation over time than if they had searched longer as openly unemployed. The positive effect on employment does in fact arise because the programmes considerably reduce the chances of being unemployed outside the official unemployment system.Active labour market programmes, evaluation

Evaluating the impact of education on earnings in the UK: Models, methods and results from the NCDS

Regression, matching, control function and instrumental variables methods for recovering the impact of education on individual earnings are reviewed for single treatment and sequential multiple treatments with and without heterogeneous returns. The sensitivity of the estimates once applied to a common dataset is then explored. We show the importance of correcting for detailed test score and family background differences and of allowing for (observable) heterogeneity in returns. We find an average return of 27% for those completing higher education versus anything less. Compared to stopping at 16 without qualifications, we find an average return to O-levels of 18%, to A-levels of 24% and to higher education of 48%.

Differential effects of Swedish active labour market programmes for unemployed adults during the 1990s

The paper evaluates the differential performance of the six main types of Swedish programmes that were available to adult unemployed workers entitled to unemployment benefits in the 1990s: labour market training, workplace introduction, work experience placement, relief work, trainee replacement and employment subsidies. On the basis of a large and particularly rich administrative dataset, propensity score multiple-treatment matching methods are applied to investigate the differential performance of the programmes both relative to one another and vis-à-vis more intense job search in open unemployment. Outcomes being assessed are short- and long-term employment rates as well as the probability of collecting unemployment benefits over time. Compared to waiting longer in open unemployment, all the programmes initially reduce their participants’ employment probability in the short term (lock-in effect). Positive findings on more long term employment prospects are confined to job subsidies alone. Participation in trainee replacement makes no difference to deputies’ subsequent labour market outcomes. Individuals joining any of the remaining programmes later display either the same (workplace introduction) or lower employment rates coupled with a higher benefit collection probability than if they had searched further as openly unemployed. A likely factor behind these disappointing results is the use of such types of programmes simply as a way to re-qualify for unemployment benefits. As to the pair-wise comparison of the six programmes, the central finding is again that the more similar a programme is to a regular job, the higher the programme’s benefits to its participants, with employment subsidies by far the best performer, followed by trainee replacement. Several macroeconomic studies have however documented large and negative displacement and dead-weight effects for exactly these types of programme, which highlights the difficult trade-off faced by labour market policy.active labour market programmes; evaluation; multiple-treatment matching; treatment effects

Propensity score matching

The typical evaluation problem aims at quantifying the impact of a ÔtreatmentÕ (e.g. a training programme, a reform, or a medicine) on an outcome of interest (such as earnings, school attendance or illness indicators), where a group of units, the ÔtreatedÕ, receive the ÔtreatmentÕ, while a second group remains untreated. Statistical matching involves pairing to each treated unit a non-treated unit with the ÔsameÕ observable characteristics, so that (under some assumptions) the outcome experienced by the matched pool of non-treated may be taken as the outcome the treated units would have experienced had they not been treated. Alternatively, one can associate to each treated unit a matched outcome given by the average of the outcome of all the untreated units, where each of their contributions can be weighted according to their 'distance' to the treated unit under consideration. An interesting quantity which avoids the dimensionality problem is the Ôpropensity scoreÕ, the conditional probability of being treated. psmatch implements various types of propensity score matching estimators: from one-to-one matching with replacement (optionally within a caliper) to a number of smoothed versions (including nearest neighbours, kernel, local linear regression). Additionally, it allows to implement Mahalanobis metric matching on two or three variables. Other options include estimation of the propensity score, bootstrapping of the treatment effect, the creation of matching quality indicators for a set of specified variables and producing a smoothed outcome for the treated as well. The software (version 2.0) was revised in August 2001. The current version is psmatch2 of Leuven and Sianesi.