Local government subsidized contracts and employment

This paper evaluates the effectiveness of an active labour market policy implemented at the regional level. This policy consists of labour cost subsidies for contracts subscribed by the municipalities with unemployed persons to create jobs with a public or social interest, combining elements of direct public employment and labour training. The analysis is carried out using administrative records from a regional public employment service in Spain for the period 2005-2010. The results from the application of matching estimation methods show a positive effect on the probability of employment once the contracts for the participants in the program end. This effect is particularly notable in the medium term and has intensified during the recent economic turmoil. Although of a lower magnitude, a positive effect of the program in terms of the length of time employed is also found.