Impact of public expenditure in labour market policies and other selected factors on youth unemployment

This study investigates the impact of selected macroeconomic, demographic, institutional and educational determinants on youth unemployment rates in Europe, with special attention to effects of Active Labour Market Policies on unemployment dynamics. Dynamic panel data estimates have been done with the Generalised Method of Moments on data from 27 E.U. Members States plus Norway (2005-2014). The results indicate significant impact of the main macroeconomic variables on youth unemployment rates, total unemployment rates and shares of young people (15-24 y.o.) neither employed nor in education or training. Other variables show various levels of significance, including variables which describe labour market policies (L.M.P.s). In all estimations, public expenditure in L.M.P.s as a percentage of gross domestic product has statistically significant impact on unemployment rates, with positive coefficients. However, opposite effects have been estimated when using the number of participants in L.M.P.s and public expenditure in L.M.P.s per unemployed person, which suggests that L.M.P.s better target the general unemployed population than the vulnerable group of the unemployed youth.