The assessment of active labor market policies: evidence from OECD countries

This paper tries to detect the effectiveness of active labor market policy (ALMP) on the unemployment rate. The generalized method of moments system for dynamic panel introduced by Blundell and Bond (J Econ 87(1):115-143, 1998) is applied to our sample over a fifteen-year period from 2000 to 2014, where we aim at examining how the policy intervention, the cyclical, the institutional and macroeconomic factors interact to determine unemployment. The effect of total ALMP (service public employment, training, employment incentives, supported employment and rehabilitation, direct job creation, start-up incentives) is significantly negative on unemployment. Our results show that start-up incentives seem to be the most effective policy to reduce the unemployment rate because of its low cost. Other control variables, such as the tax wedge, employment protection legislation, inflation, investment, and GDP are also important in determining the unemployment rate.