A simultaneous-equation model of active labour market policies and change in unemployment rate: evidence from OECD countries

Abstract

ABSTRACT The purpose of this article is to investigate the nexus between Active Labour Market Policies (ALMP) and change in unemployment rate. A dynamic simultaneous-equation panel data models have been applied to 16 OECD countries studied over the 2000–2015 period. Our results indicate that the ALMP expenditure leads to the reduction of the change in unemployment. The ALMPs appear to be efficient in reducing the unemployment rate in these countries. Besides, any increase of the change in unemployment rate leads to the decrease of the ALMP expenditure. This occurs in connection to the high costs of the active spending during periods of recession and to the pressure it makes to provide a continuous income to the unemployed through unemployment benefits.