Abstract
The aim of this paper is to investigate the influence of environmental factors on labour market performance. Performance is defined in terms of preventing people from flowing into the social benefits system and enhancing the flow of people from the social benefits system into employment, which we measure by the reciprocal of the ratio of the number of social beneficiaries compared to the size of the labour force. To deal with the problem of multidimensionality and the influence of environmental factors, we introduce the concept of an output distance function. We apply this model to regional data in the Netherlands for the period 1998–2005 and estimate the parameters of the model. We conclude that the specific environment in the regions – quantified in this research by economic, demographic and institutional incentive variables – influences regional performances in terms of the number of recipients of full-time unemployment benefits, occupational disability benefits and social assistance benefits.
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