Monday, April 27, 2009

Welfare-to-work programs work, sort of

Labor market reform seems to be an eternal buzzword among policy makers in Europe as they try to deal with chronically high unemployment rates. They continually come up with new ideas on how to undo what labor laws, labor practices and poor labor mobility have done. On favorite are active labor market policies, which try to prepare unemployed workers for new jobs through various channels such as reschooling, phantom businesses or job searching skill classes.

Looking at the recent reform in Germany, where substantial welfare-to-work programs were introduced, Martin Huber, Michael Lechner, Conny Wunsch and Thomas Walter find that these initiatives work in the short term, sort of. They highlight that results differ a lot across people, and that this count be exploited to better target the programs. Implicit in this statement is that active labor market policies are wasted on some people, while quite efficient for others, and one should truly discriminate. Indeed, while thses policies seem to improve overall job market prospects, they also cost, something that is typically ignored in this type of study.

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