What Active Labor Market Policy Works in a Recession?

• This paper discusses the case for expanding active labor market policy in recession. We find that there is a reasonable case for relying more heavily on certain kinds of programs. The argument is tied to the varying size of the lock-in effect in boom and recession. If programs with relatively large lock-in effects are ever to be used, they should be used in a downturn. The reason is simply that the cost of forgoing search time is lower in a recession. We also provide new evidence on the relative effectiveness of different kinds of programs over the business cycle. In particular, we compare an on-the-job training scheme with (traditional) labor market training. We find that labor market training is relatively more effective in recession. This result is consistent with our priors since labor market training features relatively large lock-in effects.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

Active labor market policy

business cycle

unemployment

Publication and Content Type

vet (subject category)

art (subject category)