Long-Term Impact of Active Labour Market Policy: Evidence from a Social Experiment in Denmark

Sylvie Blasco 2, Michael Rosholm1
1Aarhus University, Aarhus School of Business, CIM, IZA, Denmark, 2Aarhus School of Business, CIM, Denmark

While job search theory predicts that active labour market policies (ALMPs) can affect post-unemployment outcomes, empirical evaluations have mostly focused on the impact of ALMPs on exit rates from the current unemployment spell. We use a social experiment which was conducted in Denmark in 2005-6 to investigate the potential long-term effects of a dramatic intensification of ALMPs. We evaluate the impact of treatment on post-unemployment employment stability, exits from the labor market and more generally on the transitions on the labour market up to 2.5 years after randomization. We estimate a multistate and multispell duration model with lagged duration dependence to separately identify ``indirect'' (through previous shorter unemployment duration) and ``direct'' (through a more efficient matching process) long term effects of ALMPs. We adopt time-varying treatment and allow for ex ante effects of ALMPs. We find that intensive activation significantly reduces unemployment recurrence for men, but not for women. The positive impact of the treatment remains significant and of the same magnitude when we control for lagged duration dependence.

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