"Passive" labor market policies involve paying money to the unemployed, like with unemployment insurance. "Active" labor market policies involve a range of programs to assist the unemployed with finding jobs. In both categories, the US has long lagged well behind other high-income countries. Chad P. Bown and Caroline Freund review the evidence in "Active Labor Market Policies: Lessonsfrom Other Countries for the United States" (Peterson Institute for International Economics, January 2019. 19-2).Here's the difference in spending on passive and active labor market policies across countries. Notice that the US is second from the left, above only Mexico in this comparison group of OECD countries. Not all active labor market policies are created equal. As different policies have been used and
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Here's the difference in spending on passive and active labor market policies across countries. Notice that the US is second from the left, above only Mexico in this comparison group of OECD countries.
"The evidence documented in this paper shows that many other countries deploy “active” labor market policies (ALMPs) that have been more effective than those in the United States. Programs in other countries under review have improved the possibilities of workers and firms matching up with each other’s needs, and when these efforts have fallen short, governments have sometimes created jobs in the face of intractable local conditions. The research demonstrates that job placement services, training and education, wage subsidies, and other adjustment policies have been proven effective in helping workers find employment and stay in the job pool. Although public works programs and direct job creation have also been tried to address the problem, these programs tend to be ineffective in helping workers over the long run. ...
The most common ALMPs are placement services (public employment services [PES] and administration), training, employment incentives, and direct job creation. ... There is significant variation across the major economies, with the United Kingdom and Germany relying largely on job placement services; Austria, Finland, and Denmark targeting training; Luxembourg and Sweden offering employment incentives; and Hungary, France, and Korea using direct job creation as their main form of assistance.Here's a table from the authors summarizing the state of knowledge about active labor market policies.
The United States currently spends about 0.1 percent of GDP on active labor market policies, compared with an average of 0.5 percent of GDP in 31 other OECD countries. Bringing the United States to the average could help stem the decline in labor force participation, return millions of working-age Americans to employment, supporting their well-being and US economic growth.I try to beat the drum for active labor market policies every now and then. Some previous posts include:
- "Active Labor Market Policies: Time for Aggressive Experimentation" (November 15, 2016)
- "Improving How Labor Markets Function: Active Labor Market Policies" (December 30, 2016)
- "Addressing Dislocation Costs of Trade: IMF, WTO, WB Weigh In" (April 11, 2017)