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Cost and Benefits of Danish Active Labour Market Programmes

Lars Skipper

Anvendt KommunalForskning

(+Svend & Jakob)

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Why evaluate

Evaluation – taken seriously – represents a method for ensuring that program managers further the goals of their principals – namely taxpayers – rather than simply transferring resources to interested stakeholders, such as program operators, politically favored firms, or themselves.

In practice, many low quality evaluations exist mainly to cover up exactly such behavior;

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Why evaluate

THERE IS NO SHORTAGE OF POLICY PROPOSALS. THERE IS, HOWEVER, A SHORTAGE OF EMPIRICAL EVIDENCE ON THE EFFICACY OF THESE POLICIES…

(James Heckman )

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Why evaluate

When programs do not produce benefits in terms of economic development, finding this out allows scarce funds to flow into other, more beneficial activities, or back to the longsuffering taxpayer.

When programs do produce benefits, finding this out can generate political support for program persistence or even expansion.

Goal of Paper

Measure the net benefits of the Active Labor Market Programs in Denmark– Subtracting the programs’ cost from their

discounted stream of benefits– Benefits: Earnings gains (11 years), saved

public transfers– Cost: administration, education, training, cost

of public funds– Exclude: Value of leisure, GE-effects (such as

displacement), ex-ante effects (threat)

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Econometric Theory

Consider three types of programs:– Classroom training– Private On-the-Job Training– Public On-the-Job Training

Problem: Self-selection among participants– Participants are NINJAs! – Ashenfelter’s Dip

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Ashenfelter’s Dip

Aktiverede, 1995

-0.2-0.1

00.10.20.30.40.50.60.70.8

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Kvartaler

Beskæftigelsesgrad

Treated

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Ashenfelter’s Dip

Aktiverede og Ledige, 1995

-0.2-0.1

00.10.20.30.40.50.60.70.8

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Kvartaler

Beskæftigelsesgrad

Deltagere Ledige

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Econometric Theory

Selection on observable characteristics– Assumption: The decision to participate becomes

random once we condition on a set of observable characteristics

– The observed data contains variables that relate to all of the major factors identified by theory (and evidence on similar programs) as affecting both participation and outcomes

– This is potentially a very strong assumption. Cannot test it without running social experiments

Econometric Theory

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Selection on observable characteristics– Is this plausible? We base it on

1. Economic theory telling us what variables should mean something for both participation and

2. Knowledge about the institutions that affect both the selection- and outcome-processes

3. The existing knowledge in the literature, including comparisons of effects estimated based on mathcing and experimental estimates

Results

Private and public On-the-Job training come out as investments with positive returns – Net present value of quarter of a million DKK

for private and 100,000 DKK for public.– Differences in institutional set-up (public

employers cannot keep trainees after funds run out)

– Main source: Moving unemployed from passive income support to productive activity

– Main neglect: Displacement!

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Results

Classroom training comes out as a really expensive investment for the taxpayers– Net present loss of almost 100,000 DKK per

trainee– Main reason: Expensive courses wasted on

non-trainable individuals or equipping trainees with non-marketable skills

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