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Disentangling Treatment Effects of Active Labor Market Policies: The Role of Labor Force Status Sequences

Over the last decade there has been much interest by labor economists in the evaluation of so-called Active Labor Market Policy (ALMP), i.e. policy measures such as training programs, wage subsidy schemes, or direct job creation in the public sector. These measures, generally, aim at increasing the employment probability and/or the earnings performance of program participants.

In the US, experiences with both the implementation and evaluation of such programs date back well into the 1960s (Heckman, LaLonde and Smith 1999). In Europe, where unemployment had remained comparatively low until the 1980s, or even until the 1990s in some countries, running such programs and evaluating them is a rather recent phenomenon.

Nevertheless, most countries in Western Europe have now utilized active labor market measures for many years, and have done so with substantial financial input in terms of fraction of GDP spent on these measures (see e.g. OECD 2000). Also the evaluation practice, while still lagging behind the US "evaluation culture" to some extent, has attained increasing interest and funding by European policy makers, both in individual countries and from the European Commission. Kluve and Schmidt (2002) give a detailed account of the European experience with Active Labor Market Policies, embedded in the context of the European Employment Strategy, and contrast this experience with the evidence from the US.

After the breakdown of the socialist regimes and the beginning of the "transition process" around 1990, Eastern European countries were confronted with the task of redesigning their welfare system. Suddenly facing substantial open unemployment, schemes for passive and active support of unemployed individuals had to be set up from scratch. Frequently this led to transition countries' adoption of Western schemes, often without much knowledge about their efficiency. Poland, too, implemented a system of unemployment benefit support, accompanied by a set of Active Labor Market Policies. Specifically, Poland has been running the following programs for unemployed persons: a training program, "Intervention Works", i.e. a wage subsidy scheme, and "Public Works", i.e. direct employment in the public sector.

Disentangling Treatment Effects of Active Labor Market Policies: The Role of Labor Force Status Sequences