Does Active Labour Market Policy Work? : Lesson from the Swedish Experiences

The Swedish experiences of the 1990s provide a unique example of how large-scale active labour market programmes (ALMP's) have been used as a means to fight high unemployment. This paper discussses the mechanisms through which ALMPs affect (un)employment and surveys the empirical studies of the effects of ALMPs in Sweden. The main conclusions are: (i) there is hardly any evidence for a positive effect on matching efficiency; (ii) there are some indications of positive effects on labour force participation; (iii) subsidised employment seems to cause displacement of regular employment, whereas this appears not to be the case for labout market training; (iv) it is unclear whether or not ALMPs raise aggregate wage pressure in the economy; (v) in the 1990s, training programmes seem not to have enhanced the employment probabilities off participants, whereas some forms of subsidised employment seem to have had such effects; and (vi) youth programmes seem to have caused substantial displacement effects a the same time as the gains for participants appear uncertain. On the whole, ALMP's have probably reduced open unemployment, but also reduced regular employment. The overall policy conclusion is that ALMPs of the scale used in Sweden in the 1990s are not an efficient means of employment policy. To be effective, ALMPs should be used on a smaller scale. There should be a greater emphasis on holding down long-term unemployment in general and a smaller emphasis on youth programmes. ALMPs should not be used as a means to renew unemployment benefit eligibility