Are active labour market programs least effective where they are most needed? The case of the British New Deal for Young People

There is much debate, but surprisingly little evidence, on the question of whether Active Labour Market Programs (ALMPs) have differential effects in labour markets characterised by different levels of labour demand. On the one hand we might expect ALMPs to have greater impacts in tight labour markets because more and perhaps better job vacancies exist. On the other hand, ALMPs might have larger impacts in slack labour markets because the unemployed have more favourable characteristics or because the added value of such programs is higher. In this paper we explore whether a mandatory ALMP for unemployed young people introduced in 1998 – the British New Deal for Young People (NDYP) – has had heterogeneous impacts across local labour markets, controlling for differences in program implementation and in the characteristics of the unemployed young people themselves. We find mostly robust evidence that the program impact on a variety of outcome measures is decreasing with the local unemployment rate