Better together: Active and passive labor market policies in developed and developing economies

Pignatti, Clemente; Van Belle, Eva

Better together: Active and passive labor market policies in developed and developing economies

IZA Journal of Development and Migration

Volume 12 (2021): Issue 1 (January 2021)

By:

Clemente Pignatti and Eva Van Belle

Open Access

|Jul 2021

Figures & Tables

Average spending in ALMPs and PLMPs across regions as a share of GDP.Note: Authors’ calculations based on different data sources as reported in Section 2. ALMPs, active labor market policies; ADB, Asian Development Bank; PLMPs, passive labor market policies.

Spending in ALMPs and PLMPs over regions and decades as a share of GDP.Note: Authors’ calculations based on different data sources as reported in Section 2. ALMPs, active labor market policies; PLMPs, passive labor market policies.

The effect of one additional unit spending on ALMPs (PLMPs) given spending on PLMPs. (a) Unemployment rate. (b) Employment rate.Note: The presented statistics are coefficient estimates for the panel mode outlined in Section 5. ALMPs, active labor market policies; PLMPs, passive labor market policies.

The effect of one additional unit spending on ALMPs (PLMPs) given spending on PLMPs in developed economies.Note: The presented statistics are coefficient estimates for the panel mode outlined in Section 5. ALMPs, active labor market policies; PLMPs, passive labor market policies.

The effect of one additional unit spending on ALMPs (PLMPs) given spending on PLMPs in emerging and developing economies.Note: The presented statistics are coefficient estimates for the panel mode outlined in Section 5. The two lines in Panel B almost perfectly overlap. ALMPs, active labor market policies; PLMPs, passive labor market policies.

Results for the unemployment rate, employment-to-population ratio, and labor force participation rate estimated with OLS

	(1)	(2)	(3)	(4)	(5)	(6)

	Unemployment rate		Employment rate		Labor force participation rate
Spending in ALMPs (% GDP)	−0.036^*** (0.005)	−0.013^** (0.006)	0.054^*** (0.008)	0.020^** (0.009)	0.035^*** (0.006)	0.012 (0.008)
Spending in PLMPs (% GDP)	0.032^*** (0.003)	0.049^*** (0.005)	−0.029^*** (0.004)	−0.054^*** (0.005)	−0.012^*** (0.003)	−0.029^*** (0.004)
Interaction		−0.020^*** (0.004)		0.030^*** (0.005)		0.021^*** (0.004)
Constant	0.058^*** (0.004)	0.044^*** (0.005)	0.540^*** (0.005)	0.561^*** (0.006)	0.574^*** (0.004)	0.588^*** (0.005)
Controls	No	No	No	No	No	No
Country trend	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	932	932	932	932	932	932

Results of the first-stage equation

	(1)	(2)	(3)

	Spending in ALMPs	Spending in PLMPs	Interaction
Eurostat	−0.293^*** (0.027)	−0.325^*** (0.052)	−0.398^*** (0.040)
ADB	−0.216^*** (0.046)	−0.186^** (0.079)	0.191^** (0.096)
ASPIRE	0.413 (0.081)	1.101^*** (0.159)	1.544^*** (0.211)
F statistic	11.29	17.36	49.01
Observations	932	932	932

Results for the unemployment rate, employment-to-population ratio, and labor force participation rate estimated with 2SLS

	(1)	(2)	(3)	(4)	(5)	(6)

	Unemployment rate		Employment rate		Labor force participation rate
Spending in ALMPs (% GDP)	0.015 (0.047)	−0.035 (0.045)	0.221^** (0.093)	0.412^** (0.181)	0.230^** (0.091)	0.407^** (0.180)
Spending in PLMPs (% GDP)	0.018 (0.025)	0.092^*** (0.035)	−0.158^*** (0.052)	−0.444^*** (0.127)	−0.149^*** (0.051)	−0.413^*** (0.126)
Interaction		−0.044^** (0.018)		0.170^*** (0.053)		0.157^*** (0.051)
Constant	0.040^*** (0.008)	0.031^*** (0.009)	0.581^*** (0.016)	0.613^*** (0.024)	0.605^*** (0.014)	0.635^*** (0.023)
Controls	No	No	No	No	No	No
Country trend	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	932	932	932	932	932	932

Results for the heterogeneity analysis by development status estimated using 2SLS

	(1)	(2)	(3)	(4)	(5)	(6)

	Unemployment rate		Employment rate		Labor force participation rate
Spending in ALMPs (% GDP)	0.105^** (0.041)	0.136^*** (0.042)	0.097 (0.065)	0.216^** (0.108)	0.175^** (0.072)	0.276^** (0.124)
Spending in PLMPs (% GDP)	−0.036 (0.023)	−0.001 (0.030)	−0.093^** (0.043)	−0.301^*** (0.087)	−0.127^*** (0.046)	−0.319^*** (0.096)
Interaction		−0.024 (0.020)		0.137^*** (0.039)		0.133^*** (0.043)
Spending in ALMPs x Developing	−0.072 (0.046)	−0.041 (0.045)	−0.214^*** (0.071)	−0.408^*** (0.118)	−0.278^*** (0.079)	−0.437^*** (0.136)
Spending in PLMPs x Developing	0.159^*** (0.035)	0.243^*** (0.053)	−0.031 (0.051)	0.106 (0.107)	0.054 (0.052)	0.214^* (0.116)
Interaction x Developing		−0.631^*** (0.186)		0.264 (0.193)		0.026 (0.156)
Constant	0.046^*** (0.008)	0.046 (0.031)	0.648^*** (0.068)	0.678^*** (0.105)	0.722^*** (0.074)	0.741^*** (0.114)
Controls	No	No	No	No	No	No
Country trend	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	932	932	932	932	932	932

Data availability on spending in active and passive labor market policies

Country	Time period covered	Source	Country	Time period covered	Source	Country	Time period covered	Source
Afghanistan	2008–2010	ADB	Greece	1985–2010/2013–2015	OECD	Panama	2007–2014	ASPIRE
Albania	2000–2013	ASPIRE	Guatemala	2004–2013	ASPIRE	Papua New Guinea	2008–2015	ADB
Argentina	2000–2015	ASPIRE	Honduras	2003–2014	ASPIRE	Peru	2000–2015	ASPIRE
Armenia	2008–2015	ADB	Hungary	1992–2016	OECD	Philippines	2008–2015	ADB
Australia	1985–2016	OECD	India	2008–2013	ADB	Poland	1991–2016	OECD
Austria	1985–2016	OECD	Indonesia	2009–2014	ADB	Portugal	1985–2016	OECD
Azerbaijan	2008–2015	ADB	Ireland	1985–2016	OECD	Romania	2005–2016	Eurostat
Bangladesh	2008–2015	ADB	Israel	2004–2016	OECD	Rwanda	2004–2011/2014–2015	ASPIRE
Belgium	1985–2016	OECD	Italy	1990–2016	OECD	Saint Lucia	2000–2013	ASPIRE
Benin	2005–2014	ASPIRE	Japan	1985–2016	OECD	Sao Tome and Principe	2013–2014	ASPIRE
Bhutan	2011–2015	ADB	Kazakhstan	2005–2014	ASPIRE	Senegal	2005–2015	ASPIRE
Bolivia	2008–2015	ASPIRE	Kenya	2005–2016	ASPIRE	Serbia	2000–2013	ASPIRE
Botswana	2004–2010	ASPIRE	Korea	2000–2016	OECD	Sierra Leone	2010–2011	ASPIRE
Brazil	2000–2015	ASPIRE	Kyrgyzstan	2008–2015	ADB	Slovak Republic	1991–2016	OECD
Bulgaria	2004–2016	Eurostat	Laos	2008–2015	ADB	Slovenia	2003–2016	OECD
Burkina Faso	2005–2016	ASPIRE	Latvia	2003–2016	OECD	Solomon Islands	2008–2015	ADB
Burundi	2010–2013	ASPIRE	Lebanon	2009–2010	ASPIRE	South Africa	2009–2012	ASPIRE
Cambodia	2008–2015	ADB	Liberia	2008–2014	ASPIRE	South Sudan	2011–2012	ASPIRE
Cameroon	2011–2017	ASPIRE	Lithuania	2003–2016	OECD	Spain	1985–2015	OECD
Canada	1985–2016	OECD	Luxemburg	1985–2016	OECD	Sri Lanka	2008–2015	ADB
Central African Republic	2009–2010/2014–2015	ASPIRE	Macedonia	2000–2014	ASPIRE	Swaziland	2006–2010	ASPIRE
Chile	2004–2016	OECD	Malawi	2008–2016	ASPIRE	Sweden	1985–2016	OECD
China	2008–2015	ADB	Malaysia	2008–2013	ADB	Switzerland	1985–2016	OECD
Colombia	2000–2015	ASPIRE	Maldives	2008–2011	ADB	Tajikistan	2008–2015	ADB
Congo	2014–2016	ASPIRE	Mali	2011–2016	ASPIRE	Tanzania	2014–2016	ASPIRE
Costa Rica	2007–2012	ASPIRE	Malta	2006–2016	Eurostat	Thailand	2008–2015	ADB
Croatia	2012–2016	Eurostat	Mauritius	2005–2009	ASPIRE	Timor-Leste	2008–2014	ADB
Cyprus	2006–2016	Eurostat	Mexico	1998–2016	OECD	Togo	2011–2012	ASPIRE
Czech Republic	1991–2016	OECD	Moldova	2000–2014	ASPIRE	Tunisia	2000–2013	ASPIRE
Denmark	1986–2016	OECD	Mongolia	2008–2015	ADB	Turkey	2005–2013	ASPIRE
Djibouti	2014–2015	ASPIRE	Montenegro	2000–2013	ASPIRE	Uganda	2009–2016	ASPIRE
Dominican Republic	2010–2012	ASPIRE	Morocco	2007–2014	ASPIRE	United Kingdom	1985–2011	OECD
Ecuador	2000–2011	ASPIRE	Mozambique	2012–2015	ASPIRE	United States	1985–2016	OECD
El Salvador	2009–2014	ASPIRE	Nepal	2008–2015	ADB	Uruguay	2000–2015	ASPIRE
Estonia	2003–2016	OECD	Netherlands	1985–2016	OECD	Uzbekistan	2009–2015	ADB
Ethiopia	2009–2016	ASPIRE	New Zealand	1985–2016	OECD	Vanuatu	2008–2015	ADB
Fiji	2008–2015	ADB	Nicaragua	2000–2013	ASPIRE	Viet Nam	2008–2015	ADB
Finland	1985–2016	OECD	Niger	2004–2017	ASPIRE	Zambia	2014–2016	ASPIRE
France	1985–2015	OECD	Nigeria	2009–2012	ASPIRE	Zimbabwe	2010–2015	ASPIRE
Germany	1985–2016	OECD	Norway	1985–2016	OECD
Ghana	2010–2016	ASPIRE	Pakistan	2008–2015	ADB

Descriptive statistics (2010)

	Overall		Emerging and developing economies		Developed economies

	N	Mean	N	Mean	N	Mean
A. Outcome variables
Unemployment rate	121	0.080	85	0.076	36	0.090
Employment rate	121	0.584	85	0.599	36	0.548
Labor force participation rate	121	0.633	85	0.646	36	0.601
B. Main regressors
Spending in ALMPs (% GDP)	104	0.4832737	190	0.1215296	613	0.5953967
Spending in PLMPs (% GDP)	803	0.8125800	190	0.1605833	613	0.943
C. Control variables
Primary balance	120	−1.801	84	−1.055	36	−3.544
GDP growth gap	121	0.034	85	0.046	36	0.005
Share in low-skill employment	121	0.149	85	0.170	36	0.100
Share in medium-skill employment	121	0.628	85	0.680	36	0.505
Share in high-skill employment	121	0.223	85	0.151	36	0.395

Results for the robustness test including additional controls

	(1)	(2)	(3)	(4)	(5)	(6)

	Unemployment rate		Employment rate		Labor force participation rate
Spending in ALMPs (% GDP)	−0.022 (0.073)	−0.070 (0.078)	0.337^* (0.180)	0.558 (0.342)	0.323^* (0.172)	0.531 (0.331)
Spending in PLMPs (% GDP)	0.037 (0.035)	0.121^** (0.050)	−0.196^** (0.090)	−0.587^*** (0.199)	−0.173^** (0.086)	−0.540^*** (0.191)
Interaction		−0.049^* (0.026)		0.226^*** (0.078)		0.212^*** (0.073)
Constant	−0.022 (0.073)	−0.070 (0.078)	0.337^* (0.180)	0.558 (0.342)	0.323^* (0.172)	0.531 (0.331)
Controls	Yes	Yes	Yes	Yes	Yes	Yes
Country trend	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	871	871	871	871	871	871

Results for the robustness test excluding the crisis years

	(1)	(2)	(3)	(4)	(5)	(6)

	Unemployment rate		Employment rate		Labor force participation rate
Spending in ALMPs (% GDP)	0.071 (0.083)	0.050 (0.068)	0.206 (0.138)	0.539 (0.386)	0.240^* (0.132)	0.587 (0.395)
Spending in PLMPs (% GDP)	0.004 (0.036)	0.025 (0.055)	−0.117^** (0.059)	−0.442^* (0.252)	−0.112^* (0.057)	−0.450^* (0.257)
Interaction		−0.010 (0.030)		0.156^* (0.093)		0.162^* (0.095)
Constant	0.006 (0.018)	0.007 (0.016)	0.550^*** (0.031)	0.537^*** (0.056)	0.554^*** (0.029)	0.541^*** (0.057)
Controls	No	No	No	No	No	No
Country trend	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	576	576	576	576	576	576

Results for the robustness test using the lagged value of spending as an instrument

	(1)	(2)	(3)	(4)	(5)	(6)

	Unemployment rate		Employment rate		Labor force participation rate
Spending in ALMPs (% GDP)	−0.016^** (0.008)	0.033^*** (0.010)	0.011 (0.008)	−0.026^*** (0.010)	0.003 (0.005)	−0.006 (0.006)
Spending in PLMPs (% GDP)	0.044^*** (0.005)	0.085^*** (0.007)	−0.028^*** (0.004)	−0.059^*** (0.006)	−0.002 (0.003)	−0.010^** (0.005)
Interaction		−0.037^*** (0.005)		0.028^*** (0.005)		0.007^** (0.003)
Constant	0.131^*** (0.022)	0.077^*** (0.024)	0.621^*** (0.024)	0.663^*** (0.026)	0.703^*** (0.019)	0.714^*** (0.020)
Controls	No	No	No	No	No	No
Country trend	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes
Observations	803	803	803	803	803	803