Research Profile

The research program of CAFE lies within the broad area of measurement of the effects of active labour market policies.

The Scandinavian welfare states, and welfare states in general, rely heavily on effective policies, especially in the labour market, since the financing of welfare states typically require high participation rates. There are a host of policies that aim at achieving these goals, such as educational policies, family friendly policies, etc., but labour market policies play a crucial role. CAFÉ is devoted to evaluating the effects of labour market policies on the outcomes of individuals and firms, and the economic consequences of these policies for society.

In general we know little about the effects of such policies on outcomes at the individual level. We have some broad knowledge regarding activation policies and the effect of unemployment insurance (economic incentives), but in the past ten years, empirical research has started to look into many other aspects of labour market policies. The types of questions that we have started to investigate or plan to investigate in the near future lie within the research areas outlined below.

Although not explicitly stated below, we think of active labour market policies in a broad way, comprising also active policies aimed at sick-listed individuals and persons on the border of or even outside the labour force.


Activation policies

We do know that activation in general do not help participants to find jobs faster, but there are many other aspects of activation policies, of which we know next to nothing. We do not know much about post-unemployment effects of these programs on employment stability and earnings, neither do we know if they tend to prevent marginalization by keeping individuals in the labour force. If so, such policies might become increasingly important during severe economic crises.

Another recent realization regards the existence of ex ante effects of activation policies, but we do not know much more than that they exist. Specifically, we lack knowledge as to who reacts to the risk of programme participation, and why. In addition, we do not know how this ‘threat effect’ affects subsequent outcomes in the labour market; are those who react to the threat scared into less favourable labour market careers, as one might perceive?


Counseling, monitoring, and case workers

Effects of counseling and monitoring have recently been investigated and these studies show remarkably large effects. Counseling and monitoring often takes place at meetings or other forms of contacts between unemployed workers and caseworkers. A number of studies in the international literature have documented the importance of the case worker and her behavior at meetings with unemployed workers.

We will pay particular attention to the impact of meetings between case workers and clients on the speed with which the unemployed return to work, and on the quality of the subsequent employment in terms of income and employment duration. An important element in the Flexicurity model, the active labour market policy may have impacts beyond that of the individual in the sense that the efforts of case workers may increase total employment.

Moreover, monitoring and sanction policies will continue to be in focus and we intend to lookat their consequences both in the short and in the long run.


Inflow, substitution, displacement, and general equilibrium effects

Subsidized employment in private sector firms has been shown to be the most effective, indeed, the only effective, activation instrument in terms of finding employment for unemployed workers. However, we do not know the extent to which this occurs at the cost of other workers.

Active labour market policies affect the participants (and potentially firms), but we do not know much about general equilibrium effects; does the increased job finding resulting from participation in e.g. meetings crowd out the job finding of other workers, or do case workers help creating new jobs? How do active labour market policies affect wage setting and the equilibrium unemployment rate?


Economic incentives and resource use at the municipal level, and private employment agencies

Active labour market policies are conducted either in or via the job centres, who may themselves deal directly with the unemployed or they may purchase certain services from private employment agencies or firms specializing in e.g. certain types of activation programs. Hence, the amount of resources available at the job centre and its allocation on different tasks may be important for the impact of the assistance provided to the unemployed.

Moreover, in Denmark, municipalities receive economic compensation from the state for some of the costs incurred in relation to labour market policies. Such compensation has been shown to affect the use of resources at the municipal level, and it will be of interest to study further how economic incentive schemes not only to job centres (municipalities), but also to private contractors, may affect the effectiveness with which they provide services.


Methodological issues

Transitions in and out of unemployment, into labour market programs, and the time spent in unemployment are all dynamic processes, and as such, there is a lot to be learned from studying these issues, but also a number of methodological complications. The availability of unusually rich data sets, and especially the combination of register data and data from randomized experiments, allows us to modify and further develop the statistical toolbox for the analysis of dynamic processes as well as studying how these tools perform.