Active Labor Market Policy and Endogenous Search

University of Aarhus CLS Working Paper No. 98-017

24 Pages Posted: 25 Aug 1999

See all articles by Trine Filges

Trine Filges

Danish National Institute of Social Research (SFI)

Birthe Larsen

Copenhagen Business School - Department of Economics

Date Written: December 1998

Abstract

We analyze the effects active labor market programmes (ALMPs) have on wages and unemployment in a union wage-setting framework where workers decide on their optimal search intensity. We assume ALMPs increase match efficiency. The matching process improves if search intensity increases, leading to higher wages. Unemployment tends to fall because of less mismatch and tends to increase because of higher wages. Firms have hiring costs, wherefore the improved matching process leads to a positive job supply effect in addition to the negative wage effect. The effect on unemployment is negative when search intensity increases and ambiguous when search decreases.

JEL Classification: J38, J51, J64

Suggested Citation

Filges, Trine and Larsen, Birthe, Active Labor Market Policy and Endogenous Search (December 1998). University of Aarhus CLS Working Paper No. 98-017, Available at SSRN: https://ssrn.com/abstract=176030 or http://dx.doi.org/10.2139/ssrn.176030

Trine Filges (Contact Author)

Danish National Institute of Social Research (SFI) ( email )

Herluf Trolles Gade 11
DK-1052 Kopenhagen
Denmark

Birthe Larsen

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A
Copenhagen F, DK-2000
Denmark
(+45) 61 79 45 25 (Phone)

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