Are active labor market policies (cost-)effective in the long run? Evidence from the Netherlands

Abstract

The long-run effects of active labor market policies can be quite different from their short-run effects. Negative short-run effects can be explained by the lock-in effect: During training, the job search efforts of unemployed individuals decrease or even seize, thereby causing an initial drop in the probability of employment for those attending training programs. We show that in the long run (4–7 years after the start of a program) all programs have a positive and long-lasting impact on the probability of employment. However, the cost-effectiveness over the period of 4–7 years depends crucially on the magnitude of the initial lock-in effect. For programs which increase the job search efforts of participants during the program, like placement services, no lock-in effect is observed. In the long run, only placement services and training courses are cost-effective.