Times of Crises and Labour Market Reforms: An ABM Evaluation

Abstract

This work assesses the effectiveness of labour market policies in reducing unemployment during a recession. In order to do so, I build an agent-based model and analyse the impact of typical labour market policies on the short-, medium- and long-term development of unemployment. I analyse the effect of (1) a reduction of unemployment benefits (UB), (2) increasing search efforts among unemployed, (3) a mixture of both aforementioned policy responses, (4) governmental transfers to steer consumption and (5) short-time work. In the following extended abstract, I present the results of two policy experiments, (3) and (5). The methods I use here are slightly different from those in the existing ABM literature. The analyses are carried out as policy experiments. In order to evaluate the effectiveness of a labour market policy, the graphics of this work illustrate range of effects of the specific policy measure on unemployment (mean and confidence intervals across several runs) instead of solely depicting the mean development. In contrast to equilibrium models, I find that measures which raise the pressure on unemployed to find a job, measures (1) to (3), have no noteworthy impact or slightly increase unemployment in the long run. Instead, governmental interventions which stabilise aggregate supply and demand, like (4) and (5), rather dampen unemployment.