Active labour market policies (ALMPs) are government programmes that intervene in the labour market to help the unemployed find work, but also for the underemployed and employees looking for better jobs. In contrast, passive labour market policies involve expenditures on unemployment benefits and early retirement. Historically, labour market policies have developed in response to both market failures and socially/politically unacceptable outcomes within the labor market. Labour market issues include, for instance, the imbalance between labour supply and demand, inadequate income support, shortages of skilled workers, or discrimination against disadvantaged workers.
Many of these programmes grew out of earlier public works projects, in the United States particularly those implemented under the New Deal, designed to combat widespread unemployment in the developed world during the interwar period. Today, academic analysis of ALMPs is associated with economists such as Lars Calmfors and Richard Layard.Calmfors, L. Active labour market policy and unemployment: a framework for the analysis of crucial design features, OECD Economic Studies, 1994Layard, R., S. Nickell and R. Jackman, Unemployment: macroeconomic performance and the labour market, Oxford University Press, 1991 ALMPs have traditionally been considered “supply-side measures” because they consisted of different employment programs and job placement policies and were designed to assist the most marginalised groups in the labour market. In more recent times, ALMPs have shifted towards a “demand-side” focus by involving employers in various initiatives aimed at offering employment opportunities to those who are disadvantaged in the labour market.
Active labour market policies are prominent in the economic policy of the Scandinavian countries, although over the 1990s they grew in popularity across Europe as several policy plans were created with the aim of enhancing long-lasting labor market performance. Notable examples include the New Deal in the UK and many welfare-to-work programmes in the US.
Origins of ALMPs
Three distinct periods can be observed in the evolution of ALMPs in OECD countries, with each emphasising different types of policies. Initially, during the 1950s and 1960s, active policies were developed by countries facing labour shortages to ensure a workforce with the necessary skills for expanding industrial economies. During this period, the primary policy objective was upskilling. The second period followed the oil crisis of 1973 to 1974 when ALMPs faced a much more challenging environment, marked by persistently high unemployment rates. As a result, in many countries, the primary function of ALMPs shifted towards job placement. Finally, since the mid-1990s, labour-market policies have primarily focused on encouraging and facilitating the re-entry of unemployed individuals and non-working individuals back into the labour market through a combination of incentive reinforcement and employment assistance programs.
The first active labour market policy measures date back to 1951 with the creation of the Rehn-Meidner model in Sweden developed by two economists from the social democratic trade union movement to modernise post-war Swedish industry and enhance productivity by combining a unified wage policy of solidarity which, as it progressed centrally, eliminated the least competitive industries among the country while offering a substantial retraining package to the workers thus laid off so that they could join the more modern and efficient industries. Despite its origins as a social-democratic policy, the concept of ALMP has gained acceptance among politicians across the ideological spectrum, including liberals, conservatives, and liberal economists.
The Rehn-Meiner model was a distinct aspect of Sweden's economic history and was not replicated elsewhere. Nonetheless, the concept of implementing ALMPs in a rapidly modernising economy experiencing labour shortages was attractive in other regions as well. However, the methods employed varied, as they were dependent on the starting point of each country.
Attempts at active labour market policies were also made in Italy in the 1950s. The issue of unemployment in Italy differed from that of other countries - it was not due to declining industries, but rather a surplus of labour in the southern region of the country. During the 1950s and 1960s, Italy experienced a strong economic growth period known as the “Italian economic miracle”, but still faced a labour shortage in the north. At the same time, the southern region remained a significant source of labour, yet lacked adequate skills. To bridge the gap between skill demand and supply, the country introduced an apprenticeship law in 1955, which offered on-the-job training and lower waged for trainees. However, the program did not gain popularity. Employers were generally not allowed to choose apprentices, and the labour exchange officer assigned them instead. Trade unions also criticised the law for exploiting young workers with low pay.
In 1963, the French government under Gaullist leadership proposed a reform for the unemployment compensation system aimed at facilitating (re-)training for the unemployed. However, this proposal faced strong opposition from trade unions who feared increased state intervention in the management of unemployment insurance (UNEDIC). In France, social security, including unemployment insurance, is managed jointly by social partners - they have traditionally opposed government intervention, viewing it as interference in a “private” institution. The outcome was therefore a watered-down version of the original suggestion.
Germany also adopted a similar approach a few years later with the implementation of the Employment Promotion Act in 1969. The law was enacted during the brief tenure of the first “grand coalition government” in the country's postwar history. The law focused on a new preventive approach to labour-market policy, with an emphasis on aligning workforce skills with technological advancements. This newly adopted law also created the Federal Institute of Labour, which was responsible for a range of services including unemployment compensation, continuing education, retraining, employment services for the disabled, job creation programs, and training.
Concept of social investment
Active labour market policies are based on the concept of social investment, which rests on the idea of basing decision-making on the welfare of society in quantifiable terms, by increasing the employability, incomes and productivity of economic agents, so this approach interprets state expenditure not as consumption but as an investment that will produce returns on the welfare of individuals. The adoption of this concept has thus added to the traditional task of social policy to maintain income levels that of promoting labour market integration by removing barriers to entry through state intervention.
Program types ALMPs have diverse origins and forms. According to Giulano Bonolli, there are four main categories of ALMPs:
Incentive reinforcement: refers to measures aimed at increasing the work incentives of social benefit recipients. It consists of a negative incentive component which aims to shift people from welfare to work by reducing the amount and duration of passive benefits such as unemployment benefits in order to exert a stimulating pressure and accelerate the job search process. This is an approach particularly applied in liberal Anglo-Saxon countries such as the United States or the United Kingdom and more recently applied in Germany with the Hartz laws of 2003-2005 which considerably weakened the level of social assistance for long-term job seekers. A variant of this category takes the form of in-work benefits, which aim to encourage the acceptance by the recipient of low-wage work in order to eliminate the poverty trap phenomenon, which can lead recipients to prefer to live on social assistance, even if it is low when the difference between the passive and in-work benefit level is not sufficient. Thanks to this additional assistance the market income level is compensated by social transfers. Public employment services and administration, (such as job centres and labour exchanges) include job placement activities, counselling and vocational guidance. Public employment services help the unemployed improve their job search effort by disseminating information on vacancies and by providing assistance with interview skills and writing a curriculum vitae. Services such as counselling can be especially beneficial for individuals who have been out of the labour market for an extended period or who have never had a job and may face discrimination from employers. In the case of parents, a barrier to employment may be the absence of proper childcare. These employment services may also include aid in locating and paying for appropriate childcare services. Upskilling: This category is based on a human capital investment approach, which aims to adapt workers' skills to labour market requirements through measures that may take the form of state-subsidised classes and apprenticeships helping the unemployed improve their vocational skills as a way to promote access to the labour market for workers with outdated skills or from certain disadvantaged groups such as early school leavers with few qualifications. It is widely applied in the Nordic countries and particularly in Denmark where it forms the core of the flexi security model which focuses on the empowerment of jobseekers by funding extensive training programmes which are accessible or even compulsory after one year of unemployment. The provision of basic education services can also play a role in improving human capital for certain categories such as recently arrived immigrant workers, Germany thus provided in the past few years German language skills courses that concerned 170 000 people, most asylum seekers in 2017 with efforts made to involve them into preparatory traineeship,Degler, Eva; Liebig, Thomas; Senner, Anne-Sophie (2017) : Integrating Refugees into the Labour Market - Where Does Germany Stand?, ifo DICE Report, ISSN 2511-7823, ifo Institut - Leibniz-Institut für Wirtschaftsforschung an der Universität München, München, Vol. 15, Iss. 3, pp. 6-10 These measures have had the effect of increasing their productivity, reflected in the fact that immigrants with good German writing skills see their wage gap with natives reduced by 10% Employment subsidies, either in the public or private sector, directly create jobs for the unemployed and other priority groups (not including youth and the disabled). These are typically short-term measures which are designed to allow the unemployed to build up work experience and prevent skill atrophy. These subsidies are categorised: hiring subsidies which are paid to private-sector employers to motivate them to hire unemployed persons assistance to unemployed individuals who aspire to start their own business direct job creation for unemployed workers in the public or non-profit sectors.
The politics of ALMPs A number of authorsBoix, C. Political parties, growth and equality : conservative and social democratic economic strategies in the world economy, Cambridge, Cambridge University Press, 1998